In addition to navigating through the uncertainty of current
economic forecasts, real estate professionals should also be aware
of a growing trend in the Golden State: real property transfer tax
hikes. Recently, many California cities have increased their real
property transfer tax rates, and some municipalities have upcoming
voter initiatives on their November 2022 ballot that, if approved,
would significantly escalate transfer tax rates.
Cities appear to be motivated by two policy concerns when
raising transfer tax rates: (1) financial interests (where cities
want to raise money to finance affordable housing and homelessness
prevention programs) and (2) anti-gentrification concerns (where
cities want to halt community displacement by raising tax rates on
new real estate investments). These tax hikes could prove to be
material issues for real estate developers, investors, lenders, and
other industry stakeholders.
Below is a summary of recently approved and proposed transfer
tax hikes throughout a variety of California cities.
San Francisco
Approved through a voter initiative (Proposition I) in 2020, the
City and County of San Francisco established the following real
property transfer tax rates:
- Transactions greater than $100 but less than or equal to
$250,000, a tax rate of $2.50 for each $500 or portion thereof (an
approximate tax rate of 0.5%); - Transactions greater than $250,000 but less than $1 million, a
tax rate of $3.40 for each $500 or portion thereof (an approximate
tax rate of 0.68%); - Transactions of at least $1 million in value but less than $5
million, a tax rate of $3.75 for each $500 or portion thereof (an
approximate tax rate of 0.75%); - Transactions of at least $5 million in value but less than $10
million, a tax rate of $11.25 for each $500 or portion thereof (an
approximate tax rate of 2.25%); - Transactions of at least $10 million in value but less than $25
million, a tax rate of $27.50 for each $500 or portion thereof (an
approximate tax rate of 5.5%); and - Transaction of $25 million or more, a tax rate of $30.00 for
each $500 or portion thereof (an approximate tax rate of
6.0%).
(City and County of San Francisco, Office of the
Accessor-Recorder, Transfer Tax, available here.)
San Jose
The City of San Jose has a flat transfer tax rate of $1.65 per
$500 or fractional portion of real property value (an approximate
0.33% tax rate). (Santa Clara County, Real Estate Recording,
available here.) However, in 2020, voters approved
Measure E, which levies an additional transfer tax on properties
worth $2 million or greater; it became effective July 1, 2020.
(Santa Clara County, Office of the County Clerk-Recorder, Measure
E, available here; San Jose, Measure E, available here.) More specifically, Measure E
established an additional 0.75% tax on real property transfers
between $2 million and $5 million, a 1.0% tax on transfers over $5
million and up to $10 million, and a 1.5% tax on transfers greater
than $10 million.
Culver City
Effective on April 1, 2021, Culver City, through a voter
initiative (Measure RE), increased its fixed 0.45% real property
transfer tax to the following rates:
- 0.45% on transfers below $1.5 million;
- 1.5% on transfers from $1.5 million to $2,999,999;
- 3.0% on transfers from $3 million to $9,999,999; and
- 4.0% on transfers $10 million and above.
(Culver City, Measure RE – November 3, 2022, available here.)
Los Angeles (City)
The current transfer tax rate in the City of Los Angeles is
$4.50 per $1,000 of value (an approximately 0.45% tax rate). (Los
Angeles County Registrar-Recorder/County Clerk, General
Information, available here.) The Los Angeles City Council approved
placing an initiative, Measure ULA, on the November 2022 ballot. If
approved, Measure ULA would provide an additional 4.0% tax on the
transfer of properties in the City of Los Angeles that are valued
at over $5 million and below $10 million, while those valued at $10
million or above would face a 5.5% rate. (Los Angeles City Measure
ULA, available here.)
Santa Monica
In November 2020, Santa Monica voters approved Measure SM. It
established a transfer tax of $3.00 per $1,000 or a portion thereof
(a 0.3% tax rate) on real estate transfers under $5 million and a
tax of $6.00 per $1,000 or a portion thereof (a 0.6% tax rate) on
real estate transfers at $5 million and above. Measure SM became
effective on March 1, 2021. (Santa Monica, Documentary Transfer
Tax, available here.)
This fall, Santa Monica voters will decide whether to further
increase the city’s transfer tax rates as two competing
transfer tax initiatives are on the city’s November 2022
ballot. Below are summaries of both measures:
- Measure GS: if approved, this measure would
establish a $56.00 transfer tax per $1,000 (a 5.6% tax) of value
for property transfers of $8 million or more. - Measure DT: if approved, this measure would
establish a $25.00 transfer tax per $1,000 (a 2.5% tax) of value
for property transfers of in excess of $8 million. Unlike Measure
GS, Measure DT has a sunset clause. The tax increase would only be
effective through February 28, 2033, unless Santa Monica City
Council decides, by a supermajority vote, to extend Measure DT by
five years. Measure DT also has a partial tax exception for
nonprofit corporations and community land trusts.
(City of Santa Monica, General Election 2022, Measure GS,
available here; City of Santa Monica, General Election
2022 Measure GS Text, available here; City of Santa Monica, Proposed Measure
DT Text, available here; City of Santa Monica, General Election
2022 Measure DT, available here.)
If both initiatives pass, the measure with the most votes
becomes law; the winning measure would become effective starting
March 1, 2023. (City of Santa Monica, Proposed Measure GS Text,
available here; City of Santa Monica, Proposed Measure
DT Text, available here.)
Takeaways
As city transfer taxes throughout California vary and the
current political climate has seen significant surges in real
property transfer tax rates, please reach out to the Real Estate
Department of Greenberg Glusker LLP with questions on how this
growing spike in transfer tax rates may impact specific sales,
acquisitions, or other areas of strategic real estate planning.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
