The main topic on the agenda for the July 27 Culver City council meeting was an important discussion about creating a ballot measure for the November general election to raise the Culver City property transfer tax. Property transfer taxes are taxes levied on properties when they change ownership based on the value of the property. Currently, buyers in Culver City pay two taxes: one to LA County that is equivalent to 0.11% of the sale price of the property, and one to Culver City that is currently set at 0.45%, or $4.50 per $1,000 of the property’s sale price. While both buyer and seller are considered liable for this tax, sellers in California traditionally pay the tax.
Mayor Goran Eriksson was not in attendance for this special meeting of the council, so Vice Mayor Alex Fisch led the proceedings. Fisch was the main proponent for this transfer tax increase, saying that he had been studying California property transfer taxes for over a year. All other council members were present for this meeting.
California has a high income and sales taxes, but lower than average property tax, according to a report on transfer tax reform from the UCLA Lewis Center for Regional Policy Studies that was provided with the agenda for this topic. Since 1989, the Lewis Center has produced high-quality research on regional issues within Los Angeles, such as transportation access, housing affordability, labor, immigration, and other topics. While the center covers a wide variety of topics, they focus on the impact of policies on vulnerable populations. The report was written by Shane Phillips, who is the Housing Initiative Project Manager at the center.
While Culver City’s 0.44% is above some areas like Riverside (0.11%), Redondo Beach (0.22%), and Sacramento (0.275%), it is still much lower than other California cities such as Alameda (1.2%), El Cerrito (1.2%), and Piedmont (1.3%). There are other cities that use a graduated scale to assess the transfer tax value. Most notably, San Francisco uses the following scale:
$250,000 or below — 0.5%
$250,000.01 – $999,999 — 0.68%
$999,999.01 – $4,999,999.99 — 0.75%
$5,000,000 – $9,999,999.99 — 2.25%
$10,000,000 – $24,999,999.99 — 2.75%
$25,000,000 and above — 3.0%
According to Phillips’ report, San Francisco is able to generate far more tax revenue off of its’ properties’ value than Los Angeles.
“Los Angeles’ population is 4.5 times larger than San Francisco’s, and the total assessed value of property in the city is more than 2.3 times higher, yet San Francisco collects significantly more transfer tax revenue each year,” the report reads.
With this graduated scale heavily weighted towards properties above $5,000,000, San Francisco’s transfer tax has generated $368,000,000 with a total assessed property value of $282,000,000. Los Angeles’ tax has generated just $212,000,000, despite having a total assessed property value at $653,000,000.
The report also pointed to a recent change to transfer tax rates made in Washington state, Senate Bill 5998, which was signed into law on May 21, 2019, replaced Washington’s flat 1.28% real estate excise tax (REET) with a graduated marginal tax on property sales. The scale followed a similar principal to San Francisco’s scale, and has the following tiers:
$500,000 and below — 1.1%
$500,000.01 – $1,500,000 — 1.28%
$1,500,000.01 – $3,000,000 — 2.75%
$3,000,000.01 and above — 3.0%
Prior to the meeting, there were two different scales that were presented to city council in Phillips paper, as well as revenue projections for Culver City. One follows the paper from the Lewis Center, while another follows a slightly different scale from the firm HdL Coren and Cone. Each follow the same six tiers, and these tiers are at the following monetary thresholds:
Less than $750,000 — .65%-1%
$750,000 – $1,499,999.99 — 1%-1.5%
$1,500,000 – $2,499,999.99 — 1.25% – 2%
$2,500,000 – $4,999,999.99 — 1.5% – 3%
$5,000,000 – $24,999,999.99 — 2.5% – 4%
$25,000,000 and above — 3% – 5%
The variation in these numbers represents different levels at which the potential tiers could be taxed. Each scale was presented with three different options: one that is conservative and uses the lowest values, a high tier ‘optimal’ scale that uses the highest values, and another that sits in between.
However, the numbers in both of the projections are based off of slightly lower percentages because of the potential for a marginal tax rate, which would make the rates within each tier scale upward, and the percentages for the tiers that would be present on the ballot would only represent the largest purchases within each limited tier.
To address this and other specific issues within the current transfer tax proposal, an Ad Hoc transfer tax subcomittee — which would consist of councilmembers Thomas Small and Alex Fisch — was discussed. This subcommittee would continue to edit the proposal to fit Culver City, and would present this revision at the Aug. 3 city council meeting.
Both the ballot measure and the formation of the Ad Hoc subcomittee passed 4-0, with Mayor Goran Eriksson not voting due to absence.