Measure ULA challenge lands in federal appeals court

Measure ULA is getting another day in court. 

Newcastle Courtyards, a group that has fought the measure over the last year, appealed a federal court ruling that dismissed a lawsuit seeking to abolish the City of Los Angeles’ tiered transfer taxes on commercial and residential sales above $5 million. 

The group filed a brief last week with the U.S. Court of Appeals for the Ninth Circuit, asking the court to review and overturn the dismissal. 

“In a paradigmatic case of class warfare and tyranny of the majority against the minority, on November 8, 2022, voters in the ULA Initiative, were misled by its sponsors,” Newcastle Courtyards said in its brief. 

Measure ULA was misrepresented to voters, Newcastle Courtyards argued to the Ninth Circuit, as taxes that only mansions would be subject to and real estate “millionaires and billionaires” would have to pay. The taxes add 4 percent on sales $5 million and over and 5.5 percent on sales $10 million and over. 

“The imposition of the ‘tax’ on gross sales prices (rather than net profits) of real properties sold within Los Angeles furtively targeted all types of real estate — not just ‘mansions’ — including ‘mom and pop’ apartment buildings, the stores of small neighborhood merchants and even parking lots,” the group said in its brief. 

“This levy disregarded the financial circumstances of sellers, whether they were not billionaires or even millionaires, were financially strained, selling under distressed circumstances, selling at a loss, and/or lacked sufficient equity to even be able to pay the exorbitant ULA tax,” the brief added. 

Measure ULA, which went into effect a year ago, has been widely criticized by real estate industry players for freezing sales and disincentivizing investment in the city. After the so-called “mansion tax” went into effect, Newcastle Courtyards filed its lawsuit against the city, alongside the Howard Jarvis Taxpayers Association, which sued the city in state court. 

The city originally estimated the taxes would generate $900 million annually, all of which would be placed into a special fund for affordable housing development and other revenue for tenants. 

However, a year into the measure and the city has collected $181.6 million in revenues from the program — and nothing has been spent on development yet, according to data from the city controller.

The federal court that dismissed Newcastle’s case ruled that because ULA was a tax, it did not have the power to rule on it. Under federal law, lower federal courts cannot rule on state tax measures. 

Newcastle, however, is arguing Measure ULA is not a tax that goes towards the general fund of the city. 

“It is a special fund for a special program,” Newcastle said in its brief. “The city has gotten along without this fund for over a hundred years and can continue to do so.”