In the November 2022 election, the voters of the City of Los Angeles passed Los Angeles Measure ULA (United to House LA). Measure ULA—which will go into effect on April 1, 2023—establishes and funds programs for the purposes of increasing the construction of affordable housing and providing resources to tenants at risk of homelessness. These programs are to be funded through an additional tax on the sales and transfers of real property located in the City of Los Angeles that exceeds certain value thresholds. This new addition to the existing Documentary Transfer Tax (DTT), known as the Homelessness and Housing Solutions Tax (HHST), imposes (1) a 4% tax on real property sales or transfers valued at over $5 million but less than $10 million and (2) a 5.5% tax on real property sales or transfers valued at $10 million or more. This new HHST will be in addition to the current combined City and County of Los Angeles 0.056% DTT (i.e., $5.60 per $1,000 in value) that applies to all transfers regardless of thresholds. Annual revenue from the new tax is expected to be in the range of $600 million to $1.1 billion.
The following additional items should be noted about Measure ULA and the HHST:
- Measure ULA and HHST apply only to properties located in the City of Los Angeles, and not to properties located in the other parts of Los Angeles County (e.g., properties located in Santa Monica, Beverly Hills, or Burbank)
- If the applicable thresholds are met, the applicable HHST is a flat tax imposed from "first dollar" on the sales price and is not imposed progressively. For example., if the sales price is $12 million, the HHST imposed on that transaction would be 5.5% of the total $12 million (i.e., $660,000), and not zero on the "first" $5 million, 4% on the "next" $5 million, and 5.5% on the $2 million balance
- The $5 million and $10 million thresholds will be adjusted annually based on changes in the Consumer Price Index
- Although the HHST is sometimes referred to as the "mansion tax," it also applies to commercial properties (and not just large single-family residences, as the name would seemingly apply)
- Qualified affordable housing and government entities, and nonprofit entities having assets less than $1 billion and an IRS 501(c)(3) determination for at least 10 years would be exempt from the HHST. The City Council is also authorized to enact ordinances to extend exemptions to the HHST without first obtaining voter approval
- While the existing DTT excludes the value of any remaining or assumed debt on the property at the time of the sale, the HHST tax is imposed on the property value including the value of this debt. Obviously, this can have a major implication for whether the threshold for imposition of the HHST is met
- The new tax does not change the definition of when a "transfer" or "sale" is made that would trigger the payment of DTT or HHST. Thus, special attention should continue to be given to situations where long-term leases, corporate reorganizations, or changes in the form of ownership could trigger the payment of the tax
A copy of the initiative measure as submitted to the voters can be found here.
At Venable, our Real Estate and Tax lawyers are uniquely equipped to deal with the issues raised by Measure ULA, so do not hesitate to contact Andy Schmerzler, Alen Aguilar or Nick Jacobus, or your regular contact at the firm, with any questions about the Measure and its potential implications for your business and properties.
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.