The D.C. antispeculation tax law, passed in early 1978 to discourage land speculation and quick "contract flipping" of residential properties, may be remembered as the law that never was. According to a District government report, it has accomplished little, is easily avoided and costs the city hundreds of thousands of dollars annually to administer.
Designed originally to keep housing prices down and limit displacement of the poor from the inner city, the law now also is viewed largely as a failure by real estate experts and some D.C. City Council members.
According to a report issued by the Department of Finance and Revenue, the tax law, as enacted, fails to discourage most major kinds of speculation. It adds that there has been only a 30 percent compliance rate by property owners subject to the law, a potential revenue loss of more than $1 million.
The law, however, is not designed to raise revenue but to discourage speculation by imposing high taxes on profits from the sale of residential properties which are held for less than three years and which ,at the time of sale, do not meet housing code standards. These are several exemptions, however, including properties for which the owner provides a two-year warranty for repairs and property that is an owner's residence.
Critcis say the law also does not control "contract flipping," the practice of taking an option on a property and then selling it quickly at a higher price.
City Councilman David A. Clarke (D-Ward 1), who wrote the bill, acknowledged that it has not worked entirely as intended, but blamed this on a lack of enforcement by the administration of Mayor Marion S. Barry.
"The executive branch has been totaly deficient," he said. "The only time Mayor Barry was in favor of the law was when he ran for office. The mayor cites problems but not solutions."
The nearly three-year-old law expires in six months. The Barry administration must decide whether to give it a second chance. Finance and Revenue Department Director Carolyn Smith, who supervised the department study criticizing the measure, says she nevertheless will enforcement and limit exemptions.
Critics charge that the tax discourages rehabilitation, not speculation. Under the law, there are 18 different exemptions from the tax. Some speculators have found that by setting up a private corporation solely to handle a property, an additional loophole can be employed.
Under this scheme, instead of buying and then selling the property as private individuals, necessitating a legal change of title on the property, speculators sell their shares in the house to new buyers, rather than the house itself. Legally, the buyers have purchased a corporation and the house goes along with the deal.
To add to the confusion, there are six District government agencies charged with administering different aspects of the antispeculation tax. Mary Smith, an anslyst who handles the tax for the city tax assessor's office, laughted when a reporter asked for information. "The whole thing is just a big joke," she said. "Nobody pays the tax because by law they don't have to."