Santa Monica's Measure GS And Why It Is Important
Santa Monica's Measure GS And Why It Is Important
During the November 2022 Midterm Elections, the City of Santa Monica voters approved Measure GS to amend Santa Monica Municipal Code Chapter 6.96 and add Chapter 4.90 to provide for a third tier of the Los Angeles County documentary transfer tax rate for real property transfers of $8 million or more. This measure is often referred to as the "Funding for Homelessness Prevention, Affordable Housing, and Schools" initiative, and applies to the transfer of residential and commercial real estate located within the City of Santa Monica. Effective as of March 1, 2023, Measure GS currently has no end date.
Why was Measure GS Proposed?
Similar to the City of Los Angeles' ULA ordinance, Santa Monica's new Measure GS was proposed in response to the City of Santa Monica's rise in homelessness. The Santa Monica City Attorney, Douglas T. Sloan, argued that according to HUD estimates, over 6,000 Santa Monica renter households were comprised of lower income families that use more than half of their income on rent and utilities.1 Supporters of Measure GS also argued that having good public schools was critical to the city.
The legislators hope that Measure GS will bring in an excess of $50 million to the City of Santa Monica, based on historic sales trends. According to proponents of Measure GS, the funds collected will be split 80/20 between helping homeless prevention in conjunction with affordable housing and the Santa Monica-Malibu Unified School District. The funds are earmarked by the appropriate entities to provide ongoing or emergency income assistance, fund programs and services to improve affordable housing, and to improve the local schools.
How much is the tax?
The new tax is most aptly described as a transfer tax. Santa Monica already has a real estate documentary transfer tax in place that uses tiers according to the property's value. Measure GS will add a new tier of documentary transfer tax for transfers of real property valued at $8 million or more, leaving the tiers to be as follows:
To put it more simply, real property in tier three would yield a tax of $56.00 per every $1,000 of the purchase price as part of the transaction. The tax is imposed anytime a real property transfer occurs (subject to certain exceptions discussed below) rather than annually like property taxes. This new tax is in addition to the existing Real Property Transfer Tax which is currently 0.11%.
- for real property less than $5 million, the documentary transfer tax will be 0.3% of the purchase price;
- for real property sold for $5 million or more but less than $8 million, the documentary transfer tax will be 0.6% of the purchase price; and
- for real property sold for $8 million or more, the transfer tax will be 5.6% of the purchase price.
Are there any exemptions to the tax?
Measure GS provides for exemptions from the transfer tax under limited circumstances. The first exemption is provided under S.M.M.C. section 6.96.512, and covers transactions where the real property transfer concerns certain affordable housing developments by non-profit corporations and community land trusts. It is important to note that when a taxpayer receives approval for an exemption from the third tier tax, the taxpayer will still be liable for the first tier and second tier taxes and applicable county taxes. The second exemption covers transactions where the transfer of real property is exempt from the documentary transfer tax under California State and County guidelines.3
Pre-existing exemptions for the documentary transfer tax in Los Angeles County include:
- Conveyances to a grantee
- Conveyance in a dissolution of marriage
- Conveyance to secure a debt
- Reconveyance upon satisfaction of a debt
- Conveyance transferring interests into or out of a living trust
- Conveyance changing the manner in which title is held
- Court ordered conveyance not pursuant to sale
- Conveyance given for no value
- Conveyance to establish sole and separate property of a spouse
- Conveyance to confirm a community property interest when property was purchased with community property funds
- Conveyance to confirm a change of name
- Conveyance of an easement or oil and gas lease where the consideration and value is less than $100.00
- Conveyance where the liens and encumbrances are equal or more than the value of the property, and no further consideration is given
- Conveyance from a trustee under a land contract at the consummation of the contract, and
- Conveyance from individuals/legal entities where the grantors and grantees are comprised of the same parties, and the parties continue to hold the same proportionate interest (not including the dissolution of a partnership).
Other important considerations
As of the date of this alert, there is no expiration date on the new tax. Measure GS authorizes the creation of an eleven person board to address concerns and make amendments to the measure as necessary.
The California Business Roundtable filed a law suit against the City of Santa Monica to block Measure GS, and the City Council announced in late January that it would defend the measure.4 The lawsuit was filed under the premise that California law prohibits ballot measures on more than one subject. Opponents of Measure GS feel it is too flawed arguing that (i) Santa Monica's already high property tax rates, (ii) Measure GS could create financial challenges for small businesses, and (iii) as is the bill seems to have no end date which could mean as prices rise every resident would be subjected to the tax.5
Absent a change in the new measure, developers, property owners and potential buyers alike should ensure their future transactions account for this increase in taxes. As the measure is rolled out, we anticipate new information and clarity on the measure.
Property owners, developers and purchasers seeking to transact on real property located in the City of Santa Monica with questions about the new Measure GS should contact Morgan Gray, the Hanson Bridgett Tax Group or Real Estate and Land Use Group.