P r o p e r t y T a x . c o m   b y    F I T Z G E R A L D   L A W   G R O U P

P R A C T I C E   L I M I T E D   T O   T H E   T A X A T I O N   O F   C O M M E R C I A L ,  I N D U S T R I A L  &  I N V E S T M E N T – G R A D E   R E A L   E S T A T E            

E s t.  1 9 8 7 

Increased Transfer Taxes

A home for sale in Corona del Mar in 2021.
The idea of imposing a tax on high-end real estate transfers is gaining steam in some local cities. Above, a home for sale in Corona del Mar in 2021.
(Susan Hoffman)

The modest South Pasadena house went on the market at just under $1.2 million and sold for a hair above $2.5 million, and when I wrote about it last month, I wasn’t surprised by the reaction.

I suggested that with crazy Southern California bidding wars, all-cash transactions and offers well above asking price, there ought to be a small equity tax on windfall gains. Plow that money into education, I said, and housing for those who are locked out of this market.

A lot of readers didn’t care much for my idea.

“The seller of the house … did pay an ‘equity tax’ … and it was not a small one,” said one. “It’s called state and federal capital gains taxes.”

Another reader made the same point and told me to “stop whining about income inequality,” saying that coming out on top can come down to “nothing more than ambition and attitude.”

Well, it’s a little more complicated than that, but let’s move on.

Yes, I’m aware that a home seller pays capital gains on profits, and that’s a big hit. There’s also a far more modest real estate transfer tax.

But this idea, which I’ve been pitching for several years, isn’t as far-fetched as some might think.

In Los Angeles, a coalition of housing providers and activists has just turned in signatures for a proposal that could end up on the November ballot. The United to House L.A. initiative would slap an added tax on property sales above $5 million and plow that revenue into housing and homelessness prevention.

In Santa Monica, Mayor Susan Himmelrich is gathering signatures for a similar proposal to fund housing and schools.

And in this state of both fantastic wealth and the nation’s highest poverty rate (factoring in the cost of living and housing), other cities are using what some have referred to as a luxury tax to shore up city services.

“The Bay Area has about a dozen cities or so with an elevated transfer tax,” including San Francisco and Berkeley, said Shane Phillips, who manages UCLA’s Randall Lewis Housing Initiative and is the author of “The Affordable City: Strategies for Putting Housing Within Reach (and Keeping it There).”

The cities use different formulas for the tax and don’t necessarily direct the revenue to housing. In Culver City, where voters approved an added transfer tax in 2020, the projection of $6 million in annual revenue has already been topped, with money going to deferred street and park maintenance, after-school programs and homeless services, among other things.

Look, I get the aversion to tax increases. I also get the argument that government ought to do more with what we’re already paying, especially in a high-tax state like California.

But housing equity has soared here and much of the rest of the country, well into the trillions of dollars. Phillips said that in Los Angeles County, assessed residential and commercial property values are rising by about $100 billion a year.

But while millions of people become millionaires, on paper, millions of working people can’t afford the median L.A. home price of $800,000 and are paying ever-rising rent. Thousands more are homeless. And it doesn’t help that corporations are snatching up houses and turning them into rentals, squeezing out prospective buyers.

If you’re one of the lucky ones whose home has become a commodity rather than a place to sleep, it’s partly because of the luck of timing and federal, state and local government policies that favor those who can afford to buy a home at the expense of those who can’t.

You get to deduct mortgage finance fees.

Depending on when you bought in California, Proposition 13 has kept your property taxes low while your newer neighbors pay far more, essentially subsidizing those with artificially low taxes. And commercial properties have enjoyed an even bigger Proposition 13 benefit by using legal maneuvers to avoid reassessment at the time of sale.

Also, because much of the state has been zoned for single-family homes — with widespread homeowner opposition to less expensive, higher density housing — the value of the three-bedroom ranch keeps going up. In the case of the South Pasadena seller, he bought the house in 1983 for $155,000, and sold this spring for $2.5 million.

He and other sellers deserve their good fortune, and I’m not asking them to fork over all the profits. I’m suggesting that at the time of sale, a tiny fraction of their government-sponsored profits could be used in ways that help nurses, teachers, drivers, domestic aides, landscapers, retail workers and others who are essential to the economy but locked into long commutes and rising rents that take bigger and bigger bites out of their paychecks.

