Red Alert – AB 736 (Gonzalez)
Dramatic Increase to Transfer Taxes – OPPOSE
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California Association of Realtors OPPOSES AB 736 (Gonzalez), a bill that writes a transfer tax ceiling into state law for the first time at up to 3% of a property’s sale price, nearly 27 times higher than the .11% limit that currently applies to general law cities. A cap sets these high functions as a target, not a ceiling, giving cities across the state a new, state-blessed number to climb toward. On a median-priced home of $930,260, the new ceiling would let a city charge a transfer tax of up to $27,907, compared with no more than $1,023.29 under the current general law limit. The bill singles out homeowners for the worst treatment: commercial and multi-family properties, regardless of value, would be protected by the cap, resulting in lowered taxes in cities like Los Angeles, while single-family homes sold for more than $5.4 million are the one category left with no ceiling at all, exposed to unlimited local transfer tax rates.
C.A.R. OPPOSES AB 736 because it incentivizes raising the tax burden on property transfers, increasing the cost of homeownership and housing generally, while discouraging the sale of higher-priced homes in a manner inconsistent with the state’s goal of increasing the supply of housing. Ultimately, AB 736 would have adverse impacts on home sellers and buyers, and its property tax exemptions will have the effect of benefiting developers who acquired properties after recent fires displaced thousands of families across the Los Angeles region.
Both the Senate and the Assembly will vote on this bill this Thursday, June 25th. We need you to act quickly to stop it.
The ASK:
Contact your assigned legislators IMMEDIATELY. Remember this is being heard in both houses, so if you are assigned to senators and assemblymembers, contact both. Urge them to oppose the bill by voting No or Abstaining.
BACKGROUND
The current maximum that a general law city can impose for a documentary transfer tax is .11% or a $1.10 per $1,000 of the sales price of the property. Under the current cap, a city could charge no more than $1,023.29 on the sale of the same property.
California has 361 general law cities and 121 charter cities, 482 in total. Of those, 24 cities have established transfer taxes beyond the traditional statewide rate of $1.10 per $1,000.
AB 736 was just amended to increase the combined cap to 1.5% to 3%, depending on a city’s current transfer tax rate. By raising the maximum rate from the current 0.11% (or $1.10 per $1,000) to a combined cap of 1.5% to 3%, the measure sharply increases the cost of selling a home by approximately $13,000 to $27,000 for a median-priced home in California, which has recently hit a new peak of $930,000.
That could potentially mean an almost 27-fold increase on locally adopted transfer taxes. Simply, if the proposed transfer tax amounts were imposed at 1.5%, approximately 53,720 households could not purchase, and at 3%, approximately 103,306 households could not purchase a median-priced home, moving in the wrong direction for housing affordability. Commercial properties and multi-family properties like apartment complexes would be exempt. Residential properties with a sales price of more than $5.4 million would have no cap at all under this bill.
Why C.A.R. Opposes AB 736:
AB 736 is a tax on homeownership. The bill only applies to single-family homes. It doesn’t apply to commercial properties or to multi-family buildings. This bill specifically targets residential properties likely to be owner-occupied.
AB 736 permanently enshrines some of the highest transfer taxes in the state and increases closing costs for homeowners, small property owners, and mom-and-pop landlords. Although the bill eliminates certain transfer taxes for some Charter Cities, it replaces them with much higher general transfer taxes and allows charter cities with high existing rates to retain taxes up to 3%.
AB 736 leaves single-family homeowners exposed while protecting multifamily and commercial property. AB 736 exempts single-family homes sold for $5.4 million dollars or more from the caps proposed in the bill, creating a perverse incentive for local governments to impose transfer taxes, like Measure ULA, as a preferred long-term revenue mechanism. Since Los Angeles County adopted Measure ULA, which imposed a real estate transfer tax (4% on property sold over $5 million and 5.5% on parcels over $10 million) on market-rate housing and vacant parcels, commercial, industrial, and multifamily transactions have dramatically declined by 30 to 50% and cut in half real property transfers over $5 million.
As a result, housing production in Los Angeles County has declined dramatically – nearly 20% annually for projects 20 units or more – and cost the County of Los Angeles more than $25 million in property tax revenue, while reducing housing production by 1,910 market-rate units and 168 deed-restricted “affordable” corporate-owned housing units, ANNUALLY.
The bill also fails to address the Upland loophole, which has allowed local governments to bypass the two-thirds voter approval requirement for special taxes. C.A.R. has consistently maintained that property taxes and special taxes should require a two-thirds vote, and the absence of a Upland fix leaves property owners vulnerable to future tax increases enacted through simple-majority initiative campaigns.
While the disaster exemption provides relief for homeowners affected by natural disasters, it does not offset the broader statewide tax expansion authorized by the bill. AB 736 prohibits local governments from charging a transfer tax on the first sale of a single-family home within five years after it was destroyed or made uninhabitable by a natural disaster. While we support helping homeowners who rebuild their homes, this exemption, as drafted, will benefit developers in the Los Angeles region who have already acquired wildfire-damaged parcels at a rapid rate, especially in the Altadena area
Click the link below to reach your legislators:
Oppose The Transfer Tax Increase
