A taxpayer rights nonprofit and a landlord advocacy group has filed a lawsuit to block a new real estate tax placed on large property sales to fund affordable housing and homeless services in Los Angeles.
Initiative Ordinance ULA proposed enacting a 4 percent property sales tax on properties that are sold or transferred for more than $5 million. The tax increases to 5.5 percent on transactions exceeding $10 million.
The Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles claimed in the lawsuit filed in Los Angeles Superior Court on Dec. 22, 2022, that the measure violates the California Constitution and the Los Angeles City Charter and is “substantively invalid.” Passed by 57.8 percent of voters during the Nov. 8 election, the ballot measure will take effect on April 1, 2023.
The taxpayer group said in a statement the measure is a “special” tax, and not a “general” tax because its revenue would be dedicated to housing and homeless services.
Proposition 13, an amendment to the state constitution passed in 1978 by California voters, prohibit transfer taxes, but since Los Angeles is a charter city, transfer taxes have been permitted under case law since 1990 if they are for a general purpose, the group noted.
“The [California] Constitution prohibits all local governments from imposing special transfer taxes,” said Laura Dougherty, the group’s director of legal affairs, in the statement. “The Los Angeles City Charter confirms that legislation by initiative may not transcend this prohibition.”
The apartment association said the tax would lead to loss of investment and higher cost of living in the city.
“If this unlawful tax is allowed to stand, it will be the last straw that will cause property owners to invest elsewhere and never to come back to Los Angeles, following nearly three years of challenging rent collections and no allowable rent increases due to so-called ‘temporary’ moratoriums,” said Daniel Yukelson, executive director of the association, in a statement. “The punitive tax increase imposed by Measure ULA would ultimately trickle down to consumers in the form of higher prices for consumer goods and services, including higher rents.”
According to the measure’s text, it will authorize and create “programs to increase affordable housing and provide resources to tenants at risk of homelessness.”
Homelessness increased by 1.7 percent in the City of Los Angeles and by 4.1 percent in the county since the COVID-19 pandemic, with the 2022 point-in-time count showing over 41,000 homeless people citywide and nearly 70,000 countywide.
