It has been more than three months since Measure ULA (a/k/a the LA Mansion Tax and the Homelessness and Housing Solutions Tax)¹ became effective in the City of Los Angeles.² Measure ULA imposes a new special transfer tax (the ULA Tax) on residential and commercial real estate valued at more than $5 million.³ When applicable, the ULA Tax is payable in addition to the Los Angeles City and County documentary transfer tax (the Base Transfer Tax). Unlike the Base Transfer Tax, the ULA Tax is calculated on the full sale price or fair market value of the real property that is the subject of the transfer (i.e., the calculation does not exclude the value of any lien or encumbrance assumed or taken subject to in connection with the sale or transfer). For more information on the ULA Tax, please refer to our previous Client Alert addressing Measure ULA here.

Measure ULA left a number of questions regarding its implementation unanswered but authorized the Director of Finance to issue rules and regulations for the implementation of the ULA Tax. Notably, Measure ULA amended the City of Los Angeles Municipal Code to authorize the Director of Finance to further define the term “realty sold,” which term triggers both the Base Transfer Tax and the new ULA Tax, and which authority may be used by the Director to expand the scope of transactions that trigger the Base Transfer Tax and the new ULA Tax.

Although the Director of Finance has yet to issue formal rules and regulations, the City of Los Angeles Office of Finance has posted a Real Property Transfer Tax and Measure ULA FAQ page (click here) that is updated from time to time. A recent update to the FAQ page confirms that “all other transactions which are exempt from the base Real Property Transfer Tax per local, state, or federal laws and regulations” are also exempt from the ULA Tax. Hence, the FAQ page answers the question of which Base Transfer Tax exemptions, if any, apply to the ULA Tax, which was one of the important questions that was left unanswered regarding the scope of the ULA Tax. Taxpayers can now safely conclude that all exemptions that apply to the Base Transfer Tax also apply to the ULA Tax. These exemptions include, among others, transfers effectuating a mere change in the form of ownership and transfers by foreclosure or deed in lieu of foreclosure.

Despite the updated guidance from the City of Los Angeles regarding the ULA Tax exemptions, the city has not yet provided guidance regarding a number of other unresolved questions relating to the implementation of the ULA Tax, including the applicability of the ULA Tax to transfers of interests in entities that own real property within the city and the application of the thresholds established for the ULA Tax to portfolio sales involving different properties situated within the city limits. We expect that the city will adopt the same general rules for the applicability and implementation of the ULA Tax as for the existing Base Transfer Tax.⁴

Also, while the updated FAQs clarify that the Base Transfer Tax exemptions will apply to the ULA Tax, it is not clear how the city will administer the ULA Tax exemptions. The plain language of the FAQs currently suggests that all ULA Tax exemptions (including the Base Transfer Tax exemptions) will be processed through the city’s refund process following the payment of the ULA Tax. However, we do not expect that exemptions to the ULA Tax based on the existing exemptions to the Base Transfer Tax (e.g., transfers effectuating a mere change in the form of ownership and transfers by foreclosure or deed in lieu of foreclosure) will require up-front payment of the ULA Tax followed by a claim for a refund.⁵

^[1] Although the ULA Tax is sometimes misleadingly advertised and referred to as a “mansion tax,” it applies to both residential and commercial real estate transactions.
^[2] The ULA Tax went into effect on April 1, 2023, and will remain in effect until repealed by the people of the City of Los Angeles. San Francisco, Culver City, Santa Monica, and a number of other California cities have recently also passed similar measures imposing new transfer taxes or increasing existing transfer tax rates for real estate transactions.
^[3] The tax rate for the ULA Tax is (i) 4% when the consideration or value of the interest or property conveyed exceeds $5 million but is less than $10 million, and (ii) 5.5% when the consideration or value is $10 million or more. The foregoing thresholds will be adjusted annually based on inflation. The ULA Tax is not a progressive tax (i.e., it applies to the entirety of the consideration or value of a property, not just the portion of the value or consideration that exceeds the applicable dollar threshold).
^[4] As noted above, the city’s latest update to the FAQs confirms that all transactions that are exempt from the Base Transfer Tax are exempt from the ULA Tax, which reinforces our assumption that the city will adopt the same general rules for the applicability and implementation of the ULA Tax as for the existing Base Transfer Tax.
^[5] The particular FAQ on the city’s Real Property Transfer Tax and Measure ULA FAQ page (number 13) suggests that all of the ULA Tax exemptions (regardless of which ones) will be processed through the city’s refund process following the payment of the ULA Tax. However, this particular FAQ was not updated in connection with the recent update regarding the ULA Tax exemptions, which previously included only exemptions for certain non-profits, community land trusts, limited-equity housing cooperatives, government entities, and other entities with experience in affordable housing. As such, and given that the Base Transfer Tax is not collected up front (followed by a refund process) in connection with transfers that are exempt from the Base Transfer Tax, we expect that the administration of the ULA Tax will be the same, such that if a transfer is exempt pursuant to one of the Base Transfer Tax exemptions, the taxpayer will not be obligated to first pay the ULA Tax and then apply for a refund.

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