Nearly seven months after the nation's first tax on urban real estate speculation went into effect in the District of Columbia, fewer than 15 per cent of the people who have sold homes have complied with the law and only one person has paid the tax.
D.C. officials estimate that more than 1,300 persons WHO WERE SUPPOSED TO FILE FORMS BECAUSE THEY SOLD PROPERTIES WITHIN THE LAST SEVEN MONTHS HAVE NOT DONE SO.
The new law apparently is suffering from neglect by both the real estate industry and city administrators, but those days are numbered, said Marshall I. Whitley, Mayor Marion Barry's assistant for tax policy. The city is gearing up now to force compliance, Whitley said.
"We are going to get them," said Whitley, who also heads a special interagency task force set up by Barry to enforce the antispeculation law. "We will enforce it."
The new law was passed by City Council last spring and went into effect last July. The original antispeculation legislation was introduced in the council by David Clarke (D-Ward One). It was designed to discourage the rapid sale of homes at increasing values, at a time when playing the real estate investment game had become a favorite -- and lucrative -- Washington pastime.
In general, the law taxes the profits on the sale of residential property which is held for investment purposes for less than three years, and which at the time of sale, doesn't meet housing code standards. There are a number of exemptions, including property where the owner provides a two-year warranty for repairs, and property that is an owner's principal residence.
"If the program is successful, there will be little tax collected because the idea is to encourage people to fix up their properties," Whitley said.
The one person who has paid the tax is an international affairs consultant in the engineering field. "My lawyer and my accountant told me to send that money," she said. "I didn't want to. I'm very unhappy about it."
The woman, who asked that her name not be published, said she didn't know about the antispec ulation law when she sold her house last November. If she had, she said she would have held onto the property for another few months and would have been exempt.
She included a check for $1,428 to cover the tax on a profit of $47,596, according to forms she filed.
Those involved in selling and buying real estate in Washington say it is too early to tell what impact the antispeculation law may have on the city's housing market. Most feel, however, that if the bill is vigorously enforced, it could have a tremendous effect. For example, they said, many sellers may hold onto their rundown properties longer.
Jack Spicer, who heads Jack Spicer Real Estate Inc., predicted that many inner-city real estate agents will look outside Washington to expand their businesses. "This is just another bill that creates negativism," Spicer said. "It's just like the rent control law, and I'm afraid the same thing will happen with this speculation bill. There will be less activity."
Spicer said he is looking already at other cities, including Atlanta and other Southern cities.
"I can't afford to sit on properties for three years, and I can't warrant a house for two years," Spicer said. "New houses don't even get two-year warranties. I'll have to cut down my supply."
Jerry Lustine, president of the 300-member Washington Residential Development Coalition, said he believes the bill has had a minor effect so far.
"Many people aren't aware of its ramifications yet, or else they aren't aware of the bill at all," Lustine said. "Real estate people are optimistic, or else they wouldn't be in this business. They tend to push to the back burner things that upset them. But this [Barry] administration isn't going to let it stay on the back burner."
Lustine, who heads Lustine Realty Corp., said his organization opposes much of the antispeculation bill.
"It will make houses more expensive because of the requirement for a two-year warranty," Lustine said, indicating that sellers will raise the price of homes to offset warranties that are offered. He said he also opposes the bill because it taxes investors who don't live in the District, and he contended that it discriminates against brokers who aren't wealthy and can't afford to hold onto property for three years.
The amount of tax paid by sellers who aren't exempt can range from nothing up to 97 per cent of profit, depending on how long the owner has held the property.
Charts included in the legislation cite as an example a house bought for $10,000. If the owner puts $10,000 worth of improvements in the house, and sells it 10 months later for $30,000, his "percentage of gain" is 50 per cent and his tax is 76 per cent of that $10,000 gain, or $7,600. If that same house had been kept by the owner for 32 months, his tax would be $1,400.
Whitley said the law also taxes "contract flipping." That means, for example, that if someone signs a contract to buy a shell for $30,000, and then sells that contract for $35,000 to another buyer before settlement, the person selling the contract would be taxed on that $5,000 profit.
Lustine and others predicted that the law will be tested in the courts. Some D.C. officials said they have heard that Gilbert Hahn Jr., an attorney who has successfully challenged the way the city assessed its property, has been hired to represent some real estate agents opposed to the tax. Hahn, a former D.C. City Council chairman, said through a secretary that he did not want to talk to a reporter about the matter.
Donald Beach, chief of the city's assessment office, said enforcement of the legislation could be a "nightmare." Additional funds and personnel need to be appropriated to carry it out, he said. Many of the sellers now live out of town, and it may be difficult to find them, he added.
Whitley said he investigated how the law was being administered soon after Barry became mayor. "It became apparent that a task force needed to be set up," he said. "The administration of the law was in its early stages. They still had some bugs in their administration, and were coping with faulty information and misinterpretations."
The task force includes employes of the six city agencies and one commission that are responsible for carrying out the legislation.
Each seller is required to file a return within 30 days after legal title of property is transferred, and every seller must file whether he is exempt from the tax or not. There are criminal penalties for noncompliance.
The task force will recommend changes in the administration of the law and suggest legislative amendments that may be necessary to make it more efficient and increase compliance, Whitley said.