“We built Santa Monica on the backs of these people and now we simply can’t house them,” Himmelrich said. She said she and her husband — like her, an attorney — expect to pull about $200,000 out of their own pockets in trying to qualify a ballot measure that would add a 5% tax on residential and commercial properties that sell for $8 million or more.

Himmelrich hopes to raise $50 million a year from the added tax and use the money for rental assistance, homelessness prevention, affordable housing and schools.

In Culver City, the transfer tax went from 0.45% to 1.5% on houses selling for $1.5 million. The tax is 3% on sales between $3 million and $10 million, and 4% on sales above that mark.

It’s easier to pass proposals that add a tax only to high-end sales, because only the very wealthy take a hit. But Culver City Councilman Alex Fisch pushed for the $1.5-million threshold as a matter of principle. He said he wanted more people “to have skin in the game” rather than slapping a big tax only on the wealthiest residents.

“I feel like my constituents believe in Culver City and believe in each other,” Fisch said.

Under the United to House L.A. initiative, the current 0.45% transfer tax would jump to 4% on property sales above $5 million, and go up to 5.5% on sales above $10 million.

Laura Raymond, one of the coalition leaders, told me the tax would apply to only 3% of all sales in the city but produce more than $800 million in revenue each year. The coalition says it will use the money to build 26,000 units of affordable housing in 10 years and provide housing stability to 475,000 renters annually.

You may occasionally receive promotional content from the Los Angeles Times.

“We’re creating a tale of two wildly different cities and now is the time to do something really bold,” Raymond said, calling the struggles of the homeless, overburdened seniors and strapped renters a humanitarian crisis.

There has been and will be more pushback on these kinds of proposals in Santa Monica, Los Angeles and elsewhere. A real estate industry rep argued in December that increasing taxes on real estate transactions “sends the wrong message as it further increases the already high cost of housing in the region without addressing the core issue — that we are still in a housing production and affordability crisis.”

But Michael Manville, associate professor of urban planning at UCLA, has a different take.

“If the value of your house doubles, that’s not because you did a killer kitchen remodel. It’s because L.A.’s economy took off like a rocket. Did you personally kickstart the L.A. economy? Impressive as you are, probably you didn’t,” Manville said.

“The community as a whole created that value, and there is no particular reason that you should mop up a big share of it while someone who rents gets punished for it, simply because you were lucky enough to own a house while it happened.”

California may tax itself into oblivion

California weighing proposal that could double its taxes

The bill could increase taxes by roughly $12,250 per household

By Megan Henney FOXBusiness

U-Haul Vice President Stuart Shoen argues that last year’s ‘mass outflow’ of people from California led to the most significant ‘inability for us to meet our customer demand.’
California lawmakers unveiled a new bill at the beginning of the year that would establish a single-payer health care system – an ambitious plan that would be funded by nearly doubling the state’s already-high taxes.

A new analysis from the Tax Foundation, a non-partisan group that generally advocates for lower taxes, found that the proposed constitutional amendment would increase taxes by roughly $12,250 per household in order to fund the first-of-its-kind health care system. In all, the tax increases are designed to raise an additional $163 billion per year, which is more than California raised in total tax revenue any year before the pandemic.

The proposal includes three main revenue raisers, according to Jared Walczak, a fellow at the Tax Foundation: Higher income taxes on wealthy Americans, a payroll tax on certain employees’ wages for large companies, and a new gross receipts tax.

California Gov. Gavin Newsom leaves a news conference in Sacramento, California, on Jan. 10, 2022. (AP Photo/Rich Pedroncelli / AP Newsroom)
Under the bill, the top marginal rate on wage income would soar to 18.05% – well above the median top marginal rate of 5.3% and the state’s existing rate of 12.3%. There would be an 18-bracket system, with higher taxes kicking in for individuals earning more than $149,509.The highest rate would apply to those who earn more than $2,484,121.

