Controversial LA Real Estate Tax Kicks Off April 1: What To Know —

Controversial LA Real Estate Tax Kicks Off April 1: What To Know —

  • Chris Lindahl
  • 03/30/23

Original article published by

LOS ANGELES, CA — The city on April 1 will begin collecting a new tax on the sale of properties over $5 million. And as lawsuits seeking to derail the plan to use that money to aid the housing crisis make their way through the courts, advocates are holding a rally today in Koreatown to keep support for the measure going.

The new tax, Measure ULA, passed with nearly 58 percent of the vote in the November election. While the measure is popularly known as "the mansion tax," it hits all commercial and residential property sales over $5 million with a 4 percent tax, paid by the seller. The rate goes up to $5.5 percent on transactions above $10 million. There are exceptions for nonprofits and land trusts.

The tax is expected to affect around 4 percent of real estate transactions in the city annually, with 72 percent of the total amount collected coming from properties sold for over $10 million, according to analysis by UCLA, Occidental College and USC professors.

It only impacts properties within the city of LA's borders.

Officials estimate that it could bring in between $600 million and $1.1 billion annually, with funds earmarked for affordable housing, tenant protection programs and services to prevent people from becoming homeless. Housing advocates say it marks a huge step forward in addressing some of the city's most pressing issues.

"There are a lot of different kinds of strategies that are needed to address this complex crisis. When folks came together, it wasn't just about creating another revenue source, it was about creating a revenue source tied to specific solutions that we knew — because of our on-the-ground work — would actually benefit BIPOC communities and low income communities in LA," Joe Donlin, deputy director of Strategic Actions for a Just Economy told Patch.

Donlin's organization is part of a coalition that campaigned for Measure ULA. He says the measure will help create "transformative solutions" by allowing officials, builders and housing groups to implement creative responses to the crisis.

That includes what's known as social housing, a concept that separates housing from the for-profit market and includes residents in decision making, such as through a cooperative ownership model.

Supporters say the measure could produce 26,000 new homes over a 10-year period though strategies such as repurposing existing buildings. Other funding would go toward rental assistance, tenant eviction defense and the creation of a Tenant Council, which will advise the city on renter protections.

Implementation of the measure will be overseen by a citizen oversight committee.

Of course, not everyone is happy about new taxes.

The Howard Jarvis Taxpayers Association is suing to block the tax, with an argument centered around 1978's Proposition 13, which made it illegal to levy transfer taxes. While a more recent state Supreme Court decision may have opened the door for charter cities like Los Angeles to levy such taxes, the plaintiffs in this case argue that such a tax goes against rules outlined in LA's charter.

"We're pretty confident this is an unconstitutional tax," Susan Shelley of the Howard Jarvis association told Patch.

The association is also encouraging sellers to file refunds with the city once the tax is collected, which Shelley said would help provide sellers redress in the event the measure is overturned.

And the city will move forward with the tax despite legal challenges. Challenges to a similar tax in San Francisco led the city to place collected funds in an escrow account as the court cases moved forward, according to the Los Angeles Times.

LA officials haven't said how the challenges could impact Measure ULA spending; the City Council last month began exploring ways to implement the funds, according to the Los Angeles Daily News.

High-end sellers scrambled to unload their properties ahead of April 1, like how the seller of one hillside property was willing to throw in a free car to anyone willing to close escrow before the end of March. And soon after the measure was passed, landowners were exploring possible loopholes around the tax, the LA Time reported.

The United to House LA Coalition, which campaigned for the measure, is continuing its efforts to drum up support for the tax. The group is planning a rally Friday outside of the Apartment Association of Greater LA, which joined Howard Jarvis in the suit.

"We should be really clear about who is behind that effort. These are the big corporate landlords and big wealthy property owners who are trying to evade addressing our housing crisis," Donlin said.

The rally is set for 11:15 a.m. to 12:15 p.m. at 621 S. Westmoreland Ave.

Another lawsuit, filed by Newcastle Courtyards LLC, claims the tax violates equal protection rights under the state and federal constitutions.

Meantime, an effort is underway to get an initiative placed on next year's ballot that would invalidate Measure ULA, according to The Real Deal.

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