Earlier this year, California Governor Jerry Brown enacted new legislation that will upset property buyers and sellers hoping to keep the value of a transaction private. Under California’s Documentary Transfer Tax Act, when a property is sold that is valued over $100, California counties can levy a tax upon the recording of documents that transfer interests in real property. All 58 counties in California impose a transfer tax at the rate of $0.55 per $500 of the value of the real property or interest being transferred. In addition, more than 450 cities impose a transfer tax under the Act. Cities can impose a tax at one-half of the county rate. The city transfer tax is credited against the amount of the county tax due.
Generally, under the Act, every document subject to the transfer act tax must show the amount of the transfer tax on the document when the document is recorded with the County Recorder’s Office. Nevertheless, a party can request that the amount of the transfer tax be shown on a separate document that is not recorded and not made part of the permanent record. Effectively, this permits a party to keep the purchase price of a property confidential by withholding the amount of the transfer tax, which is calculated based on the value of the property.
Changes to the Documentary Transfer Tax Act
Under California Assembly Bill No. 1888, parties will no longer be able keep the purchase price of a property from becoming public information. Under AB 1888, the bill deletes the provision of the Act that allows the amount of the transfer tax due to be recorded on a separate, non-recorded document. As such, the value of the any property transferred can simply be derived by looking at the amount of the transfer tax on the recorded document. The legislation will become effective 1 January 2015.