Maryland builders said they were pleased last week that Gov. Harry R. Hughes responded to their last-ditch lobby effort and vetoed a bill that would have made developers pay an agricultural transfer tax for building on former farmland.
"This bill slipped through the last week of the legislative session," said Louis Cohen, president of the Maryland Institute of Homebuilders. "We lobbied the governor hard to get him to veto and he finally saw that the bill was indeed unreasonable."
The bill, introduced by state Sen. James Clark Jr. (D-Howard County) would have had developers of new towns such as Columbia and St. Charles pay a 3 to 5 percent tax when they subdivided former farmland into lots slated for development.
The tax would have garnered the state approximately $720,000 a year, said William Hammond of the state Department of Taxation. The money would have gone into the Maryland Agricultural Preservation Fund which is used to preserve state farms.
Gov. Hughes vetoed the bill May 31 because, he said, the development in new towns such as Columbia has been good for the state and because the tax would come at the end, not the beginning, of development projects.
Sally Laing, a spokesman for Clark, said the senator had not decided whether to re-introduce the bill next year. This is the first year the bill has been considered.
Homebuilders throughout Maryland said the bill would have been unfair because the state already imposes an agricultural tax on farmland that is sold for development.
"Basically, we would have been paying the same tax twice," said Cohen.
The state does not specify if the farmer or the developer is required to pay the current agricultural transfer tax, which is between 2 to 5 percent of the value of the land depending on the jurisdiction. In current practice, the tax is a matter of negotiation between the developer and farmer, though it is usually the developer who pays.
Hammond said the current agricultural transfer tax is considered a recoup of lost taxes by the state. Farmland is assessed at a low value to keep taxes low for the farmers' benefit, he said. When the farmer sells the land for more than the assessed value, the state steps in with the Agricultural Transfer Tax in an effort to get its share.
Proponents of the vetoed bill say developers continue to benefit from the low assessed value of the open land, sometimes for years, before they develop it. They say the bill would be another attempt by the state to recoup lost tax revenue by forcing developers to pay tax on the true value of the land.
For instance, they say, a developer can pay taxes on land assessed at $400 an acre for years, then subdivide the land for houses and sell the same acre for $20,000. The proposed tax would have had the developer pay the state between 3 to 5 percent of that $20,000.
But developers say the tax would not be paid by the homebuilders, but by home buyers.
"That tax would have just driven up the cost of a new home and it would be the little guy who suffers most," said Cohen.