Court upholds San Francisco real estate transfer tax


San Francisco’s real estate transfer tax, which is higher than the state rate and applies to more transactions, was upheld by a state appeals court.

California imposed a transfer tax of 55 cents for every $500 of real estate transactions in a 1967 law, but allowed higher taxes by the state’s 121 charter cities and by any “city and county” – a description that applies, both factually and legally, only to San Francisco, the courts have upheld in the current case. San Francisco’s tax, approved in its current version by local voters in 2008 and 2016, ranges from $2.50 to $12.50 for every $500 that changes hands.

San Francisco tax also applies to the value of liens held on property, personal property, and other assets related to real estate ownership. Additionally, the city defines transactions broadly to include changes in ownership of corporations and other entities that own the property.

The tax was challenged by the owner of a 17-story office building at 211 Main St., a few blocks from the Embarcadero, and an 11-story office building at 260 Townsend St., south of Market Street. San Francisco levied nearly $12 million in taxes, interest and penalties on the owner, CIM Urban REIT, after a 2014 merger changed ownership of CIM’s parent company.

In a decision released Thursday, the First District Court of Appeals rejected the landlord’s argument that San Francisco was required to follow state tax rates. The court said it agreed with Superior Court Judge Ethan Schulman’s finding in a 2020 ruling in the case that “a local transfer tax is a municipal matter that does not involve important interests of the state”.

CIM also argued that San Francisco assesses transfer taxes on properties that have not actually changed owners. But the court said a 2008 San Francisco ballot measure, Proposition N, approved by more than 68% of voters, validly defined a change in ownership of a corporation from a property owner as a taxable transaction, even if title to the building does not change hands.

The sponsors of Prop. N said in ballot arguments that multinational companies were costing San Francisco millions of dollars by using shell companies to hide ownership transfers, Judge Henry Needham ruled in the 3-0 decision. He noted that the measure, which also increased transfer tax rates, only applied to assets worth more than $5 million.

Prop. N was “intended to prevent transfer tax evasion by entities transferring ownership interests instead of transferring real estate,” Needham said.

Bradley Marsh, an attorney for CIM, said the company was disappointed with the decision. He could appeal to the state Supreme Court.

Bob Egelko is a writer for the San Francisco Chronicle. Email: [email protected]: @BobEgelko


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