Financial Samurai

this is an excellent idea to help cover the deficits. Somebody has to pony up for bloated pensions. The fly in the ointment is that rent’s are priced to what the market will bear. They have to be covered in cold hard cash. Land(lords) drop the hammer on any renter that is even one day late in rent, often at $50/day, and payable by money order or cashiers check only.

In contrast home(debtors) get all sorts of plush, easy financing, all backed by the federal government. Can’t afford a house at 10x salary? That’s ok, we have NINJA, Neg-AM, interest only, 0-down, etc. All this clever financial engineering improves home-debtor cash flow, which can be funneled to the city / state to help cover bloated pensions, Football stadiums, etc.

To all government workers, I say “Let them eat 401k”.

[Reply]

Your renter tax seems unnecessary. If you think the homeowner is getting the tough end, increase the rent!

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 6:27 am

Thoughts on a government law that mandates All landlords to increase rent by say 5% a year so that the renter faces rent increases everywhere then?

[Reply]

Sloan Reply:
September 22nd, 2010 at 6:34 am

no reason to overcomplicate things with additional laws. it just gets rolled into the total rent, no breakout needed. as a homeowner you can set the rent. if your costs go up each year then you should be increasing the rent each year. if another homeowner has increasing costs but isn’t passing them on, they are choosing to make less money each year to offer a more attractive product.

KISS and let the markets work

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 4:40 pm

I agree. Let’s keep it simple and do a 1% Renter Tax on the capitalized value of your rent. Or, better yet, just a 10% annual tax on the total annual rent one pays.

Equality so that everybody pitches in and not just homeowners.

I think it will work if you just raise the rent an appropriate amount. Maybe not even tell the renter it is tax, just roll it into the rent amount you are charging.

Now if you want to push for a rent tax law, that’s probably a bigger battle to fight.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 6:28 am

Why do you think there would be disapproval for a Ret Tax Law, aka equality?

[Reply]

Jeremy Johnson Reply:
September 22nd, 2010 at 7:07 am

I think there would be disagreement based on who actually owns the property and the definition of taxes for that property being applied to the owner only. But my knowledge of the law is limited enough that I don’t know for sure – that’s just what my instinct tells me.

So in a sense, someone who is renting doesn’t own the property. They are paying for a service to stay in the rental. Hmm, maybe that is like any other service and should be taxed just the same. Why should a renter get out of paying taxes for the service being provided? Maybe their are repercussions or scenarios that would be a problem were rent to be taxed.

Got me thinking either way Sam. Thanks.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 4:41 pm

Renting is paying for shelter, and shelter is taxed at the owner level, so there’s no reason shelter shouldn’t be taxed at the USER level i.e. renter as well.

Again, taxes go to the government, not to the property owner.

Inveska Reply:
September 16th, 2011 at 11:13 pm

No need to even formalize a rent tax of any kind. The market will take care of all of this. When a landlord buys a house to rent, they know they will have to pay property tax. As such, they will only do it if the market rent is enough. If not enough people buy houses to rent because of this, rents go up until they’re enough. There’s your “rent tax” right there.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 7:53 am

If the market is taking care of this, why is the government getting bigger and bigger with Obama? Why doesn’t he let the market decide instead of raise taxes on one group and not another?

[Reply]

“yet both the homeowner and the renter enjoy the same benefits” …. I’d say that the homeowners building equity would be the main benefit to owning.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 6:29 am

But as the housing downturn has shown, building equity is not always the case even though renting is definitely never the case.

[Reply]

Well, wouldn’t that be double taxation in a sense? The owner of the apartment/house already pays tax on the property. Therefore, someone is already paying to support the taxes/roads, etc for that property, and they may not even live anywhere near that residence. Yes, the renter ‘gets off easy’, but the landlord pays the piper. As long as someone is paying tax, I don’t see how it could be justified to get even more tax dollars. Or, am I missing the point?

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 6:07 am

Let’s say you buy a new car. You have to pay 10% tax on it here in California. If you end up selling the car second hand, the buyer of the car has to pay 10%, and if the car is sold again, the other buyer has to pay another 10%. The gov’t has collected taxes 3 times in this example!

Why not tax renters as well to capture more income and shore up the economy? Sure, the landlord can raise the rent, but why not just have that money go directly to the gov’t?

[Reply]

KD Reply:
September 22nd, 2010 at 6:10 am

Yes, but in the case of the renter’s tax. The same person is paying twice every year. Not someone separate and a few years away from the first time it is paid.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 4:42 pm

That’s why we can just institute a 1% Renter Tax every year instead of a 10% sales tax.

Sound good? This way, renters too can pitch in for paying for their community!

Everyday Tips Reply:
September 22nd, 2010 at 6:17 am

That is true- I know that too well as I bought a used car last week. However, that property is being taxed year after year already. I could see it more if property taxes were a one time only thing. However, it is perpetual.

Don’t get me wrong, I get your point about renters getting off easy in a sense. However, I cannot imagine what would happen to the truly poor that are renting because it is all they can afford. Maybe if it was almost like how they tax boats and such as a ‘luxury tax’, I could see it getting more support. (Meaning, only renters of homes/apts valued at greater than ‘x’ amount would have to pay a tax?)

I don’t think there are any easy answers. Maybe if there weren’t so many ridiculous loopholes and bailouts the states wouldn’t be in so much trouble to begin with.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 6:33 am

For a car, it is a transaction tax of 10% a pop! For a house, it’s “only” 1-2% a year. Hence, that’s like changing cars every 5-10 yrs. Pretty similAr if u ask me.

The point is, as u say, why have a reoccuring annual prop tax in the first place? Lower prop tax for homeowner landlords means lower rent for renters!

Samurai is Fool Reply:
November 14th, 2010 at 3:29 pm

Wow, you are a moron Mr Samurai. A PROPERTY tax taxes the property. Not the homeowner or the renter. That is why the PROPERTY owner pays it. IF you had an empty lot; you would pay a PROPERTY tax. The renters don’t “get off easy” as you put it, they have to pay rent which is usually a lot more than the owner pays. But the owner (as I’m sure you know since it would seem you are a landlord) passes the tax and other expenses like insurance, on to the renter. Thus the renter DOES pay their fair share.

Waht you seem to be talking about is a PERSON tax. And to make that equitable people who have a lot of children should pay FAR MORE than single people, or childless couples. Would you support that? I bet not.

Investor Junkie Reply:
September 22nd, 2010 at 6:24 am

Ahh… Rent would be cheaper if landlords didn’t include their taxes. After all the goal for a landlord is to make money. Property taxes is part of that equation.

I’m excited as a landlord since I know rents will increase with city and state deficits. The area I had my rental property has remained stagnant in rental prices for the past 10 years.

Either way I don’t buy your proposal.

[Reply]

Everyday Tips Reply:
September 22nd, 2010 at 6:27 am

Exactly. Renters are already paying the property tax essentially, so making them pay twice just isn’t right.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 12:11 pm

Boo! Renters are paying for a homeowners mortgage, not property tax. A renter can pay for a homeowner’s European vacation, but not prop tax.

Tax is to the govt, NOT the owner!

The Saved Quarter Reply:
September 27th, 2010 at 11:43 am

Renters pay the mortgage AND the property tax if the landlord is doing it right! I worked in property management before having kids and you can be sure that the amount we charged in rent covered not just the mortgage but the property tax and maintenance. In the current financial climate it’s not as easy to do, but that is the responsibility that comes with home ownership, and you already pointed out some of the benefits that landlords have for owning.

The owner is responsible for taxes and maintenance on the property – the property tax on that property is being paid. The government isn’t somehow skipping the money for schools, roads, etc. just because the property is being rented!

