Court: S.F. transfer tax on pricey properties OK
A state appeals court has upheld San Francisco’s property transfer tax, an assessment on real estate transactions that charges higher rates to owners who sell more expensive properties.
For properties worth up to $250,000, the seller is charged $2.50 for each $500 of the sale price. The rate ranges upward to $15 for every $500 of the price of properties worth more than $25 million. City officials said the tax raised $364 million in 201819, an amount expected to increase by $186 million after San Francisco voters approved Proposition I in November to increase levies on properties worth $10 million or more.
Similar transfer taxes are in effect in Oakland, Berkeley, San Jose and Richmond.
The San Francisco tax was challenged by Ashford Hospitality Prime Limited Partnership, which sold its majority share in the Marriott Courtyard Hotel on Second Street in downtown San Francisco in 2013 and was charged $3.348 million for the $133.9 million transaction.
Ashford contended the tax was discriminatory because it assessed higher rates on wealthy property owners. The company cited a 1935 U.S. Supreme Court ruling striking down a Kentucky tax on retail business receipts that set rates based on a company’s ability to pay.
But after a nonjury trial, Superior Court Judge Kathleen Kelly found that San Francisco had legitimate reasons, including costs and fairness, to charge higher rates for more expensive transactions. Her ruling was upheld Monday by the state’s First District Court of Appeal.
The costbased tax rates “are supported by practical considerations, including the amount of work required to process the transfer of higher valued property and the city’s interest in fairly allocating the costs of servicing higher valued properties,” Presiding Justice Stuart Pollak said in the 30 ruling.
He said the city’s justifications included the higher costs of police, fire and other services for more expensive properties. When city voters approved an earlier increase in the transfer tax in 2010, Pollak noted, supporters argued that the measure “will help reduce (cuts to city services) while ensuring that millionaire commercial property owners pay their fair share.”
And when businessman Donald Trump challenged a New York state real estate transfer tax that exempted some lowerpriced transactions in 1985, Pollak said, a state court ruled against him and said administrative “convenience and expense in the collection or measurement of the tax are alone a sufficient justification for the difference between the treatment of small incomes or small taxpayers.”
John Coté, spokesman for City Attorney Dennis Herrera, said the court “correctly confirmed the right of San Francisco voters to pass a transfer tax that applies higher rates to higher value properties.”
Ashford’s lawyer could not be reached for comment. The company could appeal the ruling to the state Supreme Court.