Ninth Circuit to Review LA’s Struggling ‘Mansion Tax’

The U.S. Court of Appeals for the Ninth Circuit will hear a challenge to Los Angeles’s Measure ULA, a November 2022 referendum aimed at taxing high-end property sales to fund affordable housing. The measure has not met its financial goals, prompting legal battles and criticism.

Measure ULA mandates a 4% tax on property sales exceeding $5 million and a 5.5% tax on sales over $10 million. The measure was expected to generate $900 million annually but has only raised $252.9 million so far, as reported by the city controller. Wealthy homeowners rushed to sell before the tax took effect, and high interest rates have also impacted revenue.

Several legal challenges to Measure ULA are underway. The Howard Jarvis Taxpayers’ Association (HJTA) argues that the measure is unconstitutional, violating California’s Proposition 13 by expanding the city’s taxation powers. Although a Los Angeles County judge dismissed an HJTA lawsuit last year, the association is appealing the decision.

Additionally, there is a proposed statewide ballot measure for 2024 that would require a two-thirds majority for tax increases. If passed, this would subject Measure ULA, which was approved with 57.7% of the vote, to a new vote. This measure is currently before the California Supreme Court.

In another legal battle, Newcastle Courtyards filed a federal civil rights case challenging Measure ULA, arguing that its proponents misrepresented it as a tax targeting only millionaires and billionaires, ignoring that some high-end property sellers might be in financial distress. This case was dismissed by a district court due to lack of jurisdiction over state taxes, but the appeal continues.

The Ninth Circuit’s decision could have significant implications for Los Angeles’s efforts to fund affordable housing through high-end property sales and for the broader debate on taxation and housing policy.