Los Angeles Property Tax Alert: Must-Know Implications of Measure ULA
Measure ULA was passed into law by voters in the city of Los Angeles in November 2022. Although Measure ULA is often referred to as the “mansion tax,” the law applies to all categories of real estate (i.e., commercial, industrial and residential) and takes effect April 1, 2023.
Measure ULA imposes a 4% tax on transfers of real property with a gross value between $5 million and $10 million, and a 5.5% tax on transfers of property with a value in excess of $10 million. The tax applies to the full gross value of the real estate transferred (inclusive of any liens and encumbrances remaining on the property). The tax does not apply to only the excess value above the applicable $5 million or $10 million threshold, but applies from the first dollar. This tax is in addition to the traditional documentary transfer tax already being collected.
Measure ULA is currently being challenged on two fronts: The Howard Jarvis Taxpayers Association has filed a lawsuit to overturn Measure ULA, arguing that the California Constitution prohibits cities from enacting special taxes with a simple majority of voters. A separate lawsuit has been filed by Newcastle Courtyards LLC arguing Measure ULA is a violation of real property owners’ equal protection rights under both the United States and California constitutions.
In addition to the judicial process, a statewide initiative has gathered enough signatures to appear on Californians’ November 2024 ballots. This initiative, known as the Taxpayer Protection and Government Accountability Act, would effectively invalidate Measure ULA by requiring that voter-proposed tax-raising local initiatives appearing on ballots after January 1, 2022, must pass with a two-thirds vote in order to take effect. Because Measure ULA passed with 57% of the vote, passage of the Taxpayer Protection and Government Accountability Act would invalidate Measure ULA.
What Real Property Owners Should Do
Transferors of real property should take certain steps while these challenges make their way through the court and ballot process. Property owners should consider strategies to mitigate the application of Measure ULA. If you are making a transfer that is subject to this new tax, the tax will be collected beginning April 1, 2023. However, within one year of payment, you should file a claim for refund. The refund claim should provide redress in the event Measure ULA is invalidated.
If you intend to engage in a real property transaction that could trigger the mansion tax, we encourage you to contact a member of Glaser Weil’s Real Estate or Tax department to address the implications of such a transaction and/or strategies to mitigate application of the tax.