Groups calling for the repeal of the mortgage tax in Kansas raise some valid arguments about the fairness of the tax. Perhaps those fairness issues should be addressed, but simply repealing the tax without finding a way to replace revenue that county governments across the state currently depend on, is not the right course.
A bill that would eliminate the mortgage fee has been introduced in the Kansas Legislature and is expected to get a hearing soon. The fee, which is equal to $2.60 for each $1,000 borrowed on a home mortgage, has drawn organized opposition from the Kansas Bankers Association and the Kansas Realtors Association, which argue the tax is unfair because it isn’t collected from people who pay cash for real estate or for mortgages from certain government-sponsored lenders.
That’s a valid concern, but it is offset by the concern of county officials who have no way of replacing the mortgage tax revenue except to raise local property taxes. Across the state, county commissioners are registering their opposition to the mortgage tax repeal. In Douglas County, the fee generated about $1.8 million last year and officials estimate a 2-mill rise in property taxes would be needed to replace that money. Similar stories are flowing in from around the state.
It’s worth remembering that those property taxes will be borne by the same people who initially pay the mortgage tax. The one-time tax on a $150,000 mortgage would be $390; in Douglas County the annual property tax increase that would be required to replace that revenue would be about $34.50 on a $150,000 home so homeowners may actually pay more in the long run.
Opponents of the mortgage tax need to look at other options. For instance, maybe adding a fee that buyers who pay cash must pay when they register a deed could produce new revenue that would allow the mortgage tax to be lowered without a loss of revenue to the counties.
The fairness of any tax is an important issue, but county governments already are struggling to replace lost state funding for a number of other services while keeping local property taxes under control. Unless a way can be found to replace the revenue they would lose in a mortgage tax repeal, state legislators shouldn’t take action that creates an additional financial burden for counties.