Here’s a closer look at how the tax system would be structured, based on individual income:

2.25%: $0
3.25%: $9,324
5.25%: $22,106
7.25%: 34,891
9.25%: $48,434
10.25%: $49,900
11.55%: $61,213
12.05%: $299,509
12.55%: $299,509
13.05%: N/A (for married couples, this applies to income of $599,013)
13.55%: $312,865
14.05%: N/A (for married couples, this applies to income of $625,371)
14.55%: $375,220
15.05%: $599,013
16.05%: $625,368
17.05%: $1,000,000
17.30%: $1,299,500
18.05%: $2,484,121

California would also expand the payroll tax paid by employees who earn more than $49,990 in annual income if they work for a company that has more than 50 workers. Walczak noted the plan could deter small businesses from expanding by inadvertently creating a tax cliff. For instance, if a company that had 49 workers earning $80,000 each hired one additional employee, they would suddenly create a tax bill of more than $90,000.

Finally, the state would also adopt a new 2.3% gross receipts tax (GRT) on qualified businesses minus the first $2 million in annual gross receipts, at a rate more than three times that of the country’s current highest GRT.

Walczak noted the proposed tax increases come as California grapples with a high number of residents who are leaving for red states with lower tax burdens. A separate Tax Foundation analysis based on Census Bureau data shows that California’s population actually declined 0.8% in 2021, even as states with lower taxes saw their populations increase.

“Practically doubling state taxes—even if the burden is partially offset through state-provided health coverage—could send taxpayers racing for the exits,” Walczak wrote.

The taxes would fund government-run health care for all Californians, which supporters say would offset the costs of higher taxes and would save money in the long run.

Gov. Gavin Newsom, a Democrat, has said that he supports single-payer health care in the past, although he has not commented on this specific proposal. The Assembly Bill 1400 was sponsored by Assemblyman Ash Kalra.

Oracle going to Tennessee, will create 8,500 jobs

Tennessee officials will reportedly supply the private company Oracle with more than $100 million in incentives.

This according to The Nashville Business Journal, which reported the news Friday.

“Oracle will benefit from more than $100 million of state-level incentives and related spending for its record setting tech campus on the Cumberland River’s East Bank waterfront,” the publication reported.

“Bob Rolfe, commissioner of the state Department of Economic and Community Development (ECD), confirmed in an interview that the state’s investment will exceed the $100 million mark.”

The incentives, The Nashville Business Journal went on to say, include two highway underpasses that will connect to Oracle’s waterfront campus. Another incentive is one of the largest job grants in state history.

MarketWatch reported last month that Oracle intends to deliver 8,500 jobs and invest $1.2 billion in Nashville.

The Tennessee Star reported in January that Metro Nashville officials evaluated whether to spend $13.8 million in new infrastructure costs to allow Oracle to set up shop in Davidson County.

Metro Nashville At-Large Council Member Steve Glover said at the time that “the money basically was already committed.”

“The governor and the state are dumping a lot of [state] money in it. It will create more jobs,” Glover said at the time.

“Believe me, with the mess that we’re in financially we come out ahead on it. But I don’t understand why we are debating it so hard because we basically had the money that we have already approved. The basics were already done.”

ECD officials said at the time that they had not provided Oracle with any state incentives.

According to its Facebook page, Oracle is a cloud technology company that provides computing infrastructure and software.

The Nashville-based News Channel 5 reported last week that members of the Metro Nashville Council had approved the agreement, “the largest economic development deal in Tennessee’s history.” The vote, the station reported, was unanimous.

“Metro will reimburse Oracle half of the property tax revenue they generate over the next 25 years, or until the company’s $175 million investment is paid off. The other half of the new property tax base would benefit the city’s general operating fund,” the station reported.

“Council Member Zulfat Suara added an amendment to the resolution that would use generated tax revenue for affordable housing initiatives.”

– – –

Chris Butler is an investigative journalist at The Tennessee Star. Follow Chris on Facebook. Email tips to chrisbutlerjournalist@gmail.com.

Delinquent Tax Sales in Kansas

Wyandotte County says it auctions residential property as soon as the law allows — when taxes are three years behind. It says the goal is to put properties into “responsible hands” to improve the appearance of neighborhoods.