Financial Samurai Reply:
September 27th, 2010 at 3:59 pm

Sounds good, but you miss the point. We want to empower renters who feel slighted by society for renting by giving the qn equal voice through clear and direct taxation.

Don’t landlords charge tenants tax already? If I owned an apartment building, I’d work my bills and future taxes into the price. Doesn’t everybody?

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 4:42 pm

Nope. Landlords charge tenants RENT. The government charges people taxes.

This is a KEY difference which you and many others are missing.

[Reply]

Craig Gonzales Reply:
September 22nd, 2010 at 9:51 pm

That’s interesting. I’m looking at it from the perspective of international retail. If I go to the store in Singapore, Thailand, or Malaysia to buy a widget, and the price says 5$, I pay 5$. There is sales tax, but it does not get added to the price after purchase, rather, it is included in the price. The company (711, for example) actually is charging me 4.78$ with the .22$ tax already factored in.

Since the landlord has to pay taxes on the property she owns, wouldn’t she charge the tenant extra to cover that tax?

You’re suggesting that landlords get taxed AND tenants get taxed? That seems like double taxation on property. How do they track rental property vs non-rental property. Who pays on an empty apartment, or any of that other stuff.

This is a great post, Sam!!!

[Reply]

I was also under the impression that the homeowner pays the property tax. Although a portion of the rent isn’t specified as property tax, essentially it is. If there was a tax imposed above the rent to equate property tax then no one would ever rent because the rates would be absurd!

I hate when homeowner’s complain. You have the lowest interest rate loan possible and over the long run create equity. And if you don’t feel entitled and trade up every 5 years you could be living rent/mortgage free after 15-20 years! My rent isn’t going to magically disappear once I pay for 30 years. Sorry you don’t like paying taxes to keep your neighborhood nice and property values high. At least you can deduct them.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 6:35 am

Tell me, then why do you rent?

If everyone paid a Renters Tax, dot you think rents may actuAlly decline?

[Reply]

Angie Reply:
September 22nd, 2010 at 6:50 am

Its obvious you are just trying to say controversial things to stir up a lot of comments on your blog because most of your replies are not logical. Contrary to what you might thing, most renter’s rent because they don’t have a choice. They either can’t commit to staying in one place for a long time, can’t come up with a downpayment, etc. Its a pretty obvious answer. Of course there are always locations where renting is financially beneficial, but I would argue that is not usually the case.

Likely, if your double renter’s tax was instated you’d have a lot of angry landlords who can no longer get their units filled. You’d also have banks going back to their incentives and ARMS and 0% down loans to encourage people who shouldn’t buy a home to buy one on a whim. So in an effort to create more money in govt budgets you would be creating a whole other crisis.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 12:14 pm

Let’s say the govt owned all property and we are all renters. Now do u see why a Renter tax is fair? Why wouldn’t you want to pitch in to help infrastruce and school?

An owner owns bc s/he saved and managed to get themselves in a position to own. Why just tax them and not renters as well?

Jen Reply:
April 4th, 2011 at 4:26 am

I agree, most of Financial Samurai’s responses to commenters don’t seem to make much sense. The response is always “renters should pay for infrastructure too”. For example, in an earlier response, FS writes “We want to empower renters who feel slighted by society for renting by giving the qn equal voice through clear and direct taxation” and “The rent I collect from tenants is used to pay for my vacations.”

As a renter, I don’t feel slighted by society, and in fact I feel a lot less troubled than most of the underwater homeowners here in Phoenix. I assume my landlord includes the property tax in the rent. If she were to charge me only the cost of her mortgage and some amount to cover ongoing maintenance, she would be losing money by paying property tax out of pocket. If she chose to pay for her vacations instead of the property tax, that’s her problem for being fiscally irresponsible. If you want to pay for vacations and property tax, raise the rent!

I view the property tax the same way as I view the water/sewer/trash fee that is often included in rent. I’m paying for services, but not explicitly – it is included in the total amount charged for rent. I can choose where to rent based on the total package – is W/S/T plus tax plus the cost of the mortgage plus maintenance less than or equal to the amount I can afford to pay in rent? If so, great. If not, I’ll find somewhere else to live. It’s that simple.

As a renter, I assume my landlord is already factoring in his property tax into my rent. So why should I be paying taxes on a property I don’t own? Wouldn’t that be a double taxed property? And the landlord should pay the taxes because he owns the land and building. (Also, isn’t there a way to take over a property that is in tax default? Hence, if I was paying my landlord’s taxes, would I slowly get to own the property?) As a renter I don’t have the luxury of writing off any portion of my rent for property tax because I don’t really know how much of my rent is going towards the owners property tax.

I’m not quite sure if you’re saying we need more taxes to help close the budget gap, or that renters are getting off easy. Which is it?

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 6:38 am

You aren’t paying your landlords taxes. This is an important point. All taxes go to the big bad Government!

Just like cars are taxed everytime they are sold, a renters tax to the govt is a double tax that the govt can impose to have everyone pitch in to keep up their mega spending ways! Good idea? :)

[Reply]

Angie Reply:
September 22nd, 2010 at 7:22 am

So when you buy a big screen TV at best buy you cut a separate check to California for sales tax? No, you don’t. Its collected for you and sent in as a whole by the company. Exactly yhow property tax is, its passed on to you by the price of rent and the whole property tax is sent by the owner.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 4:44 pm

Maybe, but who is to say the rent I collect is for property tax? The rent I collect from tenants is used to pay for my vacations. Now do you see the flaw in your reasoning?

Why aren’t you willing to pitch in and fund your local schools and roads as a renter? I just don’t get it.

It is an interesting idea but the other commenters are right that the owners of the property are already paying taxes. Also, don’t you think the cost of the rent already has the tax “built in” to cover the tax?

It will never happen, just like the fair tax is a long shot (but even so I am all for it). Our tax system is way too complicated, and it is only getting worse. We need a clean slate.

[Reply]

This doesn’t make much sense. Properties should only be taxed once – the homeowner pays the property tax and includes that in their expenses which should help determine their rental rates. If they can’t get a high enough rent to cover the expenses plus ROI then they should sell the property.

Mike

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 4:45 pm

I don’t get why you don’t think millions of renters would want to pitch in and pay a Renter Tax and help the environment?

We voted for big government to raise taxes. Don’t tell me people are voting for big government to raise taxes and aren’t willing to pay higher taxes themselves? That would not be right.

[Reply]

LOL!!!!!!! Sam, I had to run over here when I saw this post. Can I safely assume that my comment on your previous post inspired this post? :)

Renters already pay a renter’s tax. It’s called rent. That rent pays for the property tax and whatever else the homeowner feels like charging for!

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 2:50 pm

Indeed! Thx for the reminder! Your rent pays for my trip to the Maldives, and not my property tax! You see how here is no correlation with rent? If any, the rent is used to pay off the mortgage I interest. Prop tax is to the govt and totally separate! If renters paid for some of the taxes, rents may actually go DOWN as landlords charge less. Brilliant

[Reply]

Kevin Reply:
September 22nd, 2010 at 4:35 pm

Just call it rent + they pay some of the property taxes then. Still comes to the same thing ;)

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 4:47 pm

As a renter, do you honestly believe your rent is going towards paying for teachers, schools, and roads? Seriously, be honest.

We need to raise tax revenue due to massive gov’t spending. So why not just charge renters a small fee to rent? It may LOWER their rent b/c then the landlord won’t have to pay as much in prop taxes!

Kevin@InvestItWisely Reply:
September 22nd, 2010 at 5:08 pm

You can do it, Sam, but it won’t actually change anything when you look at the actual numbers. It might fool some people. I feel that you’re trying to make a point though… are you planning to apply this same train of thought elsewhere?

