Local real estate groups are mounting a drive to stop a city of Los Angeles proposal to double the transaction tax on home and building sales.
The proposal planned for the March ballot would double the documentary transfer tax on real estate transactions within the city from the current $4.50 per $1,000 in sale value to $9. That would make the tax more than 16 times higher than most other cities in Los Angeles County.
On a $500,000 home sale, the tax would go from $2,250 to $4,500, while on a $100 million commercial building sale, the tax would jump from $450,000 to $900,000.
City officials estimate doubling the tax would generate an additional $100 million a year; money that would be used toward closing the annual city budget deficit of more than $200 million.
But a coalition of residential real estate agents and commercial building owners say raising the tax would hurt the local residential real estate market just as it’s beginning to pull out of the recession and could push lease renewal rates so high that commercial building tenants would leave the city. All this could drive down overall real estate transactions, resulting in less tax revenue for the city.
More than a dozen residential broker groups have signaled their opposition to the proposal, including the Beverly Hills/Greater Los Angeles Association of Realtors. On the commercial side, the L.A. chapters of the Building Owners and Managers Association and the National Association of Industrial and Office Properties have joined in the opposition. The Los Angeles County Business Federation, or BizFed, is also opposed.
James V. Camp, chairman of legislative affairs at the NAIOP’s Southern California chapter, said the cost increase would be significant and building owners and their tenants will react.
“There will definitely be an impact from this type of huge tax increase,” Camps said. “Investors will be motivated to purchase property outside of the Los Angeles city limits. To flee the trickle-down impact of this tax, the tenant’s alternative is to move their businesses outside of the Los Angeles city limits to surrounding municipalities that offer a more attractive tax structure. Ultimately, this actually leads to less total tax revenue being collected by the city, not more.”
City Administrative Officer Miguel Santana proposed the measure in an April report on city finances. He also suggested a 50 percent increase in the parking lot tax that would bring in $40 million a year.
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