Landlord group files legal challenge to LA’s transfer tax

Lawsuit states: “Measure ULA is invalid”

AAGLA's Dan Yukelson
AAGLA's Dan Yukelson

Landlord advocacy group Apartment Association of Greater Los Angeles has joined with a nonprofit tax policy lobbying group to file the first legal challenge to Measure ULA, the controversial new City of L.A. transfer tax measure.

“Measure ULA is invalid,” argues the complaint, which was filed on Thursday in L.A. County court.

“If the Measure ULA tax increase is imposed as scheduled on April 1, 2023, great and irreparable harm will result to plaintiffs, and to all Los Angeles property owners in being required to pay unconstitutionally imposed taxes,” the lawsuit states.

The legal challenge hinges on the new tax’s stated allocation: While some transfer taxes have been permitted in California charter cities, the complaint says, “transfer taxes that are ‘special taxes,’ however, are prohibited for all local governments.” It goes on to argue that Measure ULA is actually a special tax because the revenue it would generate is “specifically dedicated to housing and homeless services.”

To the proposal’s supporters, that was the whole point: The transfer tax, which passed with voters by a wide margin, is intended to alleviate the city’s seemingly intractable homelessness crisis by raising a substantial new revenue source. Backers argue it will raise as much as $1 billion annually. After it passed, some supporters praised it as “the largest housing ballot measure in American history.”

The measure, often called a mansion tax, was backed by a coalition of labor and community groups. It applies to all property sales in Los Angeles above a $5 million threshold. It imposes a 4 percent tax on deals between $5 million and $10 million, with the tax rising to 5.5 percent on deals above $10 million.

Yet while some affordable housing developers have been celebrating, many real estate players, including luxury brokers, have bitterly opposed the new tax, arguing it will not only cool residential and commercial sales but also backfire by actually stifling housing development. Some also took particular issue with the measure’s failure to account for a given property deal’s net profit or loss — the way the law is written a homeowner who sells a house for $5 million pays the same transfer tax whether he bought the home for $3 million or $10 million.

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“The real issue is that this was not thought out by rational businesspeople, and it defies common sense and basic logic,” one email, from the luxury broker Stephen Shapiro, said this fall. Shapiro added in an interview, “Let’s call it the ‘Let’s get the rich movement. It’s so ill-conceived.”

“It is a major threat,” Dan Yukelson, the executive director of AAGLA — whose name is now on the legal complaint — said in October, before the measure passed. “It sounds great. It’s a great rallying cry for voters. ‘We’re going to take all this money from rich people and help the homeless.’ In the long run, this is going to come back and bite us in the ass.”

With the tax’s April implementation looming, some residential and commercial brokers are advising clients to sell now to avoid it, while other brokers and property owners have been pondering more dubious methods, such as agreeing to a sale price just under $5 million but separately selling the home’s furniture.

Some developers have frozen projects, concluding that the extra tax means their plans will no longer pencil.

The Howard Jarvis Taxpayers Foundation joined AAGLA as a plaintiff in the lawsuit. The 65-page complaint demands the City of L.A. invalidate the measure and pay the plaintiffs’ legal fees.

The City Attorney’s Office declined to comment.

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