By M.J. McAteer
Special to The Washington Post
Saturday, December 8, 2007; F08

Home sellers in Northern Virginia will face an added expense next month: a fivefold increase in the grantor's tax.

The grantor's tax is a Virginia-wide levy on home sellers at closing, although builders generally write their contracts to make the tax the buyer's responsibility.

Currently the tax is 10 cents per $100 of either the property's assessed value or its selling price, usually the latter. That means that on a $500,000 house, the tax has been a relatively modest $500.

On Jan. 1, however, the grantor's tax is slated to increase to 50 cents per $100 -- but only in Northern Virginia. On a $500,000 home, that will be $2,500.

The increase was included in a law passed in February that gave the nine-member Northern Virginia Transportation Authority the power to increase specific taxes to pay for transportation improvements in the traffic-choked region. The authority covers Arlington, Fairfax, Loudoun and Prince William counties and the cities of Alexandria, Falls Church, Fairfax, Manassas and Manassas Park. Other taxes slated to rise are the motor vehicle rental tax, the transient occupancy tax and the sales tax on auto repairs, as well as fees for vehicle safety inspections, and initial and annual vehicle registration.

Some in Northern Virginia oppose the plan. In January, the Virginia Supreme Court will hear the combined appeals of State Del. Bob Marshall (R-Prince William) and Loudoun County, challenging the constitutionality of an unelected authority having taxing power. The plaintiffs say the transportation authority's ability to tax is an end run around the wishes of the voters, who rejected an increase in the sales tax to pay for transportation in a 2002 referendum.

Most observers expect the state Supreme Court to uphold the decision of the Arlington County Circuit Court, which in August rejected the challenge to the taxing authority. Meanwhile, until the Supreme Court rules -- which is expected to happen between Jan. 7 and Jan. 11 -- title companies plan to collect the quintupled grantor's tax and hold it in escrow for any closing in 2008.

Dave McWatters, a managing broker with Long & Foster Real Estate in Sterling, said, "The average real estate licensee isn't even aware of" the tax increase. The result, he predicted, will be some unhappy surprises at the closing table.

He called it a "farewell tax," saying, "It only hits home sellers when they are leaving or moving up." Targeting property sales is unfair, he said. "Any tax for transportation improvements should be broad-based."

The Dulles Area Association of Realtors, of which McWatters is a member, opposes the tax increase, but McWatters also is a member of the much larger Northern Virginia Association of Realtors, which backs it.

Mary Beth Coya, that organization's vice president of public and government affairs, said this is the first time that her group has supported a tax on homeowners. "We had to be part of the solution. It was not an easy decision, but it is reality," she said.

Del. David B. Albo (R-Fairfax) was one of the originators of the House bill that gave the transportation authority power to raise specific taxes. He considers the tax package a fair compromise.

"We're just trying to solve a problem by making everyone pay a little," he said.

A seller in Northern Virginia generally pays the grantor's tax, which is the equivalent of a transfer tax in other jurisdictions; settlement fees; and the modest cost of a termite inspection, in addition to the agent's commission.

Even with the fivefold increase in the grantor's tax, sellers in Northern Virginia still will be paying less at closing than their counterparts in the District or Maryland.

On a $500,000 house sale in the District, transfer taxes are about $7,250. In Maryland, taxes vary by jurisdiction; in Montgomery County, the state and county transfer tax on such a sale would be about $7,500.

(Buyers throughout the D.C. area generally pay another tax, the recordation tax. However, in this slow real estate market, more sellers are sharing or picking up that cost. In Virginia, the recordation tax is about $1,700 on a $500,000 sale, in the District about $7,250 and in Maryland about $3,450.)

The Northern Virginia Transportation Authority hopes to raise about $336 million annually through its tax and fee increases. It has estimated that the grantor's tax would bring in $171 million of that, although that figure predates the downturn in the real estate market.

That doesn't bother Chris Zimmerman (D), a member of the Arlington County Board and chairman of the authority. Such fluctuations are to be expected, he said. What matters to him is that the framework for raising transportation money for the region finally is in place.

"No one ever wants new taxes," he said, "but more people are recognizing that location is only valuable if you can get there."