Jon Anderson: How Real Estate Transaction Non-Disclosure Cheats All Taxpayers

Pothole SM

Taxes are paid so that government can pool monies that enable it to embark on projects that enrich society as a whole. When government is underfunded, education and infrastructure suffer. Anyone who jumped for joy at their measly property tax reduction this year also abdicated their right to complain about DISD, potholes, or Fair Park.  The 37 cents a day I saved was invisible to me and certainly wouldn’t pay for much municipally on its own.  But when joined with the savings of every other household in Texas, it equates to $3.8 billion statewide in 2015-2016.

Without taxes, there would be no public libraries, police, fire, ambulance, public schools, roadways, etc. Without taxes, every single road would be a nightmare of privately-owned thoroughfares, collecting tolls with each change in ownership.  We’ve all read stories in recent years about homes that were allowed to burn because the homeowner hadn’t paid their subscription fee for fire protection.  It’s estimated there are 1,200 such subscription-based municipalities in the USA.

The Texas Transportation Commission acknowledges an annual underfunding of $5 billion in transportation infrastructure improvements.  In the 16-county area covered by the North Central Texas Council of Governments, this equates to roughly $2 billion a year in underspending.

Tie those two numbers together.  The entire state gave back barely enough money to properly fund Metroplex roads.  Still feeling good about that piddly tax reduction?

Now before you get all uproarious in the comments, I’m not a fan of Texas’ high property taxes.

I hear you saying, “First he says government is underfunded, then he says taxes, which fund government are too high.”  That appears contradictory, doesn’t it? Not really.

Non-Disclosure ≠ Urban ≠ Texas

I think that were property taxes assessed in an unbiased way, tax revenues would rise while tax rates would fall.  By unbiased I mean that DCAD is unshackled from their assessment Ouija board and made aware (by law) of the actual price paid for commercial and residential real estate.

Texas is one of a few states that do not require real estate transactions to reveal sales prices either statewide or in certain counties (Alaska, Idaho, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, Montana, New Mexico, North Dakota, Texas, Utah, and Wyoming).  Honestly, disclosure states are smarter and fairer.  Texas is especially egregious in being part of this list.

30 Percent SM

Texas contains six of the top 20 largest cities in the US: The fourth, seventh, ninth, 11th, 16th, and 19th largest (Houston, San Antonio, Dallas, Austin, Fort Worth, and El Paso, respectively). Their combined population is 7,361,367.  The other non-disclosure states?  Indianapolis is the only city in the top 20 (14th) and it’s growing at half the rate of Dallas. Texas is also the state with the second highest number of cities over 100,000 (36). None of the other non-disclosure states have more than five.

Quarter of Texans SM

Two thirds of Texans live in major cities with 26 percent living in the six largest cities.  The vastness of West Texas skews these numbers.  If Texas ended 30 miles west of Interstate 35, Texas’ population would be vastly more urban.

In short, Texas is the second most urbanized state in the country and the only urbanized state still supporting non-disclosure. Why does urbanization matter? Dense, urban areas require a heck of a lot more infrastructure which costs money.

Making Fair Unfair

Property taxes are generally considered a “good” tax that hits owners based on the value of their property (and the assumption that property value is equitable to net worth).  Sales taxes are less fair with poorer people spending a higher proportion of their incomes on taxable items. Income taxes seem fair on the surface, but have been so bastardized with loopholes that they favor the wealthy more than the less-wealthy (e.g. the famous story of Warren Buffett paying more tax but a lower tax rate than his secretary).

In 1988, Dallas County gave senior citizens an exemption on their property taxes solely based on age.  After two weeks of senior snits, it was reinstated in 2007 giving homeowners aged 65 and over a $69,000 deduction off the top of the value of their primary dwelling.

This made a fair tax less fair.  Tax deductions should be based on an overall tax burden (need).  In making the deduction strictly age-based, it unfairly enriches that percentage of the age bracket wealthy enough to pay.  A better way can be seen in Canada where seniors are able to stop paying property tax altogether.  Their tax is accrued and payable once the homeowner dies or the home is sold.

Many believe that age-based tax deductions are fair because older people use fewer local services like schools.  This argument falls apart once federal initiatives like Social Security and Medicaid are factored in which are paid more by the young while being used more by the old.

