GRT Study

April 18, 2007

FOR IMMEDIATE RELEASE

Contact:
Mary Schaefer/Julie Sullivan
217/529-2600
Mike Scobey
773/405-1906

Gross Receipts Tax has pyramid effect, would cost new buyers additional $8,800 on average Chicagoland home

SPRINGFIELD, Ill.– A study released today by the Illinois Association of REALTORS® (IAR) shows that the accumulated or “pyramid” effect of the Gross Receipts Tax proposed by Governor Blagojevich would add $8,853 to the cost of an average new home in the nine-county metropolitan Chicago region.

“This study shows that the Governor’s new tax will have a significant impact on people’s ability to purchase a new home, and further stall an already sluggish housing market in Illinois,” said Gary Clayton, Chief Executive Officer of the Illinois Association of REALTORS®. “That hurts the economy and costs jobs.”

Clayton described the impact of the proposed Gross Receipts Tax (GRT) as a hidden tax on construction and associated services. The IAR Board of Directors voted to oppose the Gross Receipts Tax in a meeting last month.

“People really need to understand how this tax adds up to impact their lives and businesses. This study really sheds light on the hidden tax lurking in the Governor’s proposal,” said Clayton.

The first phase of the study, conducted for IAR by RCF Economic & Financial Consulting, Inc. of Chicago, calculated the pyramid effect of five stages of construction and marketing of a new home in Illinois based on a 1.95 percent GRT on services and a .85 percent tax on construction contracts and materials, as proposed in the Governor’s budget. The stages are: wholesaler, subcontractor, general contractor, developer, and finally consumer. RCF calculated an overall 2.84 percent increase in the cost of a new home as a result of this layering on of new taxes at different steps in the homebuilding and selling process. Founded in 1978, RCF Economic and Financial Consulting, Inc., is a Chicago-based economic consulting firm led by internationally renowned economists.

Using the average cost of a home in the Chicago Primary Metropolitan Statistical Area last year of $311,734, the new tax would add at least $8,853 to the cost of a new home. In a standard 30-year, 80/20 fixed-rate mortgage, based on a 6 percent interest rate, the consumer’s downpayment required to obtain the mortgage for that home would increase $1,771, with an additional $15,000 in monthly payments required including $8,204 additional in interest paid over the life of the loan.

Increased housing costs will also increase annual property tax payments by purchasers of new homes. Based on an effective tax rate of 2.2 percent typical in the collar counties, the GRT would add nearly $200 in annual property taxes to the bill of a typical homebuyer.

Based on Illinois construction costs of $16 billion for single-family residences in 2002, the proposed new Gross Receipts Tax would cost Illinois homebuyer and home builders nearly $500 million each year. A copy of the study findings is available on the IAR Web Site at: www.illinoisrealtor.org/GRT.htm [1].

The Illinois Association of REALTORS® is a voluntary trade association whose 60,000 members are engaged in all facets of the real estate industry. In addition to serving the professional needs of its members, the Illinois Association of REALTORS® works to protect the rights of private property owners in the state by recommending and promoting legislation that safeguards and advances the interest of real property ownership.

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