By CLARK MASON
THE PRESS DEMOCRAT
Several cities in Sonoma County are quietly cutting their taxes on most real estate transactions, a tacit acknowledgment that for years they may have been charging too much.
Cloverdale, Cotati and Sebastopol have reduced or are proposing to decrease their so-called documentary transfer tax rate, which tacks hundreds of dollars on the sale of an average home.
“Most people don’t even look at those things if they go and buy a house or sell a house. Someone pays the taxes and that’s it,” said Cloverdale City Councilman Mike Maacks, who was upset to learn that for years the city apparently has charged twice the rate that it should by law.
“It’s a hot-bed issue,” said Cloverdale Mayor Bob Cox, noting the City Council last month cut the rate in half because what the city was charging “was not the correct fee.”
But don’t expect a refund. City officials said property owners need to file a claim if they believe they were overcharged, and they will be considered on a case-by-case basis.
“We don’t believe there was any violation of the law on the city’s part,” said City Manager Nina Regor, who said the city is simply going with “a more conservative approach” to interpreting the tax code.
There is conflicting information on what the statute of limitations is for a property owner seeking a refund, whether it’s a year or as much as four.
The documentary transfer tax is something that all counties and most cities in the state charge when property changes hands. There are some exceptions, such as transfers that are a gift, between spouses or between individuals and their revocable trusts.
The state Revenue and Taxation Code sets the documentary transfer tax for counties at a standard $1.10 per $1,000 of sales price. Cities also can impose a fee, but according to the code, are restricted to half the county rate, or 55 cents per $1,000. It is credited against the county tax.
The rules are different for charter cities, such as Santa Rosa and Petaluma — the only two in Sonoma County — which levy larger tax rates.
But according to state tax code guidelines, non-charter cities are supposed to split the proceeds with the county, so that the total amount charged on the property transfer remains $1.10 per $1,000, said Ray Leonard, administration manager in the Sonoma County Recorder’s Office.
That hasn’t been the case in recent years in three cities in Sonoma County.
Cloverdale since 1993 has charged an additional $1.10 per $1,000 beyond what the county charges, resulting in a total tax of $2.20 per $1,000 value. On a $300,000 home that means the total tax is $660, rather than $330, which is the revised formula that will go into effect later this month as a result of the city council’s decision.
Cotati for years has charged an additional $1.90 per $1,000, which boosted the total tax on property transfers there to $3.00 per $1,000.
Instead of paying $330 on the sale of a $300,000 home, a Cotati home buyer has paid $900.
And in Sebastopol, the total transfer tax is $3.10 per $1,000, because Sebastopol charges a separate city rate of $2.00 per $1,000 beyond the county rate.
On a $300,000 home sale, that boosts the transfer tax on the home to $930, instead of the $330 called for in state guidelines.
Sebastopol City Attorney Larry McLaughlin said the City Council is tentatively set to consider decreasing the tax Feb. 21.
“Primarily, we don’t feel comfortable being the only city in the county still having the higher rate beyond what is permitted by the Revenue and Taxation Code,” he said of the impetus for the change.
McLaughlin said he is researching the issue, but it appears cities in the early 1990s raised their rates beyond what is permitted in the tax codes based on a court case involving a charter city.
“The thought of relying on that court case at that point in time is debatable,” he said. “I haven’t been given any compelling authority to make this change. It seems it’s being done by other cities in an exercise of caution and prudence.”
Officials with the League of California Cities said they are unaware of the issue affecting other municipalities.
Cotati City Attorney Richard Rudnansky and Cloverdale City Attorney Eric Danly, both private attorneys with the Meyers Nave law firm in Santa Rosa, did not return repeated calls seeking comment.
Cotati City Manager Dianne Thompson said the City Council reduced the transfer tax rate in October as part of a general review of its revenue and finance codes.
“It was determined that revisions were required to bring the code up to date,” she stated in an email. “One of those revisions included an updating of the language to the transfer tax.”
Mayor Susan Harvey said she had to refresh her memory because “there really wasn’t a lot of discussion” when the council took the action at the same time it revised other fees and charges for city services.
“About every 10 years we take a look at stuff and say, ‘Where are we and what do we need to change?’” she said.
As far as what recourse property owners have if they feel they were overcharged, Thompson said they are welcome to contact her office.
She said it is unknown what effect the decrease in tax revenue will have on the city budget.
Figures provided by the county show that over the past five years, Cloverdale collected $211,505 in documentary transfer tax revenues; Cotati, $271,459; and Sebastopol, $414,384.
The amount collect in recent years has decreased as a result of the real estate downturn. Cotati’s transfer tax revenues for example, decreased by almost half between 2007 and 2011, although the other cities fared somewhat better.
Sebastopol City Attorney McLaughlin said if the council approves a reduced rate for Sebastopol, it will amount to a further 72 percent decrease.
“It would require a budget adjustment, because we would receive less money in the final quarter” of this fiscal year, he said.
You can reach Staff Writer Clark Mason at 521-5214 or firstname.lastname@example.org.