Regardless, taxes are not about being able to cherry pick what you will and won’t pay for.  However I think it would be fascinating to see the results of a comprehensive survey where citizens outline where they think tax monies should be spent.  The results, compared with actual spending, would be eye-opening regardless of your political bent.

Before we leave taxes, during World War II, the top marginal federal income tax rate was between 81 percent and 94 percent.  According to Gallup, during WWII between 85 percent and 90 percent of Americans said their taxes were fair.  Today with a top marginal tax bracket of 39.6 percent assuming zero deductions, 56 percent believe their taxes are fair.  My how times have changed.

Part Two:  Why non-disclosure is a tax dodge and the hollow arguments that support it.

Remember:  Do you have an HOA story to tell?  A little high-rise history? Realtors, want to feature a listing in need of renovation or one that’s complete with flying colors?  How about hosting a Candy’s Dirt Staff Meeting?  Shoot Jon an email.  Marriage proposals accepted (they’re legal)!  sharewithjon@candysdirt.com

14 Comment

  • It is too bad taxes cannot be selected where one wants the money spent.
    I cannot imagine the populace would not want smooth streets instead of a convention center or City operated Hotel or whatever it is.
    Nice roads, adequate police and fire services is likely what the populace wants. Forget throwing more money at DISD. Give the school budget to the populace and let them pay for their children’s schooling. Don’t panic with the thought because it’s not gonna happen anyway.
    As Dallas gets big it just has all the problems of big cities
    Brilliant marketing ,, that. B_G signage around town
    Sorry, I just can’t think of the solutions for Dallas

    • mm

      While it’s certainly important, I think we are way too focused on the Trinity and fighting about the Trinity tollway like a Republican debate. (I am against the tollway, btw, just sick of talking about it.) The real issue is why we are wasting the tax potential in Fair Park. Also the NIMBYs contribute to the potholes when they refuse to let in careful, thoughtful development.

      • Problem is, Candy, that “careful, thoughtful development” is a rare commodity so folks are naturally hesitant based on the more common, and unfortunate, reality of what’s usually done around here.

  • Used to be easy for all parties toagree to not disclose the sales price in MLS, aka known as z-ing out the price showing the last known listing offering. These days, brokers just terminate or cancel the listing to avoid the whole process.
    There is a time and place for this strategy, primarily if the subject property is blighted or a short sale price that affects property values. I know you are referring to high end properties not disclosing actual sales prices to avoid taxation. Again, all parties need to agree to cancel thw liating in MLS since it ahows production values.

  • Candy, please add an edit option. This is frustrating.

    • mm

      Great idea. We are contemplating a site re-design and will take that into consideration. Since I am a woman who likes to shop, re-decorate and generally create, the site re-design bug hits quite often. But never fear, we as a society are all becoming more tolerant of technology-induced mis spelling!

  • mm

    Hollow arguments? Oh what a play on words…

  • I agree that all real estate sales prices should be disclosed. MLS rules state that they must be – which is why so many people used to z-block and now since NTREIS cracked down on z-blocking brokers are keeping |
    “hip pockets” OUT of NTREIS entirely ! More often than not it’s high priced properties in the
    Park Cities and Preston Hollow. This not only hurts us as taxpayers, but also as Real Estate professionals when trying to secure current true market value “comps.”
    But this is miniscule when it comes to the big Commercial Property tax cheats !
    Commercial property transactions are almost NEVER disclosed or made public – resulting in tax assessed values FAR below actual market value and guess who picks up the tab for those “understated values” ???
    That’s right – Residential Home Owners !!!

    • Fortunately for you Jay Narey there’s a built in fix for this. Commercial properties pay 20% higher taxes than residential due to homestead exemptions. As long as DCAD is within 20% of sold value, commercial properties pay their (and your) fair share.

  • I can’t say for Commercial. In Residential, the districts use “List Price” as the new taxable value until the homeowner can prove otherwise. The zero amount makes it hard for us shoppers to know what actual value is, but the taxing authorities know it.

    • I have often said that DCAD should immediately increase a property’s assessed value to the list price when a property hits the market and then make the buyer prove they paid less. DCAD doesn’t do this.

  • I am so confused on the point of this post!?!