Normally in Philadelphia real estate transactions, the transfer tax is split between buyer and seller.
City Council raised the city's share of the transfer tax from 2.5 percent to 4.07 percent in the spring of 1988, setting off a fight with the Philadelphia Board of Realtors, which contended that the higher rate discouraged people from buying or selling property in the city. The state collected an additional 1 percent transfer tax for itself, bringing the total paid to 5.07 percent.
The transfer tax ranges from 1 percent to 2 percent in the Pennsylvania suburbs, not including the 1 percent that goes to the state. In New Jersey, the tax is 0.35 percent for transactions up to $150,000, and 0.50 percent on any amount above that.
Christopher Ryan, chairman of the Philadelphia Board of Realtors' Multiple Listing Service, said some in the industry still believed the new rate of 4.23 percent was "the highest in the free world except for Bermuda."
Max Weiner, the late consumer advocate, also challenged the increase in court, alleging that Council had failed to provide proper public notice of its plan. The city repeatedly lost court decisions while trying to defend the increase in the transfer tax, but City Council legally raised the tax as of July 1, 1989.
More than 36,000 people, however, were forced to pay the higher rate while it was in effect from July 1, 1988, to June 30, 1989. Eventually, the city refunded $25 million to those people.
The transfer tax has been dropping each July 1 for several years. On July 1, 1994, it is to drop to 4 percent (3 percent for the city and 1 percent for the state). City law calls for the rate to stay at 4 percent permanently. The city's portion of the transfer tax is used for general purposes.
Christopher Artur, first vice president of the Philadelphia Board of Realtors, said the amount of the drop was "really negligible."
Because the tax is only dropping 0.23 percentage point on July 1, Artur said he expected very few people would attempt to delay settlements to save on the transfer tax. On a $100,000 house, each side would save only $115 by postponing settlement.
Artur noted that many people couldn't postpone settlements, because their mortgage commitments, or lock-ins, might expire, or because the settlement was linked to the sale or purchase of another home.
Ryan said one of his clients was considering delaying a settlement one day to save on the tax, but he added that he wasn't sure the deal actually would be postponed.