House prices are already insane in Auckland, and this would just exaggerate that!

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 2:51 pm

Ha, but like me, you live in paradise! So it’s worth the cost and renters shud pitch in as well!

[Reply]

Let’s look at your $700,000 home for example.

The property tax is $8,400 (@ 1.2%), which is deductible. Let’s assume you are in the 28% tax bracket. That means you will recover $2,352 when you file your taxes. Now we are down to a $6,048 tax burden.

Now let’s say you are 10 years into your 30 year mortgage at 4% fixed. You will pay $21,725.01 in mortgage interest that year. When you subtract the standard deduction for a married couple ($11,400) then you are still reducing taxable income by another $10,325. That’s another $2,891 tax savings, leaving your overall property tax burden at $3,157. The true tax burden here is much less than you are suggesting.

Then, if you look at a single guy who is in the first year of a 30 year mortgage @ 6%, he will have paid $41,766 in mortgage interest. When you subtract the standard deduction ($5,700), he is still reducing taxable income by $36,066. That’s a tax save of $10,098. Add in the $2,352 recovered from property tax, and instead of paying taxes on his home, this guy actually has the government pay him $4,050 to own a home. Find me a renter that can get paid $4K just for paying for a place to live.

There’s also the idea of “being fair”. Maybe renters should pay a tax, I have to question the method you suggested. Let’s compare someone who rents for $1,200 a month to someone who has a $200,000 mortgage for 30 years at 6% (who also pays $1,200 a month). In your example above, the renter pays $7,200 in taxes a year for his apartment. The home owner, who is paying the same amount per month, would only owe $2,400 in property tax (before deducting the property tax and mortgage interest) while also building equity in a home. A tax such as you have suggested would quickly make renting substantially more expensive than owning, and effectively eliminate the entire renting population.

A thought provoking topic Doctor, but I have to disagree with you on this one.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 8:01 pm

Kevin,

Thanks for your thoughts. Your math is kinda flawed.

$1,200 a month = $14,400 a year. Divide by 4% = $360,000. Multiple by 1.2% = $4,320 and not the $7,200 you suggest.

The main question is this: Don’t you think renters should pitch in and pay a tax like homeowners do to help support the local roads, infrastructure, and schools?

[Reply]

Kevin @ Thousand-aire.com Reply:
September 22nd, 2010 at 8:09 pm

You are right, I have no idea where I got $1,200 from. It’s late in central time. With that being said, the $4,320 for the renter is still larger than the $2,400 for the home owner.

As far as the main point is concerned, I do agree that home owners are taking an unfair burden of local taxes. I don’t think adding a renters tax is necessary, but I would support lowering property taxes and raising sales taxes. It would increase my own personal taxes since I am a renter, but I do think it would be a better system.

[Reply]

Financial Samurai Reply:
September 22nd, 2010 at 8:12 pm

Do you think the people who “don’t think adding a renters tax is necessary” are mostly renters?

I actually have a belief that most renters would be willing to pay a Renter Tax and help contribute to their local community.

great post. I totally agree, if a homeowner doesn’t have kids why should they have to pay for other people’s kids going to school and if a renter has kids they should help pay for the schools in the district if they have kids attending there. There’s no easy solution but we really need more tax reform. The government needs to think outside it’s stupid box

[Reply]

Kevin@InvestItWisely Reply:
September 23rd, 2010 at 6:00 am

There’s an easy solution mathematically but not politically. Replace most taxes with private fees? But the poor will starve and die on the streets, won’t they? Wait a second… how are they not starving and dying with private production and distribution of homes/apartments and private production and distribution of food…?

[Reply]

Though laws are changing and I believe its being done away with, here in New Jersey renters actually receive a property tax rebate when filing their income taxes! Supposedly an estimated 18% of their annual rent goes to property taxes and they are able to get a small rebate of around $50-$100.

[Reply]

Financial Samurai Reply:
September 23rd, 2010 at 5:44 am

Wow, really? My homeowning friend in NJ says property taxes are ridiculous there i.e. 2.5-3% of value of property every year. If renters could pay half of that explicitly, it would make things much better for homeowners and the state as everybody pitches in.

[Reply]

Mike - Saving Money Today Reply:
September 24th, 2010 at 6:00 am

Yea taxes here are crazy. My home is worth an estimated $300,000 and I pay close to $90000

[Reply]

Mike - Saving Money Today Reply:
September 24th, 2010 at 6:00 am

I mean $9000! LOL

[Reply]

I agree with Charlie in allocating tax burden based on usage. If there is no use for something, why pay tax dollars to support it unnecessarily. That said, I am a landlord of several properties not only in the State in which I live. I pass on property taxes to my tenants in almost all cases. A “tax” per-se on rents may not fly as well because of the reasons you mentioned in your post. However, think about rent a center, or renting videos or boats – there are taxes involved in renting and one can argue we can do the same for rental homes. The taxes will have to be passed on to Great Uncle Sam, and create more administrative burden for landlords.

[Reply]

Let’s face it the real issue is government spending. I’m not opposed to your renters tax (and I’m a renter), but I am opposed to paying a rental tax when it will just go to more wasteful spending. i.e. A train we don’t really need. Lack of taxes isn’t the issue. It’s the spending. Can we agree on that at least?

[Reply]

Financial Samurai Reply:
September 23rd, 2010 at 2:35 pm

I agree completely! So good of you to empathize with the homeowner and those who pay some 50% of their income to taxes. Cheers

[Reply]

What should happen when you have been a renter for 30 years and paid of the owners mortgage. If you are a landlord would you lower the rent?

[Reply]

Financial Samurai Reply:
September 23rd, 2010 at 5:27 pm

Probably not. The landlord would just charge market rent and collect all the income.

[Reply]

While I wont argue Renters may need to start contributing via a renters tax. I will argue the effectiveness of that tax. I don’t think the problem stems from a lack of Government tax revenue as much as horribly planned spending and inefficiencies. Before I throw more money at the most powerful entity in America, I’d like to try and fix the bleeding (like a train we don’t need) first. Do we agree on that?

[Reply]

This doesn’t pass the smell test to me: complaining about how your homeowners taxes are going to esoteric/unnecessary things in the beginning of the post and then suggesting that the solution is to tax more? And to allay it on renters who are traditionally more suceptible to price increases makes it that much worse. This smacks of schadenfreude, Samurai.

In the big scheme of things, owning a home that goes over the $1.1 million mortgage deduction limit is a pretty nice problem to have. Kinda like rappers whose dilemmas are characterized about whether they should take the Rolls or the Bentley for a spin.

I usually see eye to eye with you Sam, but I’m totally against the message in this post.

[Reply]

Financial Samurai Reply:
September 23rd, 2010 at 5:23 pm

Please elaborate more on the schadenfreude aspect Chubs given I believe Renters have it good b/c renters don’t have to pay all these fees and property taxes. Schadenfreude would be if I’m finding joy in other people’s suffering. Where do I do this? The people who are suffering are people like me and other homeowners who have all the burden of public works projects and school funding on our shoulders.

[Reply]

Really now?

Property owners pay property tax. Rather they choose to rent out that property or not, the owner of the property pays the property tax. Whoever owns the property these mythical cheapskate renters live in is just as much on the hook for this tax as single family homeowners are. Since both property owners are paying the same tax rate per dollar of assessed value, property that is rented out pays just as much tax as property that is owner occupied. The government is not getting shafted when property is rented out as opposed to being owner occupied. If both properties have the same assessed value, they likely have the same tax bill. In most areas this tax bill is factored into the rent demanded of renters, causing higher rents than would be sustainable without property taxes, effectively causing the renter to foot the tax bill as part of his rent.

