Measure ULA, commonly known as the “mansion tax,” would impose a new “Homelessness and Housing Solutions Tax” on transfers of residential and commercial real property in the city of Los Angeles valued in excess of $5 million.
Under the measure, sales of residential and commercial real property valued at over $5 million but less than $10 million would be subject to an additional tax at the rate of 4%, while sales of properties 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 entirety of the sale value, not solely the amount in excess of the $5 million and $10 million thresholds, and regardless of whether the property is sold at a gain or a loss. The thresholds would be adjusted each year based on inflation. The tax would apply to property sales occurring 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%.
This tax will have a negative impact on property sales, especially industrial real estate sales given they are generally sold at a higher value than many other types of properties. The tax could possibly make properties in the City of L.A. less attractive to buy.
Who will end up paying the new real estate transfer tax? Below are the percentage of sales based on recent data for each property type.
Single-Family Residences and Condos: 2.6%.
Multi-Family Apartment Buildings: 6%
Commercial (office buildings, retail, etc.): 11%
Other (vacant land, utilities, etc): 1.9%
The ordinance exempts certain transfers from the ULA Tax. Transfers to non-profit entities, Community Land Trusts, and Limited-Equity Housing Cooperatives are exempt, as these are the types of transactions the City is intending to encourage.
On December 21, 2022, the Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles brought suit in state court challenging the validity of the ULA Tax. Plaintiffs argue that the ULA Tax is a “specific tax” prohibited by the California Constitution on the grounds that ULA Tax revenue must be used for specific purposes. The litigation is currently pending.
Above data from An Analysis of Measure ULA, by UCLA Lewis Center.
This freshly approved City of Los Angeles ordinance will impose a one-time 4% tax on property sale transactions above $5 million that would rise to 5.5% on transactions above $10 million. A $5-million sale would generate a $200,000 tax bill.
This will negatively impact the sellers of all property types including residential and commercial such as retail, office, apartments, and industrial.
Don’t be fooled by the proponents of California’s Proposition 15, known as the split-roll property tax increase. If this measure passes it will devastate commercial property owners and the tenants.
How? Because hundreds of thousands of properties will be re-assessed at current market value and the annual tax bills on these will increase from $10-30k to $100-300k. Who will pay this? Well landlords with market rent may end up selling because their income may turn from positive to negative, as in a net loss.
Many landlords will try to pass off the increases to tenants since most commercial leases allow tax increases to be passed through to tenants. The tenants of course won’t be able to pay the increases and will likely default on their leases and may go bankrupt.
The CA legislature could have eliminated Prop 13 loopholes but they rejected that bill because they want to go for the big dollars in Prop 15, which will devastate the already pandemic devastated California economy. Vote NO.
It takes three separate Los Angeles County offices, Assessor, Auditor-Controller, and Treasurer and Tax Collector to produce and account for your property tax bill and payment.
Assessor. The Los Angeles County Assessor establishes the assessed value of your property by appraising the value of that property under applicable State laws. The assessed value is then placed on a list with all other properties in Los Angeles County and this list is called the “Assessment Roll.” The Assessor also approves and applies all exemptions, which are added to the Assessment Roll. The Assessment Roll is then presented to the Los Angeles County Auditor-Controller for further processing.
Auditor-Controller. The Los Angeles County Auditor-Controller adds direct assessments to the Assessment Roll then applies the tax rates, which consists of general (1%) levy and debt service (voter & bonded) tax rates to the value to create an Extended Assessment Roll. The Extended Roll is then sent to the Los Angeles County Treasurer and Tax Collector for individual tax bill distribution and payment collection.
Treasurer and Tax Collector. The Los Angeles County Treasurer and Tax Collector receives the Extended Roll, prints and mails the property tax bills to the name and address on the Extended Roll. The Treasurer and Tax Collector collects secured and unsecured taxes. Secured taxes are taxes on real property, such as vacant land, structures on land, i.e. business/office building, home, apartments, etc. Unsecured taxes are taxes on assessments such as office furniture, equipment, airplanes and boats, as well as property taxes that are not liens against the real property.
Total 2009 local tax roll or assessed value: over a trillion dollars at $1,108,055,865,679. Commercial Industrial parcels consist of 253,291 parcels of a total parcel count of 2,352,255 with the commercial industrial total assessed value of $328,000,000,000 ($328 billion), or 31% of the total. The City of Los Angeles contains a $413 billion in assessed value for both residential and commercial industrial.
Commercial Industrial Parcel Counts by key industrial cities:
The real property tax rate in Los Angeles, California is among the lowest rates in the United States. See illustration below. The low property tax rate does factor into the high demand for property and real estate development.