Judge Rules Los Angeles HHS Tax Constitutional, Dismissing Legal Challenge

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A Los Angeles Superior Court Judge has dismissed a lawsuit seeking to invalidate the Homelessness and Housing Solutions Tax (the “HHS Tax”) that was approved by Los Angeles voters last November.  The HHS tax (often referred to as the “mansion tax”) went into effect on April 1, 2023, and imposes an additional tax on the sale of any real property within the City of Los Angeles when the consideration or value of the real property exceeds $5 million.  An overview of the HHS Tax and its impacts can be found in our November 9, 2022, client alert.

The Complaints at issue were filed by the Howard Jarvis Taxpayers Association and Apartment Association of Greater Los Angeles, as well as Newcastle Courtyards, LLC and Jonathan Benabou, as Trustee on behalf of the Mani Benabou Family Trust (collectively, the “Plaintiffs”). The Plaintiffs alleged, among other causes of action, that the HHS Tax is a “special tax” rather than a “general tax” because the tax increase would be specially dedicated to housing and homeless services. The Plaintiffs sought to invalidate the tax on the grounds that neither the City of Los Angeles, nor its voters, have the power to impose a transfer tax that is a “special tax” without violating the California Constitution.

After the various defendants filed motions seeking dismissal of the Plaintiffs’ Complaints, on October 24, 2023, Judge Barbara M. Scheper issued a ruling granting judgment on the pleadings in favor of the City of Los Angeles and other defendants, and dismissing the lawsuit.  In the ruling, Judge Scheper determined that the Complaints filed by the Plaintiffs did not state facts sufficient to constitute any cause of action against the City of Los Angeles and could not invalidate the HHS Tax.  The ruling summarizes each of the arguments made by the Plaintiffs and Judge Scheper’s reason for dismissal.  In particular, the Court found that the HHS Tax is a transaction tax on the sale of real property that can be imposed through a voter initiative and approved by majority vote without violating the California Constitution. 

Because the Plaintiffs’ Complaints were legally barred, Judge Scheper denied the Plaintiffs leave to amend.  Accordingly, the entire case was dismissed, with prejudice.  While no formal appeal has been filed yet, the Plaintiffs have indicated that they plan to appeal this decision.   

We will keep you updated as we learn more about this lawsuit and the new HHS Tax, but please do not hesitate to contact us directly if you have any questions or would like to discuss.

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