Sunnyvale to poll residents on popularity of transfer tax

Do Sunnyvale residents favor increasing the real estate transfer tax on larger businesses, multi-family projects and commercial properties?

That’s the question the South Bay city will ask after the City Council voted to spend $40,000 on a poll to determine if there’s enough public support to put a transfer tax measure on the November ballot, the Silicon Valley Business Journal reported.

Sunnyvale officials say the proposed real property transfer tax is needed to fund upcoming pension liabilities and more.

Real property transfers are now taxed at $1.10 per $1,000, which is split between Santa Clara County and the City of Sunnyvale. But local governments have the option of a higher tax approved by a majority of voters.

Voters from neighboring Palo Alto, Mountain View and San Jose have approved higher transfer taxes.

While Palo Alto’s and Mountain View’s transfer taxes collect an additional $3.30 per $1,000 in sales value, San Jose has a tiered structure between $7.50 and $15 per $1,000 for property sales over $2 million.

Sunnyvale proposes a property transfer tax tied to an index — meaning if property values increase, so would the threshold amount before the tax kicks in. The city has shown that its proposal would be aimed at businesses, and impact few homeowners.

Two years ago, the city looked into asking voters to approve a higher transfer tax. But the issue reached a stalemate in a council divided over whether to seek an exemption threshold of $4 million.

The current property transfer tax has brought in an average $1.5 million a year since 2017, generating a high of $2.4 million in 2021 and an estimated low of $600,000 last year. 

During the same period, a $3 million threshold would have generated another $6.8 million a year more, on average, according to the Business Journal. A $4 million threshold would have brought in an average of $6.1 million more.

A new tax aimed at larger businesses, homes and commercial properties with a $4 million threshold would remove the vast majority of single-family home sales, Tim Kirby, finance director for the city, said. Only 10 homes in a year sold for $4 million or more.

The extra funds would help pay for pension liabilities expected to peak between 2035 and 2037, when the general fund’s reserves are expected to dip to the lowest point at $33.1 million, according to the city’s 20-year forecast. That’s down from $93.5 million in reserves in December.

“We know there is a serious crunch to the city’s finances coming in the mid-2030s with the crest of pension wave,” Councilman Richard Mehlinger told the council. “We also have heard from our residents that there is substantial demand for new programs and new services, including in areas where the city has not provided (them).

“Either we’re going to have to cut service levels or we’re going to have to raise revenues.”

Councilman Russ Melton, who cast the lone dissenting vote on the transfer tax poll, disagreed. While the intentions for the tax are good, he said it could have unintended consequences for businesses in the city.

“What happens when you make it more expensive for larger properties to be bought and sold?” Melton asked the council. “There are significant unintended consequences when you dampen reinvestment or the ability to buy and sell properties.”

— Dana Bartholomew

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