Also Increases Conveyance Tax On Expensive Homes
First-term Governor of Connecticut, Ned Lamont, is introducing a new bill – to implement his proposed budget – that would expand the sales tax on services in Connecticut to legal and real estate related services. The bill also increases the conveyance tax on homes over $800,000.00.
You can see the full version of the proposed bill here: https://www.cga.ct.gov/2019/TOB/s/pdf/2019SB-00877-R00-SB.PDF. The good news is that many of the changes in the bill, if it becomes law, will not go into effect until 2023.
What types of “legal services” would now have to charge sales tax?
The proposed bill uses NAICS industry codes to outline the types of legal services that would have to charge sales tax to clients and pay over that sales tax to the State on a monthly basis.
The legal service providers covered under the new expanded sales tax law are:
- Process servers;
- Settlement Agents; and
- Title companies.
What types of “real estate services” would now have to charge sales tax?
Under Lamont’s proposal, the real estate service providers that would have to charge and remit sales tax in Connecticut are:
- Real Estate Brokers;
- Real Estate Agents;
- Property Managers;
- Escrow Agencies or Escrow Companies; and
- Real Estate Consultants.
[NOTE: Some of the services listed above may already be subject to sales tax collection and reporting earlier, but if the Governor Lamont’s Proposed Bill is passed (without changes to these provisions), there will be no question that the above service providers will be subject to sales tax.]
Top CT Real Estate Conveyance Tax Would Be Increased to 1.5%
Right now, every time residential real estate is sold in Connecticut, the Seller pays 1% in conveyance tax which is divided in the following way:
For houses sold for under $800,000: 0.75% is paid to Connecticut and .25% is paid to the local government.
Currently, for homes over $800,000, the seller pays an higher conveyance tax – at the increased rate of 1.25% – to Connecticut for sales proceeds over the $800,000.00 threshold (not a rare occurrence in most populated areas of CT!)
The proposed bill would actually increase the State’s portion of the Conveyance Tax to 1.50% on any amount over $800,000.00 in the conveyance of commercial real estate.
This change would take effect this year on July 1st!
The Impact On Real Estate Clients
These new laws will directly impact the cost of buying, selling and maintaining real estate in Connecticut, whether for residential, business or investment purposes.
Buyers of real estate would pay sales tax on realtor admin fees, title search and title insurance fees, attorneys fees, paralegal or document preparation fees, appraisal fees, inspection fees, and any consultation costs.
Sellers of real estate will have to pay sales tax on attorneys fees, realtor fees, real estate broker property advertising charges, paralegal or document prep fees, release tracking, and an increase in a portion of the conveyance tax over $800,000.00 in purchase price.
The Impact on Legal and Real Estate Service Providers
The impact on the legal service and real estate service providers will be severe in the beginning. The learning curve for how to properly charge, collect, track and remit sales tax will take some time. The increased time to handle this compliance may take away from time spent doing the actual work or servicing the client. Over time, Service providers will probably outsource these tasks to third parties, meaning that consumers of these services would pay more for those services.