Chicago's New Tax Scam:A Real Estate Transfer Tax Without a Transfer

The Chicago Sun-Times has an editorial on Chicago's newest scam:

Let's say you go to the store to buy a loaf of bread, but then change your mind. You don't buy the bread. Should you still have to pay a sales tax for the bread you never bought?

Obviously not. That's not a tax -- that's a holdup.

But that is precisely what City of Chicago revenue officials are proposing to do with the city's tax on real estate transfers: Hit you up for the tax even when the sale falls through.

Let's say you decide to buy a house and make a down payment, but then back out of the deal and forfeit the down payment. Under the proposed new rule, you still would have to pay the city's real estate transfer tax, which as of April 1 rises from $7.50 to $10.50 for every $1,000 of sales price.

Such lunacy bears repeating: The city would stick you with a transfer tax on real estate that never transfers.

This is just the most egregious example of weasel uses of the city's real estate transfer tax. Revenue officials also are proposing that real estate transfer taxes be paid in full and upfront on property purchased in installments. The city's position is that it is logistically difficult to collect the tax incrementally, one month at a time. But buyers of property on the installment plan point out that such deals often fall apart -- buyers walk away before the last payment is made -- and they never actually own the property.

And then there is the truly annoying rule, passed in 2005, that imposes a real estate transfer tax on the property of couples when they get divorced. Whoever gets the house pays the transfer tax. Even though nothing is actually transferred, except maybe the kids, shuffling from one parent to the other.

The city is looking for ways to pump up tax revenues to help rescue the financially shaky CTA, and a 40 percent bump in the real estate transfer tax -- blithely slapped on transfers that are not transfers -- is central to that effort.

There is, apparently, more than one way to take Chicagoans for a ride.

Your house is their income stream to provide pensions for overpaid government workers.No word yet from Barack Obama's campaign on this one.