Page 466 - FY 2022-23 Proposed Budget

Spotlight: Documentary Transfer Tax

The City has two significant revenue sources derived from taxes on real estate.
The first is Secured Property Tax, which is a one percent tax on the assessed
valuation of all real property in the City, subject to various exemptions and
adjustments. This revenue comes into the City primarily in December and
April. The second is the Real Property Transfer Tax, commonly known as the
Documentary Transfer Tax, which is a 4.5 percent tax on the value of real
property applied when the property is transferred from one owner to another.
The revenue is due to the City upon execution of the transfer.

Because the bases and mechanisms for these two taxes are significantly
different, they behave quite differently in response to the local economy.
Property Tax is a stable source of revenue, consistently but slowly growing
every year with only very rare decreases. Documentary Transfer Tax, as a
transaction-based tax, is historically the most volatile of the City’s major tax
revenues, subject to large swings up and down in response to changes in the
local real estate market.

However, there is an inherent connection between the two taxes. In most
years, more than 50 percent of property tax growth is due to property
transfers. When properties are sold, they are reassessed, and the following
year’s property taxes are then based on the new sales price. Especially for
properties that have not changed hands for a long time, this can be a huge
difference. As you can see from the chart below, high levels of property sales
can be a huge driver of property tax growth.

LA County Share of Property Tax Growth from
Transfers (in millions)

$120,000
$100,000

$80,000
$60,000

$40,000
$20,000
$-
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Growth from Transfers Total Growth

435