The city of Los Angeles recently implemented a new tax on the sale of properties exceeding $5 million, effective April 1.
Despite ongoing legal challenges, supporters of the new tax are rallying to uphold it, with the proceeds going towards aiding the city's housing crisis. Measure ULA, which passed in the November election with nearly 58% of the vote, is referred to as the "mansion tax" and applies to all commercial and residential property sales exceeding $5 million.
The seller is responsible for paying the 4% tax, with a rate increase of 5.5% for transactions exceeding $10 million. Some exceptions are made for nonprofits and land trusts, and only properties within LA's borders are affected.
According to the University of California, Los Angeles (UCLA), Occidental College, and University of Southern California (USC) professors, the tax will impact approximately 4% of real estate transactions in the city annually, with 72% of the total amount collected coming from properties sold for over $10 million.
Officials estimate that the new tax could bring in between $600 million and $1.1 billion annually, with proceeds earmarked for affordable housing, tenant protection programs, and services to prevent homelessness. Supporters of the measure believe it will mark a significant step forward in addressing some of the city's most pressing issues, providing revenue tied to specific solutions.
Despite support for the measure, the Howard Jarvis Taxpayers Association is suing to block the tax, citing Proposition 13 from 1978, which made it illegal to levy transfer taxes. Although a more recent state Supreme Court decision may have opened the door for charter cities like Los Angeles to levy such taxes, plaintiffs, in this case, argue that such a tax goes against the rules outlined in LA's charter. The association is encouraging sellers to file refunds with the city once the tax is collected, providing sellers with recourse should the measure be overturned.
Despite legal challenges, LA is moving forward with the tax, with the city council exploring ways to implement the funds. Implementation of the measure will be overseen by a citizen oversight committee. Although high-end sellers have been scrambling to unload their properties ahead of April 1, some landowners have been exploring possible loopholes around the tax.
The United to House LA Coalition, which campaigned for the measure, continues its efforts to drum up support for the tax. The group is planning a rally to support the tax outside of the Apartment Association of Greater LA, which joined Howard Jarvis in the lawsuit.
Another lawsuit, filed by Newcastle Courtyards LLC, claims the tax violates equal protection rights under the state and federal constitutions. Meanwhile, an effort is underway to get an initiative placed on next year's ballot that would invalidate Measure ULA.