[Reply]

Financial Samurai Reply:
September 23rd, 2010 at 5:25 pm

Eh? Sorry, I don’t understand what you just said. Can you simplify your statement?

Why wouldn’t a renter want to pitch in and help the community through a rental tax? I pay tax when I rent a blockbuster DVD yes?

[Reply]

Patrick Reply:
September 24th, 2010 at 5:32 pm

If a renter wanted to pitch in and help the community, why wouldn’t they just give to local charities? If you force them to contribute through taxes they’ll just lower their charitable giving and the overall contribution won’t change.

I was saying that the property renters live in already generates tax revenue through the property tax assessed on the owners. Just like if a relative visits you and lives with you your tax bill doesn’t change.

[Reply]

Financial Samurai Reply:
September 24th, 2010 at 8:12 pm

You and I know that won’t happen ie voluntary charity by renters to the community. This is why we have laws to enforce collection! You think if the gov’t suddenly said, “Everyone is free to pay whatever tax rate or amount they want!” the system wouldn’t crumble due to a lack of tax revenue?

Come on now!

Kevin@InvestItWisely Reply:
September 25th, 2010 at 8:11 pm

By the same logic, Sam, maybe we should implement a tax to save private companies when people deem that their products suck and refuse to pay for them voluntarily at a level to support the company. Oh, wait, we did that already :P

Renters tax is a way to create means to cover up for deficit. Having to contribute to government funds through taxes are essential part of the whole system that delivers a fair imposition.

[Reply]

Didn’t read all the comments, but I’m SURE someone mentioned this. Renters DO pay taxes, through their Landlords. What do you think is covered in the cost of rent? The landlord pays all the property taxes on his property, and he passes the tax costs down to the renters in the form of Rent. When a Landlord pays the property taxes, he is doing so with the money of the Renters.

It’s like my Art Sales. I wrap taxes up in the final cost of my art to my patrons. A painting will cost them a flat rate. The taxes are wrapped up in the rate, and not a separate fee. I then pay the taxes I owe to the State and Feds with the money that was given to me by the patrons.

Rent works the exact same way.
If you charge renters a separate tax, then you are taxing them TWICE. The government will get the taxes from the landlord, plus a bonus tax from renters (who will be paying it on TOP of their rent….and the landlords will not be so kind as to deduct this tax). How is taxing renters TWICE for the same tax fair?

[Reply]

Financial Samurai Reply:
September 23rd, 2010 at 8:24 pm

BD, the title of the post is “Renters Should Pay MORE Tax” not “Do Renters Pay Tax?”.

We have double taxation each time we sell a car, and each time a corporation pays dividends, so why is this any different?

This is a great solution to shore up any city/county budget deficits.

[Reply]

BD Reply:
September 26th, 2010 at 5:23 am

It’s still a bad idea. Renters shouldn’t pay MORE tax, because most renters already have a much lower income than homeowners…that’s why the large majority of them (including myself) rent. We can’t afford even more taxes. Yes, there are always exceptions (like rich people who rent just because they don’t want to do maintenance on a house), but for the most part, people who rent are not well-off, and couldn’t afford yet another tax hit. Heck, I can barely afford food.

[Reply]

Financial Samurai Reply:
September 26th, 2010 at 5:44 am

I donno BD. I think you are selling the renter population short. To raise the perception of renters, the government should treat renters with dignity and equality. No better way to do that than by taxing them the same amount, or at least some amount as they do homeowners.

Ah, Sam, another interesting post, Sam. I tend to side with most of your other commentators on this; renters DO pay taxes, at least indirectly, and don’t benefit from many of the government incentives that property owners have available. I might support a law or regulation requiring landlords to explicitly state the amount of rent that goes to the government and/or requires the renter to pay that tax directly, but an additional tax on top of what is already included in the rent seems excessive.

Besides, if anything, we should be fighting to reduce, or even eliminate the property tax, rather than trying to expand it or add a renter’s tax on top of it. Because the property tax is based on the net worth of the property rather than income, it tends to hit people who are making lower incomes the hardest (including retirees who are living in homes they purchased during their higher earning years). As a method of funding schools, it ensures that children in the worst neighborhoods will go to the worst schools, get the worst educations, get the worst-paying jobs, and end up with their children repeating the process. Finally (at least for the arguments I’m going to stress; there are many more, I’m sure), it means that in a very real way, the government is the real property owner; it can confiscate your property for failure to pay taxes the same way that a landlord would kick you out for not paying rent. For that last reason alone, opposing property taxes seems like the logical option.

[Reply]

Kevin@InvestItWisely Reply:
September 25th, 2010 at 8:23 pm

“As a method of funding schools, it ensures that children in the worst neighborhoods will go to the worst schools, get the worst educations, get the worst-paying jobs, and end up with their children repeating the process.”

Best point ever.

I am for the poor getting a good education (I come FROM the “ghetto” myself), but this way of doing it just keeps poor people poor, while pretending that it’s somehow more egalitarian because it is publicly funded!

What if local grocery stores were funded out of property taxes? “Sorry sir, you can only buy stale bread. That’s what you get for your property taxes!” Want to purchase something different? You can’t, because all of the grocery stores are owned by one company (Uncle Sam) and the selection of food is set by regulation. You might get higher quality bread elsewhere, but your choice is still bread. If you are very rich, you can go to the private shop that has fancy bread from Paris…. but you still get bread :P There is no variation of choice. It’s as if the only choice in car was a 20 year old lada or a brand new Lada.

Again, I am for better education. I think it comes from competition and variation of choice, not a one-size fit all controlled environment like we have today. We can choose from dozens of different car companies and cars from a $500 beater up to a luxury model, and hundreds of models in between. Whether you are poor or rich you can find something decent and something that works for you.

[Reply]

Sam,

If I renters tax is put in I predict that renters will pay the landlords in cash or charge $10 a month in rent and have the renter mow their lawn and do other odd jobs or become a personal assistant. It will be hard to collect this tax.

Cars and properties are registered so there is an easier mechanism to collect tax.

The government has already supported home ownership with the deduction on mortgage interest and allowing capital gains to be taken tax free with residing in the home for 2 years. Basically the government has encouraged the population to buy a home and generally people were rewarded for it since house prices went up. Case in point look at housing in Southern California- from 10 years ago house prices are 3 times higher- a lot of this was due to low interest rate policy and allowing capital gains to be taken tax free.

Now housing hit the peak bubble and is declining in price in spite of more government incentives to get more suckers (homeowners) into the game, like the $8k tax credit and increasing the size of jumbo loans Freddie & Fannie can hold to keep interest rates lower. It sure seems we are subsidizing home ownership. I guess another way to keep doing this is to tax the renters but you can expect compliance to be really low plus expect a good number the public to be outraged (around 30% of the population are renters)

Plus the definition will get sketchy. This recession is forcing young adults to move in with their folks, and for people to double up in a house. Does that mean they have to pay a renters tax? What about the guy living in a cardboard box? The government needs their pound of flesh there as well?

-Mike

[Reply]

Financial Samurai Reply:
September 24th, 2010 at 8:15 pm

The solution is simple. The renter doesn’t pay a tax to the landlord. The renter pays an annual tax to the government when they do their taxes and file every april 15th. It’s actually really simple.

If you live in your mama’s basement, well then no tax for u! Only yo mama pays.

[Reply]

Mike Hunt Reply:
September 25th, 2010 at 3:00 am

Wouldn’t all renters claim they are living in their momma’s basement? What about the 30% of Americans that don’t file a return?

