San Francisco’s Transfer Tax Revenue Plunges to 12-Year Low

Real estate transfer taxes in San Francisco have fallen to a 12-year low in the wake of plunging values and heavily discounted deals.

Revenue from commercial transfer taxes to the city fell 4.6 percent year-over-year to $177.7 million in fiscal year 2024, which ended June 30, the San Francisco Business Times reported, citing a report by the Controller’s Office.

It is the lowest level of transfer tax revenue collected by San Francisco since fiscal year 2012, when revenue fell to $162.3 million.

It’s also 66 percent less than the $520 million the city collected in fiscal year 2021-22.

The transfer tax, a fee levied when real estate changes hands, is among the most volatile tax revenues generated in the city, and dependent on high-value deals.

In San Francisco, that has historically meant sales of office buildings in Downtown, which have dropped as values have plunged and buildings have sold at steep discounts in an era of high vacancy and remote work.

“It creates budgetary stresses through its volatility, but it is an important element of the city’s revenue mix,” Ted Egan, the city’s chief economist, told the Business Times. “The fact that the city has a lot of high-value properties makes it, I think, probably much more significant for San Francisco than other cities.”

The city’s two-year budget for fiscal years 2024 and 2025 assumed the $186.3 million in transfer tax collected during the last fiscal year would mark a low following the pandemic.

But the subsequent drop in transfer tax revenue this fiscal year suggests the city misgauged a market rebound.

The city projected transfer tax revenues at $222 million for fiscal year 2024, 20 percent more than was actually collected, according to the report.

The decline in transfer tax may be compounded as the property tax, the city’s single largest revenue source, is projected to flatten for the next two fiscal years, according to a city forecast last month.

The properties that are trading hands in the postpandemic market are doing so at discounts to their pre-pandemic value, lowering their respective tax bases. Landlords have appealed the taxable value of their buildings, arguing the market reset applies to their properties, too.

Over the past decade San Francisco collected an average of $314 million in transfer taxes each year, according to a Business Times analysis. Transfer taxes are levied based on the value of a sale, ranging from 6 percent for sales of $25 million or more to 0.5 percent for deals of less than $250,000.

— Dana Bartholomew