HomeMy WebLinkAbout3. Real Estate Transfer Tax Discussion 02/24/2015
Village of Mount Prospect
Mount Prospect, Illinois
INTEROFFICE MEMORANDUM
TO:DAVID STRAHL, ACTINGVILLAGE MANAGER
FROM:FINANCE DIRECTOR
DATE:FEBRUARY 10, 2015
SUBJECT:PROPOSED MODIFICATIONS TO REAL ESTATE TRANSFER STAMP
ISSUANCE PROCESS
PURPOSE:
To present for the Board’s consideration aproposed change to the real estate transfer stamp
issuance process. Responsibility for paying the tax would move from the buyer to the seller.
BACKGROUND:
Chapter 8 of the Village Code provides for the imposition of a tax on the transfer ofallreal
estate located in the village. The tax has been in place since November1987. At that time the
tax was assessed at a rate of $1.00 per $1,000.00of sale valueandresponsibility for payment
buyer
of the tax was borne by the .Chapter 8 of the Village Code was amended in December
2000 increasing the tax to $3.00 per $1,000.00 of sale value. A number of administrative
changes to various other provisions of Chapter 8 were made inthe 2000 amendment and two
othersubsequent amendments approved in 2001 and 2007. These changes did not impact the
overall issuance process or revenue generated.Increased state and federal regulations have
impactedthe issuance of the transfer stamp resulting in a further review of the process.
DISCUSSION:
Beginning in 2009 with provisions mandated as part of the federal act entitled the Fair and
Act
Accurate Credit Transactions(Red Flag Rules) and state requirements relating to the
Act
Freedom of Information, the process for issuing areal estate transfer tax stamp has
become extremely cumbersome. The current process followed in issuing a transfer stamp has
beenrelatively unchanged since itsinception.Efforts to comply with the new regulations have
been integrated into the existing process. As a result,the process is awkward and customers
may experience delaysin the issuance of their stamp. There also are times where customers
have been asked to provide additional information in order to complete the transaction.
Included with this memo is a flow chart of the current transfer stamp issuance process.The
current process contains over 20 steps, involves both the buyer and seller and requires input
from multiple village departments.
After a review of internal procedures, and gathering input from transfer stamp customers
including property owners, realestate agents and attorneys,staff hasidentifiedwhere changes
could be made to the current processto improve efficiency for the customer without impacting
the revenue generated. Two areas were specifically identifiedthrough this review. These two
areas were 1)shifting ofresponsible party for paying transfer tax from the buyer to the seller;
and 2) the decoupling of the connection between the utility account and the transfer stamp.
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Modifications -February 2015.docx
Proposed Modifications to the Real Estate Transfer Stamp Process
February 17,2015
Page 2
Shifting of the Responsible Party for the Tax
A2011 surveyconducted by the Attorney’s Title Guarantee Associationshowed 78
municipalities in the greater Chicago metropolitan area requiring a transfer stamp for the
conveyance of property. Sixty municipalitiesidentify the seller as the party liable for payment of
the tax. Of the 4 neighboring communities that require a transfer stamp(Des Plaines, Elk Grove
Village, Rolling Meadows,and Schaumburg),allassess the tax to the seller. In Mount Prospect,
buyer
the responsibility for payment of the tax is borne by the .
A number of issues arise from having the buyer responsible for payment of the tax. First, the
buyer coming into Mount Prospect is likely to have paid a transfer tax upon exiting another
communitymaking a subsequent payment of the transfer tax especially burdensome on anew
resident. Second, while the buyer is responsible for payment of the tax, the seller’s utility
payment status and other outstanding property issues could halt issuance of the stamp
regardless of the willingness of the buyer to make payment, even on the behalf of the seller.
Athird issue of note is the impact that Freedom of Information Act (FOIA) requests are having
on staff as a result of having the buyer the responsible party. In following up on certain items to
ensure a transfer tax stamp can be issued, the buyer submits a FOIA to obtain information
related to outstanding utility accounts or other alerts for property being considered for purchase.
Information the buyer is otherwise not able to receive as they are not the “owners”of the
information. The FOIA requests come almost daily and require several hours of staff time each
week to respond, which may extend property closing timeframes.
The switch ofresponsible party from buyer to seller eliminates FOIA requests as they relate to
the sale of property, removesfrom the issuance process obstacles that delay or halt the sale of
a transfer stamp and provide for a more welcoming environment for the new resident. There
are potential time savings to the issuance processas well.
In order for a more smooth transition to the new procedure(tax to be borne by seller)we
recommend a phase-in period. The phase-in would provide for a reduced tax rate for properties
previously purchased within a certain timeframe. For properties under contract as of the
effective date, and for a period of time thereafter, responsibility for payment of the tax would
remain with the buyer. We are recommending an effective date of July 1, 2015.The phase-in
period would extend for one year after the effective date of the change.