Finally, property taxes go the local community but you are proposing (I guess) sending the renters tax to the federal government???

[Reply]

Financial Samurai Reply:
September 25th, 2010 at 4:38 am

I don’t think all renters will claim momma’s basement. The renter tax will be written to City Hall, just like what homeowners do.

Mike Hunt Reply:
September 25th, 2010 at 9:59 pm

Voluntary tax compliance is normally low.

You are in CA, do you report your CRV refunds as income? Under CA state law this is supposed to happen, but in practice nobody I know does this. Do you?

-Mike

Sam, I have to admit, I’m with most of the commenters here and not really sure where you’re coming from with the differentiation between taxes and mortgages when it comes to landlords. When I pay rent to my landlord, that money goes toward paying everything on that property, taxes included. For the landlord to set it up otherwise would be poor business.

I agree–taxes go to the government, but my landlord is responsible for paying those, not me. If we’re talking about being fair and equal, then I think that’s exactly what we have in place now. You’re talking about taxing people double, which is unfair IMO.

If my rent is $1,000 and $100 is my share for the taxes (monthly taxes/number of units, etc.), then that’s for the landlord to figure out. I want to see one number, my rent.

If my landlord doesn’t pay their taxes on time…guess what–I’m not going to be able to stay in that apartment complex for very long after the government liens the place.

My 2 cents…

[Reply]

Financial Samurai Reply:
September 25th, 2010 at 4:43 am

Hi Wojo,

It’s a fair 2 cents, however who says your rent is paying for anything related to housing for the landlord? It could be paying for his car fund, or Hawaiian vacations. The landlord might not have a mortgage for example. I understand where commenters say and think rent bakes in property tax, but that’s not necessarily the case.

We have double and TRIPLE taxation all the time in the States. Dividends are double taxed as it comes after net profit, if you sell a car 5X you have to pay tax. Do you honestly think when you pay your rent, it is going towards funding the local community?

The property tax is something a homeowner cuts separately to the government all together. If there is any correlation, rent is to mortgage, and that’s it.

[Reply]

Wojo Reply:
September 25th, 2010 at 4:56 am

Point taken. However, if the landlord uses the rent to pay for vacations, then they have to use their vacation money to pay their taxes. I think it’s a circular logic. One way or the other, someone’s gotta pay the taxes, and that’s the landlord because they own the building. (If you rent a house, they own the house—same difference). So it’s coming from somewhere, whether the accounting says that’s the rent or not.

I agree that double taxation exists, BUT we’re looking for the fair solution here. As a renter, if this kind of law was put in place, my point of view would be “why am I paying for these taxes twice, and you–the homeowner–only once?” Not to mention the economic effect on landlords of this kind of solution.

I also think car sales and dividends are irrelevant to the discussion at hand–different animals alltogether. If cars were taxed as property, I wouldn’t want car owners paying $100 a year and car leasers paying $100 a year through their lease price PLUS $100 out of their own pocket.

If we’re looking to supplement state and local budgets, I say raise everyone’s property taxes across the board. Rents WILL go up to compensate. If they don’t, goodbye Hawaiian vacation. :)

I see your logic, just don’t buy it. I think the system’s pretty fair as is.

[Reply]

Financial Samurai Reply:
September 25th, 2010 at 5:07 am

Do you think most renters are the ones who believe things are fair as it is because there is no Renter Tax to speak of, yet? Also, do you think there are people in America who pay less taxes or no taxes, who wish to vote to raise taxes on those who are already in the 33% and 35% tax bracket?

What are your thoughts on instead of raising property taxes, to have the city/state mandate an across the board increase in Rent instead, say 5 or 10%?

Wojo Reply:
September 25th, 2010 at 11:39 am

“Do you think most renters are the ones who believe things are fair as it is because there is no Renter Tax to speak of, yet?” Sure, because I think a renter’s tax would be unfair. To quote a friend, “if I’m gonna get screwed, I might as well put up a fight.”

“Do you think there are people in America who pay less taxes or no taxes, who wish to vote to raise taxes on those who are already in the 33% and 35% tax bracket?” Of course, but don’t see how that relates to the discussion. No one’s trying to screw the rich here, if you agree with the premise that renters already pay property taxes indirectly (which I believe is the case).

“What are your thoughts on instead of raising property taxes, to have the city/state mandate an across the board increase in Rent instead, say 5 or 10%?” See above. I don’t see how that would be a fair application of tax law.

Financial Samurai Reply:
September 25th, 2010 at 3:12 pm

Wojo, is it safe to say you are a renter? Do you think renters currently feel they are “getting screwed” right now b/c of the cost of rent, the lack of benefits, or the fact that homeowners get to deduct the mortgage interest?

The relevance of your 2nd paragraph is simply a perfect correlation. A renter can’t demand the city fix this and that, and vote to raise property taxes and such on homeowners, since they are not paying property taxes or a renter tax themselves.

I’m trying to EMPOWER renters with the proposed Renter Tax. That way, renters can have equal say with homeowners, and not be slapped around so much!

Fight on.

Wojo Reply:
September 26th, 2010 at 10:41 am

That’s correct, we rent right now. :) I don’t think renters get screwed at all, but I think a renters tax would put us in that position. I disagree with the rest of your statements, but I can see that we won’t see eye to eye on this one so we might as well call it a day lol. :)

Good schools, good roads, convenience, crime management — all things renters look for in a home just as a home buyer does. If you want your rental to look attractive, then you will pay to make sure the community offers what people are looking for as as posted and fold that cost into what you charge. I’m not sure what governmental double dipping would do.

I post this as a renter, a landlord, and a person who believes we generally don’t pay that much in taxes.

[Reply]

this is why IT’S NOT a good idea to buy a house right now.

[Reply]

Financial Samurai Reply:
September 25th, 2010 at 3:47 pm

Why? Feel free to elaborate. IF the gov’t is going to pursue renters for not paying their fair share, might as well go buy a house if you are right?

[Reply]

Sam, I think the renter is paying tax for the dwelling-owner via wrapped into the rental fee. So, it would be double taxation to add another tax on top of it.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:26 pm

The only person paying taxes is the homeowner. The suggestion is to have renters physically write a check to the government in the form of a Renter Tax so that everybody in the community will explicitly feel the pain so that all interest are aligned to make the community the best possible community.

[Reply]

Very interesting post Sam but I think I may have to disagree on you on this one.

http://spruceupyourfinances.com/home-renters-should-not-pay-more-taxes-a-rebuttal-on-financial-samurais-article/

[Reply]

This seems so pointless to me. The property tax for the rental is already added to the rent, its just not broken out. Its very simple, if you own a property you want to rent, you are calculating the cost of the taxes into what you want to charge along with property insurance & any mortgage you might be carrying. Think of it as a VAT, its built into the price of the finished product. If there were no property tax on a rental unit & a renters tax instead, the free market would drive the cost of rent down roughly the same price as the tax.

Now your the government looking to collect taxes, who would you rather try to get the taxes from, a property owner with a mortgage & some skin in the game, or a renter who could disappear overnight & has no investment in the property other than a security deposit?

A bad argument on a false premise.

[Reply]

Financial Samurai Reply:
September 27th, 2010 at 6:36 am

Bingo! All about having skin in the game! Which is why renters and owners alike shud cut checks directly to the govt every year and contribute not just homeowners.

[Reply]

“Homeowners therefore deserve a reward for their fiscal discipline” – There was a point in time where this statement would hold true, but not today! I think that everyone would agree that owning a home doesn’t demonstrate any sort of financial discipline – the exact reason why foreclosure rates are through the roof now.

I think that the fact that homeowners pay a tax on property that they own is what makes the difference. They aren’t paying a tax because someone feels that they are in a higher class, it’s because they own an asset that has the potential to generate wealth!

