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Are San Francisco Real Property Transfer Tax Rates Heading for a Hike?

Supervisors Peskin and McGoldrick propose rise

SF Realtors
Advantage Online
7/15/08

Two supervisors, Aaron Peskin and Jake McGoldrick, have proposed increases in the rate of the city's real property transfer tax. Both proposals are intended to leave the rate for less expensive properties unchanged while focusing on properties in the mid- to high- price range.

State law requires tax increases affecting real property to appear on the ballot and to be approved by a two- thirds vote of the electorate for passage. It is not known at this time whether either or both of the proposals will appear on the municipal ballot in November.

To provide a basis for comparison, set forth below are the current transfer tax rates, as well as those proposed by Supervisors Peskin and McGoldrick. Changes to the transfer tax ordinance currently in effect are underlined.

Current Rate Structure:

· Over $100 and less than or equal to $250,000 = .50%

· More than $250,000 and less than $1 million = .68%

· Equal to or more than $1 million = .75%

Proposed Rate Structure (McGoldrick):

· Over $100 and less than or equal to $250,000 = .50%

· More than $250,000 and less than $1 million = .68%

· Equal to or more than $1 million but less than $1.25 million = 1%

· Equal to or more than $1.25 million but less than $1.75 million = 1.25%

· Equal to or more than $1.75 million but less than $2 million = 1.5%

· Equal to or more than $2 million = 1.75%

Proposed Rate Structure (Peskin):

· Over $100 and less than or equal to $250,000 = .50%

· More than $250,000 and less than $1 million = .68%

· Equal to or more than $1 million and less than $2 million = .75%

· Equal to or more than $2 million = 1.5%

· (Tax Reduced on Transfers of Residential Property by Up to One Third If, After January 1, 2009, Transferor Has Installed Active Solar System or Made Seismic Retrofitting Improvements or Improvements Utilizing Earthquake Hazard Mitigation Technologies)

· (Clarifies Application of Tax to Transfers of Ownership Interests in Legal Entities that Own Real
Estate)

The Association's board of directors has voted to vigorously oppose all proposed increases in the city's real property transfer tax as an unwarranted financial burden on buyers and sellers of real property in the city.

Daly Introduces Two Ordinances Aimed at Rental Property Owners

Supervisor Chris Daly has introduced two proposed ordinances that, if passed, will affect rental property owners. One would prohibit owner move in evictions for households with children under the age of 18 and amend the definition of disability so that it is the same as the definition of disability in the relocation section of the city's rent ordinance. The other would amend the
city's rent ordinance to define and prohibit harassment by landlords and provide for rent reduction fines for landlords who are harassing tenants. Both proposed ordinances have been assigned under the 30-day rule to the supervisors' rules committee, consisting of Supervisors Daly, Dufty and Ammiano. Public hearings on the proposed ordinance are expected to be held by the committee next month.

Although the Association has not developed positions on the two proposed ordinances, it is a virtual certainty that it will oppose further restrictions on owner move in evictions.

Amendment of Payroll Expense Tax Ordinance Sought to "Clarify" Tax Liability of "Pass through Entities"

Supervisor Aaron Peskin has introduced a proposed ordinance to "clarify" the tax liability of "pass through entities", including partnerships, Subchapter S corporations, limited liability companies, limited liability partnerships and other persons and entities not subject to Federal income tax.

While the Association has not yet studied the proposed ordinance in detail, its purpose seems
clear- to generate additional tax revenue for the city to fund a proliferation of spending programs.

Earlier this year, Mayor Gavin Newsom announced that the City and County of San Francisco was facing a budget of $338 million. Under the city Charter, however, the mayor is required to present a balanced budget to the Board of Supervisors--which he did two weeks ago. But, in his budget message, the mayor warned that the city's fiscal forecast was so bleak that hundreds of city workers could be laid off and city services slashed in the near future. With the city's
economy doing well, what's the problem?

According to Deputy City Controller Monique Zmuda, the city doesn't have a revenue problem. "Even though the economy has been good, city expenditures are growing at a faster rate than our revenues." So, to keep up, the city needs to raise tax rates and fees-a lot of them!

