Mansion tax draws the ire of the wealthy, real estate industry

June 05-- Jun. 5--A so-called mansion tax applied to property sales over $2.5 million -- but avoided if the homeowner maintains Connecticut residency -- is being decried by the state's wealthy population and real estate industry.

The levy, supported by Gov. Ned Lamont and approved by the House and Senate without a single Republican vote, increases the conveyance tax rate from 1.25 percent to 2.25 percent on sales over $2.5 million. So the seller of a $3 million home would pay 0.75 percent conveyance tax on the first $800,000 of the sales price, 1.25 percent on the next $1.7 million and 2.25 percent conveyance tax on the final $500,000 under the new three-tier system.

The tax, which was included as part of the state budget, is separate from a 0.25 percent conveyance tax owed to cities and towns on home sales.

Critics say targeting multimillion-dollar sales is a blow to the already sluggish real estate market, especially in lower Fairfield County and in Lamont's hometown of Greenwich. They note that a state income tax credit offset for those maintaining Connecticut residency won't kick in until 2023, three years after the mansion tax goes into effect.

"It basically is an exit tax for people leaving. How smart is that?" said William Raveis Jr., whose name is synonymous with Connecticut real estate. "The market at that level is already depressed."

Raveis said it's no wonder his multistate real estate brokerage has 11 offices in Florida.

"So we're following our customers," Raveis said. "At the end of the day, no one is moving into the state of Connecticut because of various taxes. Now they're attacking housing, as opposed to going after savings and spending. They've just got it backwards."

Lamont spokeswoman Maribel La Luz defended the measure.

"Governor Lamont supports the mansion tax, which levies a 2.25 percent penalty when people whose homes are valued over $2.5 million sell their homes and leave the state," La Luz said. "This is a progressive proposal on which the governor's administration worked collaboratively with legislative leaders to develop a proposal to move forward. Overall, this biennium reflects his promise of an honestly balanced budget that is passed on time giving local leaders the confidence of knowing what their budgets will look like for the next two years. It closes a $3.7 billion deficit without tax rate increases or significant cuts to essential services and invests in the future through increases to education and workforce development while protecting our most vulnerable communities."

House Majority Leader Matt Ritter, D-Hartford, said during a news conference Monday the levy gives homeowners who may be downsizing an incentive to stay in Connecticut.

"I actually think it's one of the more clever ideas in the budget," he said.

In 2018, 276 of the approximately 35,504 single-family homes that sold statewide were over $2.5 million, according to Mark Pruner of Berkshire Hathaway HomeServices New England Properties in Greenwich.

The vast majority of those high-end sales were along Fairfield County's Gold Coast, including 195 in Greenwich.

Pruner noted home sales spiked in June 2011, a month before the last conveyance tax hike by the state.

"High net-worth individuals are extraordinarily sensitive to taxes like this," he said.

Rep. Stephen Meskers, who last year became the first Greenwich Democrat to win a House race since 1912, was one of five Democrats in the chamber to vote against the budget.

"I think we could have probably found our way around the mansion tax," Meskers said, adding that the budget might have been a "bridge too far."

At the same time, Meskers said, wealthier residents were able to avoid a 2 percent surcharge on investment income proposed by his Democratic colleagues for individuals earning more than $500,000 and for joint filers with incomes over $1 million.

"I think we successfully fended off the 2 percent capital gains tax, which would have targeted, to a larger degree, our residents," Meskers said.

Wealthy communities were also spared a major shift in teacher pension costs from the state to municipalities, he added.

"I think the governor made an admirable attempt to close out the budget," Meskers said.

In Darien, where the average list price of a home in 2019 is $2.2 million, the mansion tax was panned Tuesday by First Selectman Jayme Stevenson, a Republican.

"I'm incensed that the government would essentially be penalizing us if we make personal decisions to move outside of the state of Connecticut," Stevenson said. "Lifestyles change and people's lives change. It just speaks volumes about this administration's priorities. . The shell game of state funding never ceases to amaze me."

Sen. Will Haskell, D-Westport, said Tuesday while he planned to vote for the budget, there are elements of it he doesn't love.

"It's not something I would have pushed to include in the budget," Haskell said of the mansion tax.

Haskell said he understands the fiscal restraints and obligations facing budget architects and that they attempted to offset the mansion tax impact with a credit for those maintaining Connecticut residency.

"We are not raising the cost of sticking around here in Connecticut and remaining Connecticut taxpayers," Haskell said.

Raveis said the mansion tax is a Fairfield County tax.

"It's not from New London County. It's not from Hartford County," Raveis said. "The state is transitioning from being basically a senior level management state with a highest income per capita to a state that is going into more of a blue-collar state. Not that there's anything that's wrong with it. [But] they're expunging people with money."

Neil Vigdor can be reached at [email protected]

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