It’s a tax that can easily be avoided – don’t buy a home!

The government estimates that 18% of all rent paid is to go toward the property taxes on the dwelling. In that case, I paid over $2,000 in taxes on my apartment last year.

This is the same case with sales tax. State sales tax is actually charged by the government to the retailer; but guess who pays that tax? The consumer. The retailer could decide to cover all of the sales tax and just raise the price (making the consumer pay it implicitly), or they can have it pass through explicitly as most do now.

Landlords just choose to roll it up into the price of the rent! If the taxes were higher, the rent would go up as well. They aren’t getting the short end of the stick, they just choose to not issue an invoice to the renter showing what makes up the total rent.

Another thing to consider is if rent is currently fairly priced, then a renter’s tax will reduce the amount of rent that the landlord can charge.

[Reply]

Financial Samurai Reply:
September 27th, 2010 at 4:25 pm

Well said, and all very valid points and examples. Where’d you get this stat though? “The government estimates that 18% of all rent paid is to go toward the property taxes on the dwelling. In that case, I paid over $2,000 in taxes on my apartment last year.”

Why is it assumed though that rent is for a mortgage or property tax at all? Why can’t rent be used for a European vacation? Who says a portion of rent is for property tax? Rent can be for anything i.e. what if there was NO mortgage. What is the rent going to now? Get my point?

Empower renters by treating them equally and charging an implicit tax while lowering the tax burden on homeowners.

[Reply]

Kat Reply:
September 30th, 2010 at 12:49 pm

To answer:
“Why is it assumed though that rent is for a mortgage or property tax at all?”

Because renting is a business. Therefore, the most BASIC thing you need to understand is that business income – business expenses = profit you can spend on whatever. Property taxes are a business expense. Mortgage is a business expense. Those have to be paid, whether or not the landlord also went on a vacation that year. The landlord received income in the form of rent. Rental income is used to pay rental expenses. If rental income doesn’t cover expenses, you have a loss in which the rental business has to borrow or take money from the personal money of the landlord. It doesn’t matter if the physical dollar bill that they got from rent is spent on a coffee while a dollar bill they found on the street was hand delivered to the tax assessor. If the landlord is too business-stupid to keep separate accounts or to claim rental expenses as a deduction on their tax return, that’s their loss. You cannot just take your business income, spend it on anything you like, and then expect to continue renting without paying your expenses, your property will be taken away from you. You cannot go on a vacation with the rental income without paying the property taxes. If a landlord is renting out their property without taking into consideration that they have expenses on it, and therefore their goal is for the rent to cover those expenses, then they are quite frankly too stupid to be owning property or renting it out.

And renters have a vote in all local elections, by law. What empowering does there need to be?

[Reply]

Financial Samurai Reply:
September 30th, 2010 at 2:17 pm

Hi Kat,

Is it safety assume that you are hopefully against the government raising taxes on “the rich” given you oppose a Renter Tax?

I see your point on a business, ifthat is what the homeow er chooses to do. The owner could easily have no mortgage and just renting the place out to a relative.

Wow. Serious idea here, or just creating a buzz?!

I disagree completely, especially with this “We want to empower renters who feel slighted by society for renting by giving the an equal voice through clear and direct taxation.” and similar statements.

I don’t feel slighted or unempowered. I feel smart (for the particular market I’m in). I also feel that my voice is totally equal since my vote counts the same as any homeowners. Why would I want to pay extra for some “equal voice” that I already have?! The complaint has never been “representation without taxation”, but vice versa! (not to say i think I am not being taxed.) So please, don’t be so giving and stop trying to empower me!

I also agree with all that say that this is not a good idea because the owner of the property pays the tax, and typically passes that along as PART of the rent. You seem to be missing the point. Renting out space is a business. If you use the profit from your “business” to go on a european vacation, fine, but if you don’t leave enough money for “business expenses” (ie, property taxes), then you pay for them out of your “non-business” money… we’ll you are just playing games with what you call your money. Rent is business income. Property taxes is a business expense.

If you think renters get off easier, then maybe you should be a renter. My tax software always recommends i buy a home as a tax shelter, so I’m not so sure.

(as a side note, stereotypically renters also don’t often use some services these taxes go for, namely schools. This is less and less true, and not all homeowners have kids either, so this is barely worth mentioning)

[Reply]

Financial Samurai Reply:
September 30th, 2010 at 6:05 am

So long as you are against the government singling out a certain group of individuals who make over $200,000 and raise taxes on them, I’m OK with your opinion. Can you imagine if you were a renter against a Renter Tax but you were for the government raising taxes on others who pay the most taxes anyway? Tell me your thoughts are aligned? Thanks!

[Reply]

I also agree with the reader who pointed out that landlords already pay property taxes on their property. The government should not be entitled to double the property tax simply because there’s an owner and a renter involved. In that case, you’re not collecting a property tax. You’re collecting a tenant tax.

In 2007, the majority of states in the U.S. got the bulk of their revenues from sales tax at 39.54% of their total revenue. Personal income tax was next at 35.45%. Then corporate income tax (7.02%), vehicle registration and driver’s licenses (2.89%) and, only then, state property taxes. On average, state property taxes only account for 1.62% of the budget. (Source is stateline.org) In my state – Tennessee – sales taxes account for 67% of our state’s revenue, mostly because we don’t have a state income tax.

The majority of people in this country support taxes that are not lump sum, that are basically “unseen.” So I think you’ll have a very hard time convincing a lawmaker to approve something like this, especially in such a renter heavy state like California. Studies show that states that enforce a higher tax rate are the ones having the most financial trouble over the last couple years. So increasing that rate or expanding it to cover people it just shouldn’t cover isn’t going to fix your budget problem. It’s going to drive people out of the state to the state next door that doesn’t charge renters a property tax. And since, like I said, the biggest state revenue generators are sales and income taxes, I feel fine about being a renter and not contributing property taxes.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:28 pm

That’s exactly it, “LANDLORDS already pay property on their property”, renters do not.

Why is it that it’s easy for someone like Obama to get elected, who wants to raise tax? Is it because the people who he elected isn’t going to get their taxes raised?

I’m glad you feel fine about being a renter an not contributing to taxes, but the country needs you!

[Reply]

The property owner of the rental pays the property taxes, and includes that cost in the rent bill – this is why some states give property tax rebates to renters (ex: the homestead rebate in NJ (that probably is being done away with for budget reasons). So I fail to see why you should be double taxed on the same property – the owner pays the tax because they own it, then the renter pays another tax because they live there? So then homeowners too would need to be double taxed, once for owning the property, then the second time for living in it?

[Reply]

Financial Samurai Reply:
September 30th, 2010 at 12:32 pm

The idea is that renters pay tax for the services rendered on their rent, just like you pay a tax for renting a car, dvd, bowling shoes, etc. Makes sense. Let’s empower renters by taxing them explicitly and hel the budget deficit!

[Reply]

Ryan@theFinancialStudent Reply:
September 30th, 2010 at 3:44 pm

Yeah, I thought that the owner of the property was subject to taxes and that it was a
part of your monthly rent? I don’t think I see the distinction? Homeowners just pay
the tax more directly. If you tax renters explicitly, then I assume we would stop taxing
the property owner? Wouldn’t the same amount of tax be collected?

On a side note – I think funding schools based on home values is a bad idea. It’s destined
to create an unequal system, where nicer districts get better buildings, etc.

[Reply]

This has been discussed but I will repeat it so that you can get a better idea of the number of people against this.

Renters are paying property tax by proxy of their landlords, this cost is being included in the rent or else the landlord has not managed their situation properly. It is in this way that the renter is contributing to the local/state government.

