California Real Estate Transfer Tax

Many States and Localities Imposed a Tax Upon the Transfer of a Property

California and many states and localities including Stockton have imposed a tax on the transfer of property located within the city. The tax, known as the documentary transfer tax or real property transfer tax (hereinafter, the "transfer tax"), is largely based on the federal documentary stamp tax, which was repealed in 1976. In California, counties and cities have been authorized to impose a tax on deeds of transfer of realty located within such county or city. The amount of the tax is based on the consideration or value of the realty transferred. The county rate is fifty-five cents ($0.55) for each five hundred dollars ($500) of value, and the non-charter city rate is one-half of the county rate and is credited against the county tax due. Charter cities, however, may impose transfer taxes at a rate higher than the county rate. The transfer tax must be paid by the person who makes, signs or issues any document subject to the tax, or for whose use or benefit the document is made, signed or issued. Real Estate Transfer Taxes, authorized as documentary transfer taxes by the California Revenue and Taxation Code on the sale or transfer of real property are currently levied by all Central California counties and many cities.

Real Estate Transfer Taxes may be applied only to residential sales or to other types of real estate transactions including commercial and industrial sales. Revenue raised from a Real Estate Transfer Tax may be added to the jurisdiction’s general fund or earmarked for specific uses, including funding homeless programs.

Prior to passage of Proposition 13 in 1978 local governments had broad discretion to create new Real Estate Transfer Tax, increase the tax rate on existing ones and, earmark funding for specific uses (including homeless programs). Proposition 13 added provisions to the California constitution which made it difficult perhaps impossible to create new Real Estate Transfer Tax or increase the tax rates of existing ones. Even if a legal way to create a new Real Estate Transfer Tax or increase the tax rate for an existing one could be devised it would almost certainly require approval by a 2/3 vote of the general electorate which is virtually impossible.

Time of Collection

Real Estate Transfer Taxes are collected at the time ownership of a property such as a private residence is transferred, usually by sale. In the California Central Valley, Real Estate Transfer Tax are normally paid by the seller. The tax is set at a percentage of the sale price. The law allows a county to impose a tax of $1.10 per $1,000 of value on every real estate transaction. This is usually expressed as $.55 per $500 of value in local ordinances imposing the tax. If a city also chooses to impose the tax, then the $1.10 rate is split between the city and county. Real Estate Transfer Tax are administered by the county which collects the tax on behalf of cities and transfers them any funds due. Thus if a private home is sold for $300,000 in a county which has enacted a $1.10 per $1,000 Real Estate Transfer Tax the county would collect $330.00. If the county and a city within the county had had agreed to split the statutory Real Estate Transfer Tax amount, the city and county would each receive $192.50 (half of the statutory amount each). If a city imposes a Real Estate Transfer Tax which exceeds the statutory amount the entire statutory amount collected by the county goes to the county.

Many California cities have Real Estate Transfer Tax tax rates which exceed the county statutory amount.

Statutory Exemptions from Transfer Tax

The California Revenue and Taxation Code, which provides the statutory authority for counties and cities to impose the transfer tax, specifically exempts from tax the following transactions:
  • Instruments in writing given to secure a debt,
  • Transfers whereby the federal or any state government, or agency, instrumentality or political subdivision thereof, acquires title to realty,
  • Transfers made to effect a plan of reorganization or adjustment confirmed under the Federal Bankruptcy Act, approved in certain equity receivership proceedings or whereby a mere change in identity, form or place of organization is effected,
  • Certain transfers made to effect an order of the Securities and Exchange Commission relating to the Public Utility Holding Company Act of 1935,
  • Transfers of an interest in a partnership (or, beginning January 1, 2000, an entity treated as a partnership for federal income tax purposes) that holds realty, if the partnership is treated as continuing under IRC § 708 and the continuing partnership continues to hold the realty,
  • Certain transfers in lieu of foreclosure,
  • Transfers, divisions or allocations of community, quasi-community or quasi-marital property between spouses pursuant to, or in contemplation of, a judgment under the Family Code,
  • Transfers by the State of California, or any political subdivision, agency or instrumentality thereof, pursuant to an agreement whereby the purchaser agrees to immediately re-convey the realty to the exempt agency,
  • Transfers by the State of California, or any political subdivision, agency or instrumentality thereof, to certain nonprofit corporations and
  • Transfers pursuant to certain inter vivos gifts or inheritances.

Suggested Reading

Facebook Comments