The state of Texas imposes a sales tax on retail sales, leases and rentals of most goods, and some taxable services. All local governmental entities have the option of imposing an additional local sales tax for a maximum combined state and local tax of 8.25%.
During past legislative sessions, some discussion has concentrated on expanding the state sales tax base to include professional services. All professional services, including real estate services, would be taxed.
What does this mean for the real estate industry?
As an example, the median home price in Texas was $265,500 in the third quarter of 2020, according to the Texas REALTOR® Data Relevance Project. Depending on concessions, commission rate, and local options—the tax could add well over $20,000 due at closing.
Texas REALTORS® position
Our association steadfastly opposes efforts to expand the sales-tax base to include professional services. Furthermore, the association believes any taxing structure should not place an undue burden on the real estate industry or hamper the continued economic recovery in Texas.
As the Legislature is likely to be facing significant unplanned budget shortfalls as a result of the 2020 COVID-19 pandemic, several groups have already released proposals calling for an expansion of the sales-tax base to include real estate services as part of a larger state tax restructure and to increase revenue sources. However, given the importance of the real estate industry to any economic recovery, the Legislature should continue to rebuff any proposals that would add such a significant cost to the real estate transaction.
Studies from the National Association of REALTORS®, the Real Estate Center at Texas A&M, and other industry think-tanks confirm that adding a tax on real estate commissions would have a detrimental effect on the housing industry—one study indicates an overall 3% drop in the real estate market.