If you abandon the property taxes on rented property and pass that on to the renter, then you are giving the property owners a free ride to own property without the taxation that other property owners face.

I see that you are comparing it to a heap of other situations but I do not buy the argument that the taxation on bowling shoes directly relates to the taxation of property.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:30 pm

I will repeat myself too. Renters should write an explicit tax based on the amount of rent they pay a year so they can feel good about their contribution to the community. Let’s let the free markets then decide what rent the landlord will charge once this is implemented.

When we all explicitly contribute, we all have skin in the game and feel it!

[Reply]

I’m fine with paying a renter tax to help out the budget. I’d also like to see the homeowners mortgage deduction killed off for the same reason. Then renters and owners will be on equal footing. Neither gets a deduction and both pay taxes to pay for local services.

And to be honest, it doesn’t matter if property tax is already rolled into the rent. Market forces will make an adjustment. Rent follows income and if a global tax reduces the amount renters can pay across the board, rents will go down across the board.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:31 pm

No way mate. We need the mortgage interest deduction to stay to subsidize homeowners and shield other income. Homeowners are already getting taxed enough. Need to raise mortgage indebtness from $1.1 million to double!

[Reply]

I don’t think this is a good plan, or one that is well thought out. What about students who rent apartments? Or people who rent because they couldn’t afford a house (just because you claim that most people don’t rent because of this, doesn’t mean those people don’t exist)? How about subletters? People who are only staying in a state temporarily? People who buy a house know that they are getting themselves into some serious business, and they choose to go through with it, because it is an attractive deal for most of them.

Ownership implies responsibility, and in this case, responsibility is paying taxes on your property. When you own a house, you can do almost anything you want there (within the law and reason, of course). If you are a homeowner and want to have a garden or clothesline or grapevine in the backyard, no one can stop you. If you’re renting, you’re bound by the rules and regulations set by the property owner, and unless you’re renting a cottage in rural farmland, those things are usually restricted.

You may not perceive the system to be fair the way it is now, but this alternative seems even less fair to me.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:33 pm

Are you saying that renting implies no responsibility? This is what’s wrong with many communities and why many, if not all condo complexes LIMIT the amount of renters in a building. It’s because rightly or wrongly, renters are perceived to care less about their environment and the property they are renting in.

Creating a renters tax might make renters more responsible for the betterment of the community.

[Reply]

A renters tax is an interesting concept. I never thought about the fact that renters get away without paying property taxes. LOL Sam I will support your gubernatorial bid.

[Reply]

There’s not a renter’s tax for the same reason that no one knows what the gas tax is in each state; the costs are passed on to the consumers. Sometimes the costs might not be passed on to the consumers because the property owner is breaking even due to depreciation and mortgage interest deductions, which allows them to cash flow the property with a lower return. No matter what, there is tax being paid on that property and that’s what matters. If renters aren’t having the costs passed on to them, which I highly doubt, then it allows for greater savings toward a down payment on a house in the future. This would allow for a larger number of home owners and property taxpayers.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:34 pm

And if we wanted to lower the consumption of fuel, and make ourselves more enviro friendly, separating out the fuel tax would be a good idea.

[Reply]

Really? Are you oblivious to the fact that renters DO pay the property taxes through something called RENT! Or do you think millions of property owners are happy to operate at a loss? Renters actually tend to get the short end of the stick because we’re often paying mortgage+taxes+premium.

I think we should charge bloggers an extra tax because they can work from anywhere. Oh, we should also charge cowboys a “hat tax” because they’re hats are so much bigger than the rest of us.

[Reply]

Financial Samurai Reply:
October 18th, 2010 at 7:42 pm

Huh? When was the last time a renter wrote a check to the government to pay property tax? What u smoking cuz I want some!

But, so long as you are consistent and against the government RAISING taxes on higher income earners next year, I’m all for you believe that renters shouldn’t pay a renter’s tax!

Cheers

[Reply]

That’s a pretty idiotic argument – a substantial portion of the rent paid by renters ends up going towards property taxes. Renters are obviously already supporting the community by paying a significant portion of the property taxes on the property they occupy. Obviously the exact proportion for each individual case is up to the landlord/property-owner – he or she can choose to raise or lower the rent so that more or less of the taxes are covered by the occupant, but in the end, all of the property tax costs are covered by either the occupant or the owner. Do you think renters should have to pay taxes twice on their living expenses (three times actually, if you count income taxes)? Once directly to the government and a second time via their rent? Regular owner-occupied property is only taxed once…

[Reply]

Financial Samurai Reply:
November 8th, 2010 at 11:30 am

I hope I am slowly converting all of you to be against the discriminatory progressive income tax system we have in America! Love these responses!

[Reply]

If the landlord has any brains the renter is already paying the taxes indirectly. A renters tax should effectively lower rents.

[Reply]

Here’s where the landlord would love this one. Property taxes are against the property, meaning they are owed if there is or is not a renter. If we stopped charging a property tax and charged an equal renter’s tax, there would only be tax charged when there were renters. This would lower the risk for the landlord and reduce actual tax paid because empty units would not have a renter to tax.

This would increase property speculation and make holding on to empty and abandoned buildings more attractive to the landlord. Failure to pay property taxes allows the property to be removed from the delinquent landlord and put the land to a better use. The property is a tangible item that serves as a collateral for the collection of the tax. Delinquent collections from renters would be much harder than from delinquent property owners because there would be no property to seize as collateral or penalty.

The upside would be a developer would be more likely to speculate on building additional units because he would not be taxed on those units until renters were present. An increase in the available units in a market area would tend to push market rents down; however, without a penalty of property taxes on non-rented units, the land owner would be more inclined to wait for renters that pay higher rents than accept tenants at lower rents to cover their expenses, such as property tax.

Overall I see this proposal as Win for the Landlords and lose for everyone else, of course other than the IRS army of accountants/auditors the government would need to track how many tenants every landlord had over the course of the year and how to determine the actual amount of rent that was charged based on the individual contracts. The cost of increasing governmental oversight would be another burden placed upon the public requiring MORE governmental involvement and expense, i.e. more taxes.

For the record I generally support a simple flat tax with some relief/incentives to help move people out of poverty.

[Reply]

Financial Samurai Reply:
December 4th, 2010 at 10:12 am

Hmmm, some very good thoughts which I’ll have to spend some time getting my head around. I do with you on one thing though, and that really is the simplicity of a flat tax!

http://www.financialsamurai.com/2009/10/09/were-idiots-please-tell-us-a-flat-tax-is-not-fair/

[Reply]

Completely ridiculous as increasing taxes in any shape or form will only make sure that there is less productivity and less economic growth. The deficit is out of control but even taxing 90% of all american’s wealth won’t make much of a difference if you don’t address spending cuts. Cut spending and the deficit isn’t such a big deal anymore.

I don’t like the idea of a renter’s tax, nor do I like the idea of a property tax either. I get the point you’re trying to put across but I’m sure most of it will fly over people’s heads.

[Reply]

Financial Samurai Reply:
December 30th, 2010 at 1:31 pm

Gotcha, so I take it you are a Republican!

Do you think Democrats who read this post will realize that ever increasing taxation is not the solution?

[Reply]

The logic in your replies is so flawed. If renters don’t contribute toward property taxes, then that is the fault of the landlord for not including it in the rent calculation.

You claim that renters don’t write checks to the government to cover property taxes, which is true. But often renters also don’t write checks to the water/sewer/trash provider or for the HOA/building fee. That’s all taken care of by the landlord, and should be included in rent as well.