A lot of the properties don’t sell at auction, and the county then gets them through the Wyandotte County Land Bank, a public authority that now has about 3,500 properties — nearly all of them acquired through tax foreclosures.

Katherine Carttar, local director of economic development, said the county decided to be more proactive with delinquent property taxes about three years ago and to use the land bank more as a way to rebuild neighborhoods. At a virtual conference last year touting its successes, she showed slides featuring now-renovated homes and credited the program with raising property values and the county’s tax base.

Critics say Wyandotte County has a disproportionately high number of delinquent tax sales compared with the rest of the state, and that the effort deprives residents of hard-fought gains in communities that for generations have faced discrimination.

Wyandotte County, where 21% of residents live in poverty, has whole city blocks of foreclosed property for future redevelopment. Displaced property owners get no compensation, Haley noted.

Carttar says most properties in the land bank have been long abandoned. The upcoming online delinquent tax sale lists 43% of properties as vacant.

The practice comes against the national backdrop of a wealth gap between white and Black households. The “first rung of the wealth building ladder” is homeownership, said Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies, a progressive research group.

Nearly 72% of white Americans owned their own homes in 2017, compared with just slightly more than 42% of Black families, according to the U.S. Census Bureau.

“Here we are during a pandemic where the racial impact of the pandemic has not been equal. It has been disproportionately borne by Black and brown people and there is a huge risk of evictions and foreclosures coming out of the pandemic once the various moratoriums are lifted,” Collins said. “So it might be a time not to pursue aggressive tax sales.”

The two Black county commissioners who represent neighborhoods hard hit by the sales did not respond to interview requests from The Associated Press.

In the Dotsons’ case, Haley noticed that their house was on the auction list and alerted them. They went to pay the full $2,300 in delinquent taxes the day of the sale, but were told it was too late, Rozetta Dotson said.

They eventually got their home back — by paying back taxes plus legal fees for the attorney for the real estate company that had bought it. The total was $5,200.

Haley successfully warned another Black resident, Karen Pitchford-Knox, that the house where she’d grown up was on the auction block this January. When Pitchford-Knox’s mom died in 2016, she inherited the house as well as more than $5,000 in delinquent property taxes. She got behind on her payment plan after losing her job during the pandemic.

Pitchford-Knox had about two weeks to — as she put it — “beg, borrow and steal from Peter and Paul” the $1,000 for the taxes.

“I most definitely do feel they are targeting Black homes,” she said, noting she knew three other Black women whose homes were on auction lists. “I feel it is like Black female homeowners and Black seniors.”

California Split-Roll

It’s been 42 years since California voters sharply altered the state’s political dynamics by overwhelmingly passing Proposition 13 to slash property taxes, ignoring virtually unanimous opposition from leaders of both political parties.

It’s also been 42 years since Proposition 13’s opponents — public employee unions and others with stakes in government spending — first began plotting how to overturn it.

They assumed, or hoped, that the state Supreme Court would invalidate it. But a generally liberal court refused to do so. They hoped that voters would quickly change their minds once the reduction of revenues affected local government services and schools. That didn’t happen either.

In fact, in polling year after year, Proposition 13 proved to be enduringly popular with voters, despite criticism that it unfairly favored some homeowners over their neighbors and was a windfall to owners of commercial properties, such as office buildings, warehouses and hotels.

Even when California began its historic political evolution from a somewhat conservative state to one of the nation’s bluest bastions, Proposition 13 seemingly remained untouchable, as demonstrated by Jerry Brown’s attitude towards it.

He was a governor seeking his second term when it appeared on the June 1978 ballot and, like other political figures of the time, opposed it, calling it “a ripoff.” But as soon as it passed by a nearly 2-to-1 margin, Brown declared himself to be a “born-again tax cutter” and sponsored a state income tax reduction to align himself with what the media called “a tax revolt.”

Thirty-two years later, when Brown returned to the governorship and faced a severe state budget crisis, he was frequently asked whether it was time to repeal Proposition 13 but consistently ducked it. He did, however, sponsor a state income tax increase that, in spirit, undid the tax cut he and the Legislature had quickly enacted in 1978.

