Virginia’s Abusive “Grantor’s Tax” Causes Yet More Problems

To pay for transportation spending, Virginia’s legislature and governor gave regional transit authorities in Northern Virginia and Hampton Roads the power to levy a new “grantor’s tax” on the sale of homes. It’s an odd source of funding for transportation, since a homeowner’s sale of her home contributes nothing to transportation costs. And the tax is anything but fair. It is paid only by Virginians, not the out-of-state motorists who make up much of the traffic on Northern Virginia’s roads.

Since the tax was levied last year, two additional unforeseen problems with the tax have emerged. First, people are being taxed on money they never even received. As Megan LaRoche notes in the February 9 Washington Post, the tax is based on what a home is assessed at, not at the lower price it actually sold at, giving counties an added incentive to inflate housing values to reap the maximum amount of tax. (My little two-bedroom home in Arlington is assessed at about $590,000, which exceeds its current market value. I’d be happy to entertain offers to sell it for that price).

The tax is also not a reliable source of revenue, even though transportation projects take years to complete and thus require stable, reliable funding. Revenue from the tax has fallen dramatically because it is based on the volume of home sales — which has collapsed in the current slow housing market, as Dan Genz’s story today in the Washington Examiner notes.

I previously criticized the tax in the Examiner and the Richmond Times-Dispatch, and explained why it is unfair in this blog.