Taxes Taxes and More Taxes

​This week in our pre-labor day update, we look at four very local tax issues that will be on the ballot in November.

Real Property Transfer Tax Increase (Proposition W)

The Board of Supervisors adopted a proposal sponsored by Supervisors Kim, Campos, Peskin, Mar, Avalos, and Yee to support a ballot measure that will increase the Real Property Transfer Tax on properties sold for at least $5 million. The Real Property Transfer Tax is currently imposed on any transaction that results in a “transfer” of real property in the City. The definition of a “transfer” is broad and includes certain transfers of corporate stock, partnership shares, or limited liability company interests, if the transfer would constitute a “change of ownership” under California law. If adopted, this measure would increase the Real Property Transfer Tax rate from 2% to 2.25% on properties with a value of at least $5 million and less than $10 million; from 2.5% to 2.75% on properties with a value of at least $10 million to less than $25 million; and 2.5% to 3% on properties with a value of at least $25 million. Approval of the initiative requires an affirmative vote of the majority of voters. 

The actual financial impact of the transfer tax increase would be limited. For real property sales of $5 million, the additional tax would be $12,500, and for sales of $10 million, the additional tax would be $25,000. However, the transfer tax rates were mostly recently increased in 2010 (by 0.5% for transfers of $5M or more and by 1% for transfers of $10M or more). Some property owners consider the further increase of transfer taxes to be yet another burden on property ownership and doing business in San Francisco.

City to Be Responsible for Maintaining Street Trees (Prop. E)

The Board of Supervisors proposed a charter amendment sponsored by Supervisors Avalos, Weiner, and Mar that would transfer the responsibility for the maintenance of trees growing within the public right-of-way, or “street trees,” to the City. Currently, a property owner whose property is adjacent to a street tree is responsible for that tree and the sidewalk areas adjacent to it. Current law provides that a property owner is liable for injuries or property damage that result from that owner’s failure to maintain an adjacent street tree or sidewalk. If approved by a majority of the voters, the charter amendment would transfer responsibility of and liability for the maintenance of street trees to the City, establish the Street Tree Maintenance Fund to pay for the maintenance of street trees, and require an annual financial set-aside for the Fund. No parcel tax is associated with this measure. If approved, the City’s responsibility of street trees would begin on July 1, 2017 and would include street trees planted before and after that date. The amendment includes a “safety valve” in that the Mayor has the authority to terminate the charter amendment before January 1, 2017 if there is not sufficient budget capacity to cover the maintenance obligations. This charter amendment is likely to be well received by all property owners, especially those homeowners that have difficulty funding expensive tree repairs.

SF Community College Parcel Tax (Prop. B)

The San Francisco Community College Board of Trustees submitted a ballot measure that will increase and renew the local control parcel tax. The existing annual tax, approved by the voters of San Francisco as Measure A during the November 6, 2012 election, is $79 per parcel and would expire in 2021. If this ballot measure is approved by at least two-thirds of voters, the parcel tax will be increased to $99 per parcel, commencing July 1, 2017 and expiring in 2032. The proceeds of the parcel tax may only be applied to specific programs, like “attract and retain community college teachers” and “Keep school libraries open.”

General Sales Tax Increase (Prop. K)

The Board of Supervisors adopted a proposal sponsored by Mayor Lee and Supervisors Farrell and Weiner to support a ballot measure that would increase the sales and use tax by 0.75% for 25 years. Currently, the combined state and local sales and use tax rate is 8.75%, but a portion of the state component will expire on December 31, 2016. If adopted by a majority of the voters, this measure would increase the combined sales and use tax rate in the City to 9.25%. The funds raised by this increase are expected to off-set the set-asides proposed in Prop. J on the ballot for the proposed Homeless Housing and Services Fund and the Transportation Improvement Fund.

While this sales tax increase may not directly impact real estate ownership, there is the perception that a further increase in the cost of doing business in San Francisco could dampen new investment and property values.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.