ULA measure: new transfer tax on sales of residential and commercial real estate in Los Angeles over $5 million

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November 14, 2022

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The ULA measure, commonly referred to as the “mansion tax,” would impose a new “homelessness and housing solutions tax” on transfers of residential and commercial real estate in the City of Los Angeles worth more than $5 million.[1] Revenue from the new tax, which is expected to be between $600 million and $1.1 billion annually, is intended to fund affordable housing and tenant assistance programs. On the date of this Customer Alert, the measure is ahead in the last vote count.

Under this measure, sales of residential and commercial buildings with a value greater than $5 million but less than $10 million would be subject to an additional tax at the rate of 4%, while sales of valued at $10 million or more would be subject to an additional tax at the rate of 5.5%. The new tax would apply to the entire sale value, not just the amount above the $5 million and $10 million thresholds, and whether the property is sold at a gain or loss. The thresholds would be adjusted each year in line with inflation. The tax would apply to real estate sales made on or after April 1, 2023.

The new tax would be in addition to the existing Documentary Transfer Tax imposed on property sales in the City of Los Angeles, which is imposed at a combined city and county rate of 0.56%.

The tax differs in some respects from the existing Documentary Transfer Tax imposed by the City and County of Los Angeles. For example, while the existing Documentary Transfer Tax is calculated by excluding the value of any liens or encumbrances remaining on the property at the time of sale, the new tax appears to follow the pattern of other cities, such as San Francisco, and is taxed on the gross value of the property, i.e. including the value of the privileges or encumbrances remaining on the property at the time of the sale. In addition, there are certain exemptions from tax that are not applicable to the current documentary transfer tax, including exemptions for transfers to certain not-for-profit entities and certain community land trusts and housing cooperatives. with limited capital who, subject to certain exceptions, demonstrate a history of affordable housing development and/or experience in affordable housing management.

Like the existing documentary transfer, however, given the language used in the ULA measure, it seems likely that Los Angeles would interpret the tax as applying to a transfer of interest in a legal entity that results in a change in ownership. immovable property held by the corporation for property tax purposes. See our [prior Client Alert[2]]for a more detailed discussion of this topic.[3] In addition, it appears that the tax would be subject to the same general exceptions set forth in the City of Los Angeles ordinance that apply to the outgoing City of Los Angeles Documentary Transfer Tax (e.g., simple changes of identity, form or place of organization). It’s a bit less clear whether the exceptions set out in California’s state transfer tax law would apply to the new tax (e.g., seizures and deeds in lieu of seizures). In addition, it remains to be seen how certain aspects of the law will be interpreted, including the application of the $5 million and $10 million thresholds to transfers that include separate interests in real property (e.g., land and improvements, commercial condos).

If enacted, the Homelessness and Housing Solutions Tax would represent a significant increase in transfer taxes applicable to sales of residential and commercial properties in the City of Los Angeles valued at more than $5 million and, at as such, is expected to have a significant impact on sales of residential and commercial properties in the city of Los Angeles in the future.

Please contact a Gibson Dunn tax attorney for updates on this issue.

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[1] https://clkrep.lacity.org/election/Initiative_Ordinance_ULA.pdf

[2] https://www.gibsondunn.com/california-supreme-court-upholds-los-angeles-countys-interpretation-of-documentary-transfer-tax-act/

[3] Notably, the ULA measure authorizes the CFO to issue rules and regulations further defining the term “property sold”, which triggers both the existing Documentary Transfer Tax and the new tax, and which other cities have used. to clarify that the property tax change in property rules apply to the documentary transfer tax. See, e.g., Section 1114(b) of Section 12-C, San Francisco’s Real Property Transfer Tax Ordinance (“Notwithstanding subsection (a), “real estate sold” includes any acquisition of transfer of interest in a legal entity which would be a change in ownership of real property under Section 64 of the California Revenue and Tax Code.”).


This alert was prepared by Lorna Wilson.

Gibson Dunn attorneys are available to assist you with any questions you may have regarding these and other tax-related developments. If you have any questions, please contact the Gibson Dunn attorney you usually work with, any member of the Tax or Real Estate practice groups, or one of the following:

Tax group:
Dora Arash – Los Angeles (+1 213-229-7134, [email protected])
Eric B. Sloan – Co-Chair, New York (+1 212-351-2340, [email protected])
Lorna Wilson – Los Angeles (+1 213-229-7547, [email protected])
Daniel A. Zygielbaum – Washington, DC (+1 202-887-3768, [email protected])
Brian R. Hamano – Los Angeles (+1 310-551-8805, [email protected])
David W. Horton* – Los Angeles (+1 213-229-7613, [email protected])
George Liang – Los Angeles (+1 213-229-7230, [email protected])

*David W. Horton is a partner working in the firm’s Los Angeles office, admitted only in New York.

© 2022 Gibson, Dunn & Crutcher LLP

Publicity for Lawyers: The attached materials have been prepared for general information purposes only and are not intended to be used as legal advice.

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