If you want to take vacations with your rental income, like you repeatedly mention in the comments, then raise the rent! You can’t say ‘Oh, I’d rather take a vacation than pay the tax on the property I bought, knowing full well I’d have to pay tax on it, so I’ll recommend that other people pay tax instead of me’. You claim that ever increasing taxation is not the solution, but then write a whole post about increasing taxes. Go figure!

It looks like I might have to stop subscribing. The illogical responses make my head hurt.

[Reply]

Financial Samurai Reply:
April 5th, 2011 at 6:47 am

Jen, then please stop subscribing. Yes, of course you feel bad, annoyed, irritated and object to the government proposing a Renter’s Tax. Welcome to the world of half the American population!

How does a homeowner raise the rent to pay for property taxes if the homeowner lives in their own home?

[Reply]

Stop calling it a Renter’s Tax, and just label it an Occupancy Tax, like governments do on hotels. Hotels factor in their property tax into how much to charge to rent a room for the night, then the government tacks on 10% or more to the renter to occupy the space.

So if you want a “Renter’s Tax”, then charge 1% of rent and have it collected by the landlord each month.

I don’t even think Sam is for a Renter’s Tax. What he’s probably for, is all citizens feeling the hurt of paying taxes. When we buy goods at a store, we physically SEE the added sales tax. When we register a car, we FEEL it when we write a check each year. But when taxes are “included” in a cost (rent, for example), that ‘hurt’ is absent, making it easier to blame or pass responsibility for taxes on to another subset of people (the “rich”, property owners, etc.).

If renters had to physically SEE property taxes they are paying each year separated from their rent, they have that proverbial “skin in the game” mentality, and would be less apt to endorse raising taxes on property owners, the ‘rich’, and any other group of people they feel can afford paying more taxes.

I think Sam’s point is the “skin in the game” argument — More people who have to contribute to each type of tax (sales, income, property, use, vehicle, etc.) = Less class warfare, less nanny-state reliance, less pass-the-buck mentality, and greater empowerment of the individual.

The bigger the government, the smaller the individual. “Skin in the game” empowers individuals while decreasing the role of government.

Am I on to something here, Sam?

P.S. – not sure if a Renter Occupancy Tax is necessary. Maybe residential real estate should be leased Triple Net just like commercial land? That way homes can rent the true value, and renters could physically see how much extra is tacked on each month for property taxes, HOA fees, etc.

P.P.S. – Texas’ property taxes are 2-3% as well. Very high, but no state income tax.

[Reply]

Financial Samurai Reply:
April 5th, 2011 at 1:58 pm

Jason, you are SPOT ON in your assessment. Well done! I might have to quote this in a follow up post for clarification as I can sense people are pissed by this proposal.

Well guess what? Welcome to the world of millions who pay 33% and 35% marginal federal taxes already while 45% of Americans pay no Fed tax, and others who want to raise taxes on those in the highest brackets!

[Reply]

For YEARS I have been saying that leases should EXPLICITLY break out the PROPERTY TAXES as a separate component of a renter’s obligation. (This is common in commercial leases but almost unheard of in residential leases.)

I actually got one previous landlord to agree to this (I had a political axe to grind) and I calculated that I was actually “contributing” MORE than my fair share because there was an extra $1,200 of property taxes specifically because the house was a rental property. (There was a separate “nonhomestead tax” on the house, in addition to the basic property tax rate on all homes.)

What does Sam think of nonhomestead taxes? Should rental properties be taxed at a higher rate than owner-occupied homes?

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:38 pm

Sure! Let’s charge a higher renters tax than what homeowners pay in property tax for their own home.

[Reply]

Renters do end up paying property taxes in the form of higher rents. A house with a $182/month mortgage is renting for $650/month out here. No need for an additional tax.

[Reply]

After going back and reading most of the comments I think I see where you are coming from. And the confusion is coming from the wording. You are proposing a rent tax basically.

Property tax would be incorrect to say because the property tax is paid by the owner of the property. You don’t pay my yearly car tag fee just because I let you drive my car each month. It is registered in my name and I am responsible for the taxes on it.

So with that said, I think a rent tax is a bad idea. Taxes suck and the government is bad at budgeting.

[Reply]

Financial Samurai Reply:
September 17th, 2011 at 11:39 pm

Thanks for seeing my side of it!

Taxes do suck… yet, if taxes suck so bad, why did people vote our current administration in, who wants to spend TRILLIONS, and raise taxes to pay for it?

[Reply]

Financial Success For Young Adults Reply:
September 18th, 2011 at 6:42 am

Democrats were voted in because of the backlash against republicans. Voters wanted some more constraints and the dems had a very polished, well educated, candidate to present. I think the American public was ready for the government to be more hands on after being too hands off with the economy. But one does too much one way and the other does too much the other way. I think the only way to keep our economy from rocketing back and forth is to do away with the 2 term limit. Let’s vote someone in who wants to make changes for the future and see them come to past.

[Reply]

Financial Samurai Reply:
September 18th, 2011 at 8:31 am

Well, perversely or not, I believe people DO want to pay a Renter Tax and help shore up our countries budget deficits, which is why people will re-elect Obama again, who wants to raise taxes in some shape or form.

Wow, what a fool. The landlord pays property taxes on the building, and he gets the cash to pay it from the rents he collects. This is so obvious that I cannot believe the author is stupid enough not to know it.

[Reply]

Financial Samurai Reply:
September 16th, 2011 at 12:37 pm

The rent I collect is for vacations like the two week one I’m taking to Europe this Fall. Who says I’m using yor rent to pay taxes?

I’m surprised you are unwilling to help contribute taxes to the state since you benefit from their offerings.

I guess you are voting against Obama since he wants tO raise taxes?

[Reply]

Taxes here… taxes there… taxes everywhere! Simply because government spends a lot. Why don’t they just cut down on unnecessary spending? We are doing it to save our money so why don’t they? Is it because it is not their money?! Ouch!

[Reply]

Financial Samurai Reply:
September 16th, 2011 at 7:06 pm

Yep. When we get to spend OTHER people’s money, we are definitely more lax in our spending habits.

[Reply]

This is an interesting perspective. We’ve struggled to pay our mortgage, taxes and insurance over the years but I don’t know if renter’s should pay some portion of taxes. It might lead more people to buy if they were forced to pay a portion.

[Reply]

I think I may see your approach. I am thinking of it as in hotel/motel room rental. There is always some fee, tax or surcharge added everytime. If I understand your proposition, your renter’s tax would be similar to this. The renter is paying for a service, much the same as for a motel or hotel room. If local and state entities can pose a tax on h/motel room rental, why not on property rental as well?

I basically agree that renters get all the benefits of the property, yet avoid all of the down sides- i.e. all maintenance & repair costs, and in some cases general upkeep. Some owners will pay utilities, garbage and other fees. We cover structural/mechanical of the property; the tenant is responsible for everything else. All w/i the law and local codes, of course.
We like to think (at least) that we maintain decent properties; i.e. our baseline is not the legal or code minimum.

As a side note, being a property owner myself, I have ceased using “landlord” for many of the reasons you point out. I do not feel more powerful, richer or in any way better than my tenants just b/c I own the property. I used to rent apartments. I try to be the kind of ‘landlord’ I would have liked to have had.

[Reply]

You are nuts if you think that renters don’t pay property taxes – landlords pass that expense on to renters. Renters also pay for the insurance through their monthly rent payments. Landlords are in the business to make a profit – they aren’t going to eat the property taxes any more than businesses do – it all gets passed on to US.

[Reply]

Financial Samurai Reply:
February 14th, 2012 at 1:24 pm

Show me your property tax bill, and I’ll show you mine.

As a renter, you dont pay property taxes.

[Reply]