Several weeks ago, we reported that the Department of Building Inspection was increasing fees for services, including the fee for reports of residential record. Similar fee increases are expected from other
city departments.

But for the payroll expense tax ordinance to be amended will require the approval of voters. The most likely time for the amendment to be presented to voters is this November. What is not known is whether the weakened state of the national economy will be a factor in voters' view of the amendment. But the fact that the amendment involves a tax on business and will not affect the average voter will make it difficult to beat.

Daly Introduces Ordinance Placing Two-Unit Buildings in Condominium Conversion Lottery

Some of our readers may remember an article we wrote for these pages several weeks ago, entitled The World According to entitled Beyond Chron. Beyond Chron provides coverage of political and cultural issues on line. It is published by the San Francisco- based Tenderloin Housing Clinic. Clinic Director Randy Shaw is the paper's editor.

The article quoted information appearing in Beyond Chron suggesting that a legislative battle could be looming over a provision in the city's conversion ordinance that exempts owner-occupied two-unit buildings from the condominium lottery. The reason according to Beyond Chron: " San Francisco 's skyrocketing condominium conversions."

Last week, what was merely a possibility became a reality. Supervisor Chris Daly introduced a proposed ordinance that would place two-unit buildings in the condominium lottery and exempt two-unit buildings that are owner occupied as of August 1, 2008. The full text of the proposed ordinance appears below.

Under city law, ordinances must undergo a 30-day waiting period before they may be heard in committee. This is to allow interested parties an opportunity to study ordinances and take positions on them; so the first hearing on Supervisor Daly's proposed ordinance will not occur until early July, at the earliest.

ARTICLE 7

SEC. 1359. PARCEL MAP.

(a) The requirements of Subsection (c) of Section 1356 of this Code shall apply to Parcel Maps.

(b) The Parcel Map shall conform to the requirements of Chapter 2, Article 3 of SMA and to the Subdivision Regulations regarding detailed format and contents.

(c) In the case of Conversions where a Tentative Map is not required, the requirements of Section 1314 and the requirements of Article 9 on Conversions shall apply, provided that hearings as provided in Sections 1313 and 1332 shall not be required, and the 10-
percent low and moderate income occupancy as provided in Section 1341 shall not be required, and provided further that Article 9 shall not be applied to two-unit buildings only where both units are owner- occupied for one year as of August 1, 2008 and where both units remain owner occupied by the same owner occupants as on August 1, 2008 up until prior to the application for Conversion. The Director of Planning, however, shall make the determination pursuant to
Section 1385 concerning preservation of low and moderate income housing.

(d) In addition to the requirements of Subsection (c), the owners of record of a two-unit building conversion that qualify for the exemption from Article 9 must certify under penalty of perjury and the Department must verify with the Rent Stabilization and Arbitration Board,
and with the Human Rights Commission as applicable, that since November 16, 2004, no eviction
as defined in San Francisco Administrative Code Section 37.9(a)(8)- (14) of a senior, disabled person, or catastrophically ill tenant as defined below has occurred, or if an eviction has taken place under Administrative Code Section 37.9(a)(11) or (14), that the original tenant reoccupied the unit after a temporary eviction. For purposes of this Subsection a "senior" shall be a person who is 60 years or older and has been residing in the unit for 10 years or more at the time of the lottery; a "disabled" tenant is defined for purposes of this Subsection as a person who is
disabled within the meaning of Title 42 U.S.C. Section 12102(2)(A); and a "catastrophically ill" tenant is defined for purposes of this Subsection as a person who is disabled as defined above, and who is suffering from a life threatening illness as certified by his or her primary care physician.

(e) If the owners of record cannot satisfy the requirements of Subsection (d), then the owners of record shall comply with Article 9, including its Section 1396.1(g)(3), prior to submitting an application for Conversion.

(f) If the Department determines that an applicant has knowingly provided false material information under Subsection (d) above, the Department shall immediately deny the application, or if the applicant has submitted an application for conversion, shall immediately deny the application for conversion. Moreover, the Department, the Director, or other authorized person or entity may also enforce the provisions of this Subsection under Section 1304 or any other applicable provision of law as warranted.