Meanwhile, the union-led anti-Proposition 13 coalition continued to seek ways to attack it, finally settling on what’s called a “split roll” to partially remove some of the tax limits on commercial property while maintaining those for residential real estate. After many false starts, the coalition decided that the 2020 presidential election, with anti-Donald Trump sentiment likely to spark a big turnout of Democratic voters, would be the moment.

That’s how Proposition 15 came to appear on November’s ballot. If passed, it would raise taxable values on commercial property to current market levels, raising as much as $12 billion a year for local governments and schools.

However, the measure’s backers had no way of knowing that the COVID-19 pandemic and the severe recession it spawned would visit themselves on California, changing the tenor of their battle with business groups over the issue.

While proponents argue that the new revenue is needed to keep vital public services, including schools, from being slashed, opponents argue that with businesses already suffering, this is the wrong time to saddle them with more taxes.

Gov. Gavin Newsom lent his support to the measure this month, saying “it’s a fair, phased-in and long-overdue reform to state tax policy (and) it’s consistent with California’s progressive fiscal values…”

However, a few days later, the Public Policy Institute of California released a new poll indicating that support is, to say the least, tepid with just 51 percent of likely voters inclined to vote for it before opponents unleash a multi-million-dollar advertising barrage against it.

Both proponents and opponents know that Proposition 15 is a proxy battle over whether Proposition 13 is still an untouchable icon. It’s showdown time after 42 years of skirmishing.

CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary

Defund the Police? Not in Texas

Texas could freeze property taxes in cities that defund police, governor warns

Texas Gov. Greg Abbott warned cities that defund their police departments that the state will freeze their property taxes, a move meant to deter cities from shrinking police budgets.

Texas Gov. Greg Abbott warned cities that defund their police departments that the state will freeze their property taxes, a move meant to deter cities from shrinking police budgets.

(CNN)Texas Gov. Greg Abbott has announced plans to freeze property taxes in cities that vote to defund their police departments. The state is particularly dependent on property taxes for revenue, so the move could be stifling.

“Any city that defunds police departments will have its property tax revenue frozen at the current level,” Abbott said this week. “They will never be able to increase property tax revenue again if they defund police.”
His announcement came one week after Austin city officials voted to cut the Austin Police Department budget by a third and funnel those funds into social services.
There's a growing call to defund the police. Here's what it means

There’s a growing call to defund the police. Here’s what it means Abbott said the move to defund police departments — which involves reallocating funds from police departments to services like education, housing and health care, rather than abolishing police departments outright — “puts Texans in danger and invites lawlessness into our cities.” “Cities that endanger their residents should not be able to turn around and raise more taxes from those same Texans,” he said in a statement on Tuesday.

Austin votes to defund police

The Austin City Council voted last week to cut $150 million from the Austin police budget.
Of those cuts, $21 million will be redistributed to community resources like housing, violence prevention and mental health care, $49 million will be used to fund alternative community safety measures and $80 million will go toward transferring some police services, like forensics and 911 dispatch, to civilian control.
Calls to defund police have echoed through Austin, the state capital, since protests against racism and police brutality began there in late May.
One dead after shots fired during protests in Austin
Austin Mayor Steve Adler said Abbott’s announcement was meant to “make us scared” and that the city made those police cuts “because safety is our primary concern.” “It’s about redefining public safety into a conversation that centers on the safety of the most marginalized among us,” Adler tweeted. “It’s about culture, it’s about reimagining & it’s about trust. It’s about black lives matter. It’s about searching for the promise of finding & institutionalizing justice … 1000s of Austinites marched in the street demanding justice & action.”

Property taxes are essential in Texas

Texas doesn’t have a state property tax, but local tax offices decide local property taxes, which are used to fund schools and other city services and infrastructure.
Property taxes are “the largest own-source of revenue” for cities, school districts and special districts like water and sewer authorities, according to the Tax Policy Center, a joint venture by economic think tanks, the Urban Institute and the Brookings Institution.
They’re especially important in Texas, where property taxes make up more than 30% of state and local revenue, according to the Tax Policy Center.
Freezing property taxes means they won’t increase, which can happen if a neighborhood’s value increases or local laws change. Currently, only residents ages 65 and older or those who are disabled are eligible for property tax freezes, according to the National Conference of State Legislatures.
Go to Top