The new Los Angeles City real property documentary transfer tax greatly increases the documentary transfer tax (“DTT”) on the sale or transfer of real estate in the City of Los Angeles.

Under current law, in addition to the statewide DTT of .11% on the value of real estate transferred, the city of Los Angeles has imposed a separate DTT of .45% for a total DTT imposed when a deed is recorded of .56% of the consideration for the property transferred.

The voters of the City of Los Angeles approved Measure ULA by a vote of 57.8% to 42.2%. Under Measure ULA in addition to the existing DTT of .56%, transfers of real property in Los Angeles for total consideration of $5 million or more but less than $10 million will be subject to a DTT of 4%. Transfers of property for consideration of $10 million or more will be subject to a DTT of 5.5%. The $5 million and $10 million thresholds are subject to increase by the consumer price index published by the US Department of Labor. For example, the sale of a property in LA for consideration of $10 million will incur a DTT of $606,000 instead of the current $56,000.

Consideration includes any debt secured by a lien or encumbrance assumed or taken subject to by the purchaser. Measure ULA does not provide for an exemption for transfers where the transferees will own the property in the same percentages as the transferors as in a conversion of an LLC to a corporation or on the transfer of property from individuals to an estate planning trust. While there may not be additional consideration in such transfers, the outstanding mortgage balances could push the consideration into taxable territory.

The text of Measure ULA is not clear on whether transfers of the equity of an entity that owns real estate will be subject to the new increased DTT. The current DTT provides for an exemption when interests of a continuing partnership are transferred unless the transfer causes a termination of the partnership under “Section 708 of the Internal Revenue Code of 1954.” While a transfer of 50% or more of the interests in a partnership in any 12 month period caused a technical partnership termination under the 1954 Code, the current 1986 Code no longer has that provision. It is unclear whether the cross-reference to the 1954 Internal Revenue Code was intentional. Measure ULA authorizes the City Director of Finance to issue implementing regulations.

Measure ULA will apply to real estate transfers occurring after March 31, 2023.

For an academic paper strongly favoring the passage of Measure ULA see UCLA Lewis Center for Regional Policy Studies.

Measure ULA was opposed by real estate groups and the Howard Jarvis Taxpayers Association.