In November 2022, Measure ULA, commonly known as the "Mansion Tax," was passed into law by the City of Los Angeles voters. This tax applies to all categories of real estate, including commercial, industrial, and residential properties located in the City of Los Angeles, and took effect on April 1, 2023.
Measure ULA added Section 21.9.2(b) to the Los Angeles Municipal Code, which imposes a 4% tax on transfers of real property with a gross value between $5million and $10 million, and a 5.5% tax on transfers of property with a gross value exceeding $10 million. The applicable tax rate is applied to the entire value of the property (regardless if it is sold at a gain or loss or if the property is encumbered by a deed of trust). Further, the Measure ULA tax is imposed in addition to both Los Angeles County’s documentary transfer tax and the City of Los Angeles’s documentary transfer tax in effect prior to April 1, 2023. It is also important to note that the Measure ULA tax is imposed on purchases and sales of real estate that are part of Section 1031 exchanges.
The purpose of Measure ULA is to fund affordable housing projects and provide resources to tenants at risk of homelessness. While initially popular with voters, the constitutionality of Measure ULA is currently being challenged through two separate lawsuits in Los Angeles Superior Court. The first lawsuit was filed in December of 2022 by the Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles. The second lawsuit was filed in January of 2023 by Newcastle Courtyards LLC. In addition, a statewide initiative known as the Taxpayer Protection and Government Accountability Act has qualified for the November 2024 ballot. The ULA tax measure was not passed by a two-thirds majority. Therefore, if this initiative is approved by a 50+% majority, the initiative would invalidate any local tax enacted since January 1, 2022 including the ULA tax.
Property owners who end up paying the Measure ULA tax should prepare themselves in case Measure ULA is invalidated as a result of the court cases or ballot initiative described above. Specifically, affected taxpayers should within one year of payment of the Measure ULA tax, file a claim for refund using the Claim for Refund Application form (Form # 96.006(a)).
The Claim for Refund Application form requires a reason for filing for a refund. Given the contested nature of Measure ULA, we suggest filing a protective claim for refund which is being filed in case the tax imposed by Section 21.9.2(b) of the Los Angeles Municipal Code is ruled to be unconstitutional (or to otherwise violate any California or federal statute) or is otherwise rescinded. Measure ULA also provides exemptions for certain organizations, such as qualified affordable housing organizations, non-profit entities, and other agencies exempt from the City's taxation power. In addition, the exceptions to the previously existing City of Los Angeles documentary transfer tax (such as for a mere change in identity, form or place of organization) would likely apply to the Measure ULA tax, but at this point, there is no legal authority that would permit us to provide specific advice on available exemptions.
If you intend to engage in a real property transaction that could trigger Measure ULA, it is recommended to contact the Tax department at Greenberg Glusker to address the implications of such a transaction and/or strategies to mitigate the application of the tax. As legal challenges and statewide initiatives continue to unfold, property owners should remain vigilant and informed about the potential impacts of Measure ULA on their City of Los Angeles real estate transactions.