Property Owners Challenge Constitutionality of Los Angeles Real Estate Tax
Suit is second legal challenge against Measure ULA and first challenging it under federal law.
A group of property owners filed suit to block the implementation of the Los Angeles real estate tax known as Measure ULA. In a case filed on January 6, 2023 in the U.S. District Court for the Central District of California, the property owners argued that the tax violates their equal protection rights under the 14th Amendment of the U.S. Constitution and the equal protection clause of the California Constitution. The plaintiffs requested a jury trial.
Measure ULA increases the city’s transfer tax from 0.45% on all property sales to 4% on sales of property between $5 million and $10 million and 5.5% on sales of property of $10 million or more. The tax, which was approved by voters in November, would raise funds for housing and homeless services.
In citing Stewart Dry Goods Co. v. Lewis, 294 U.S. 550 (1935), the plaintiffs argued that “a tax, as here, based on gross sales rather than net income is an arbitrary and irrational metric for determining the ability to pay a tax.” The plaintiffs contended that the transfer tax in the ULA “may well be better legally characterized as an unconstitutional and illegal monetary exaction or an illegal special assessment, rather than a ‘tax,’ if it is a ‘transfer tax,’ it is an unconstitutional one.”
The plaintiffs also argued that the ULA violates the equal protection requirements of uniformity and apportionment under both the U.S. Constitution and the California Constitution. The petitioners cited City of Santa Cruz v. Patel, 155 Cal.App.4th 234 in arguing that “[i]n considering whether a tax is consistent with equal protection principles, ‘courts will look for a rational basis for the class of persons selected to pay the tax.’”
They argued that there is “no rational basis under the ULA to require the $5,000,001 sub-class to pay at least $200,000 (and possibly millions of dollars) in ULA taxes on a sales transaction while the $4,999,999 sub-class, and, indeed, all other members of society who do not even own property, pay nothing at all to accomplish the stated purpose of the ULA (i.e., to reduce the societal problem of homelessness).”
The lawsuit is the second challenge against the law in as many months. In December, the Howard Jarvis Taxpayers Association (HJTA) and the Apartment Association of Greater Los Angeles filed a lawsuit contending that Measure ULA violates the state constitution and the Los Angeles city charter. In its challenge under the state constitution, the lawsuit contends that it violates Article XIII A, section 4 of the California Constitution, which generally prohibits transfer taxes. (see Legal Challenge Filed against Los Angeles Real Estate Tax.)