Decoupling of Real Estate Transfer Process from Utility Billing
In addition to the change in responsible party, staff is recommending a number of administrative
changes as well. The most significant change involves the decoupling of the real estate transfer
process from utility billing. The Finance Department has long used the transfer stamp process
as a way to ensure the proper transition of a utility account to the new customer. Steps include
requiring a final read be scheduled and names ofthe new customerbe made available. With the
advent of the Red Flag Rules, new utility customers are now required to provide a photo I.D.
This has proved difficult in administering. Additionally, before a transfer stamp is issued, a
review of the propertyis made to check on unpaid utility balances.An adverse condition in any
of these items would halt the issuance of a transfer stamp.
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Modifications -February 2015.docx
Proposed Modifications to the Real Estate Transfer Stamp Process
February 17,2015
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While certain requirements are to be followed for establishing a new utility account, staff no
longer feelsit necessary to link it to the transfer stamp process. The same objectives for
complying with the requirements and administering the utility accounts can be met with a
separate internal control, regardless of switch in responsible party for transfer tax payment.
Staff has completed some initial work on a more efficient process for both the issuance of the
transfer stamp and establishment of new utility accounts that eliminate steps and ismore
customer friendly within the new regulatory environment.Further detail on the proposed
administrative changeswillbe provided upontheir completion.
RECOMMENDATION:
It is recommended the Village Board authorize staff to make the proposed changes to the real
estate transfer tax payment responsible partythrough an appropriate ordinance.
David O. Erb
Finance Director
DOE/
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Modifications -February 2015.docx
Village of Mount Prospect: Real Estate Tax Transfer Process,
Property Sale
Buyer (or buyer's attorney)
Seller provides
N
applies for transfer stamp in
Follow-up with
forwarding
person or by mail. In the case of
buyer's attorney or
address / Buyer
Na
sale, the buyer is responsible
title company.
provides photo ID
ry
for the transfer stamp.
No
IF
Customer Service
reviews application
Customer Service checks
& paperwork Is this an exempt No
Does buyer agree with non- Tax is set at flat
Tax is calculated at $3 per Logos for past -due utility
bills to schedules final
deed, contract,
( ransaction? z
exempt status?
fee of $15.
$1,000 of purchase price.
meter reading (if
PTAX-203 or EZ-
applicable).
E
DEC/MyDec).'
QYes
0
Yes
N
U
(Q
ILL
Customer Service Customer Service
checks Logos
checks Police
sub -systems for
Tickets for any o/s
(continued to page two)
property alerts and
amount due. s
other $ owed.
Notes:
1. Allow up to 72 hours for Village review of application.
2. The sale is not tax exempt. Changes to a deed can be
exempt or not, depending on situation.
3. Sub -systems include Utilities, Licensing, and Misc. Billing.
Real Estate Tax Transfer Process Diagram
Page 1 2/17/2015
Village of Mount Prospect: Real Estate Tax Transfer Process
Seller settles any
N
outstanding
amounts due,
Nremedies
property
ry
alerts.
Customer Service
Multiple considerations
Customer Service data
Are there any
contacts the
before progressing to
entry into Logos and
outstanding alerts
Yeses department to
Yes
next step. See dialogue
Excel. Select (continued to page three)
E
n the propert
check on status of
box below. 4
appropriate welcome
_t__
(continued from page one)
the alert.
packet category.
W
Q
N
No-
(D
U
Customer Service
Can outstanding issues
puts sale of
11
be resolved? No
transfer stamp on
hold until resolved
by Seller.
U
L n
N
Details are
-E
researched and
0
reported back to
Q
N
Finance.
n
Notes:
4. Considerations Before Data Entry:
A. If the buyer is moving from one address in Mount Prospect to another, update the
address in the vehicle license program
B. If the sale involves a rental dwelling operating license, request to have the buyer
complete a Rental Dwelling Operating License Application located in the Real
Estate bin and terminate the existing license for the seller.
C. If the sale involves a property with an alarm license, terminate the current alarm
license (as of closing date) and have buyer complete a new application if the alarm
system will continue to be utilized.
Real Estate Tax Transfer Process Diagram
Page 2 2/17/2015
Village of Mount Prospect: Real Estate Tax Transfer Process
Buyer provides
N
Yes
1P payment, receives
stamp and receipt.
�op
N
r'
Change the last 4 digits
of the PIN in Logos -
Parcel Management to
match the documents.
Yes
N
Use the PIN
W
es PIN number listed on the tran
Does PIN in Logos -Parcel
oes buyer have any additiona
number in the Real
N
documents agree with Logos -Parcel No
Management end in -9999?
N0 documents showing PIN?
No Estate Tax
0
Management?
program (Master
U
Address link).
C
cB
(continued from page two)
tL
Yes
One copy of
receipt is put in
Total Task Time: 20 Minutes
Customer Service
file.
U)
Community
L N
N
Development confirms
L
PIN and enters change
0 cB
in Logos -Parcel
Q
Management
N
0
Real Estate Tax Transfer Process Diagram
Page 3 2/17/2015