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Tax man eyes brokerage commissions

September 16, 2002

Realtors sue Florida to block proposed tax on services

By Bridget McCrea
Inman News Features

A referendum slated for the November ballot in Florida could open the door for the state to assess a tax on real estate brokerage commissions along with a long list of other real estate-related services.

At issue is Amendment 5," which would enable the Florida Legislature to appoint a committee that would review and possibly sunset current exemptions to the state's sales tax. If 7 members of the 12-person committee agree to remove an exemption, that exemption would be removed. The state governor would have no review or veto power over the committee's decisions.

If it passes, Amendment 5 could result in taxes on every aspect of real estate services from brokerage commissions to courier's fees and attorney's fees. The tax would be paid by consumers and collected by real estate brokers and other service providers. A home buyer would pay $850 to $900 in additional sales taxes at closing on the purchase of a $144,000 home, according to a Florida Association of Realtors estimate.

A lengthy list of businesses that could lose the exemption from state sales tax is posted at ZapTheTax.com, a Web site operated by the Realtors political action committee. The list includes dry cleaning establishments, barber shops, tax return preparers, pest exterminators, temporary help recruiters, insurance brokers, real estate appraisers,architects, accountancy firms, management consultants, interior designers, securities brokers, residential contractors, home inspectors, childcare centers and many other service providers.

The Florida Association of Realtors has filed a lawsuit to block Amendment 5 from appearing on the state ballot. But the question probably will be presented to voters in November because the amendment was proposed by Florida Senate President John McKay (R-Bradenton) at the last minute, leaving little time for those opposed to fight it.

Maurice Veissi, 2002 president of the Realtors group, said the group hoped to fast track its case directly to the state Supreme Court, but the high court three weeks ago reversed an appeals court pass through and sent the case back to the appeals court for a decision. That court is expected to hear the case today.

Amendment 5 could have far-reaching repercussions if it succeeds in opening the door to state taxation of real estate services. If Florida were to begin taxing business services, other states might follow suit.

"All of the states are in the same boat of wanting to fund their coffers at higher levels. If other state legislatures see it working here, there could be significant implications for the other 49 states," said Veissi.

The Realtors group believes the ballot language is confusing, an argument that may or may not play well in a state notorious for voter confusion. The group believes voters incorrectly will infer that the committee's decisions would be recommendations and the legislature still would have the final word on new sales taxes. The group also contends that the committee's lawmaking power would usurp the legislature's power and violate voters' rights.

A victory for the association probably wouldn't result in removal of the referendum from ballots—which will be printed a week from today—even if the Supreme Court decides the question is invalid. But if the question were ruled invalid prior to Election Day, the votes would be nullified.

Amendment 5 isn't Florida's first attempt to tax services. Veissi said Gov. Bob Martinez in July 1987 tried to tax many services in exchange for cutting an existing sales tax to 4.5 percent from 5 percent.

The proposal met with much opposition, some of which came from the Realtors group, which was the first to file a lawsuit against it, but it was instituted anyway. Massive outcry from trade groups and the public led to cancellation of the measure some months later.

Copyright: Inman News Service



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