Maryland’s Property Transfer Tax

February 2007 / Community Development / Abell Reports

Baltimore City deserves a fair share of the explosive growth of the Maryland Property Transfer Tax revenue collected. It isn’t getting it.

In a far-sighted decision, in 1969 the Maryland General Assembly passed legislation creating a state property transfer tax. Few steps ever taken by the legislature have done as much to give the public access to open space, provide recreational opportunities and preserve agricultural lands from the pressures of development. Today, the state transfer tax revenue continues to provide an enormous benefit to the citizens of the state. The tax, which is levied on nearly all transfers of real property in Maryland, generated $7.3 million in 1970. As the state grew and property values increased, revenues from the tax increased to $103 million in 2001. The soaring real estate market generated tax revenues of $270 million in the 2006 fiscal year. Estimates for the current fiscal year are $264 million.

The 1969 legislation mandated that proceeds from the transfer tax be used to pay for the purchase of undeveloped land, with a share of the proceeds spent by the state and the remainder divided among the counties and Baltimore City to encourage local land preservation and pay for local parks projects. However, on several occasions, governors and legislators dipped into the proceeds of the transfer tax to pay for other obligations of state government. In all, $860 million in transfer tax revenue was redirected to other uses over a two-decade period. Only 10 percent of these redirected funds will ever be “repaid” so that they can be used for the originally intended purposes. This has significantly reduced the ability of the state and local governments to protect open space and create new parks and recreational facilities. While the diverted transfer tax revenue certainly went to fund important state activities, it is distressing to consider how much open space protection could have been achieved with the use of that $860 million.

In analyzing the intricate formula used to distribute property tax revenues in Maryland, it is apparent that Baltimore City is not treated fairly. This is due to longstanding assumptions that should be revisited. Ensuring that each jurisdiction receives an appropriate share of the transfer tax revenues is not simple, but the procedures now in place are unfairly penalizing Baltimore City, perhaps the most financially challenged
jurisdiction in the state.