Who’s exempt from Measure ULA transfer tax?

When UCLA bought a former mall in West L.A., its seller paid nothing under the city’s “mansion tax.” But when the head of Arizona’s public universities bought a building Downtown, its seller had to fork out nearly $900,000. Confusing?

A review of deeds for commercial property sales priced above $5 million since the Measure ULA transfer tax took effect shows a wide variance in how the levy has been applied, according to an investigation by CoStar News.

The differences have led to confusion among property investors as voters ponder whether to scrub or save the tax.

Under the city’s transfer tax to support affordable housing, deals involving nonprofit agencies,  government or public entities and housing cooperatives are exempt. The law makes sellers responsible for paying the tax.

CoStar News, however, reviewed dozens of deeds and found the tax was paid on some deals that involved nonprofit or government buyers. In other cases, the tax was not paid on deals involving similar agencies.

This month, the University of California bought a former Los Angeles mall for $700 million with plans to create a research lab at 10800 West Pico Boulevard. The sellers, Hudson Pacific Properties and Macerich, were exempt from paying more than $40 million in taxes because the buyer was a public university. 

In July, the Arizona Board of Regents bought a 172,000-square-foot building at 919 South Grand Avenue, to be used by Arizona State University, for an unknown price. The seller, Fashion Institute of Design & Merchandising, was forced to pay $892,500 in transfer taxes. 

The Fashion Institute is appealing the tax. The school applied for a refund from the City of Los Angeles Office of Finance. A city spokesperson told CoStar News the institute’s claim is under review. 

As of November, the city collected $142.7 million from the transfer tax, well short of the $1 billion the levy had originally been projected to generate. That figure may change after the city audits its own records and determines whether payments, or nonpayments, were appropriate, according to CoStar.

Since April, Measure ULA’s 4 percent tax has been levied on nearly all commercial and residential property sales or ownership transfers above $5 million in Los Angeles, while a 5.5 percent levy is charged on properties selling or transferring above $10 million. 

Before April, each of those taxes was 0.45 percent.

Groups exempt from the new tax can include affordable housing organizations, nonprofits and government agencies. Real estate experts, however, say not all the tax’s rules have been ironed out — with gray areas as to who qualifies for an exemption.

The city’s Office of Finance has received 14 refund claims, of which three are seeking exemptions from the tax and 11 are challenging the tax’s legality, according to a spokeswoman for the city’s Housing Department.

Some $21.5 billion in commercial property sold in Los Angeles County last year, down from $41.2 billion in 2022, according to CoStar.  Some blame the drop, in part, on the transfer tax.

The new tax “is definitely not black and white,” Michael Wiener, a Los Angeles real estate attorney and partner of Greenberg Glusker, told Co-Star News. “There’s a lack of guidance. It’s challenging to give your clients the best advice.”

The confusion around Los Angeles’ new transfer tax may result in the measure’s downfall, critics say.

In November, California residents are set to vote on a state ballot initiative aimed at dismantling special tax increases including L.A.’s mansion tax. 

If approved, the Taxpayer Protection and Government Accountability Act would require two-thirds voter approval for all new local special tax increases and upend special tax increases like L.A.’s Measure ULA whose passage didn’t reach that voter threshold.  

A lawsuit challenging the tax’s legality aims to return money back to ULA taxpayers. The lawsuit, filed by the Apartment Association of Greater Los Angeles, lost an initial court ruling and its plaintiffs are appealing that decision. 

— Dana Bartholomew

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