Who Pays the Transfer Tax in San Francisco?

A real estate transfer tax is a one-time fee imposed by local jurisdictions when ownership of real property changes hands. This tax generates revenue for city services and infrastructure. Unlike annual property taxes, the transfer tax applies only at the time of a property sale or transfer. It forms part of the closing costs associated with the transaction.

Legal Obligation for San Francisco Transfer Tax

The legal obligation for paying the real property transfer tax in San Francisco generally rests with the grantor, typically the seller of the property. This is stipulated in the San Francisco Business and Tax Regulations Code. This legal framework establishes the seller as the party primarily responsible for this financial obligation.

While the law assigns this responsibility to the seller, this is the default legal position. The tax applies to a broad range of property transfers, including residential homes, commercial buildings, and vacant land. The San Francisco Office of the Assessor-Recorder oversees the collection of this tax.

Calculating the Transfer Tax Amount

The San Francisco real property transfer tax is calculated based on the full value of the property being transferred, which includes any liens or encumbrances. The tax rate operates on a graduated scale, meaning higher-value properties incur a higher tax rate, a progressive structure that aims to adjust the tax burden according to the property’s sale price or value.

The current graduated tax rates are:
Up to $250,000: $2.50 per $500 (0.5%)
$250,001 to $1,000,000: $3.40 per $500 (0.68%)
$1,000,001 to $5,000,000: $3.75 per $500 (0.75%)
$5,000,001 to $10,000,000: $11.25 per $500 (2.25%)
$10,000,001 to $25,000,000: $27.50 per $500 (5.5%)
Over $25,000,000: $30.00 per $500 (6.0%)

Common Payment Agreements and Exemptions

Despite the legal default, the responsibility for paying the San Francisco transfer tax is frequently a subject of negotiation between the buyer and seller. This negotiation typically occurs during the drafting of the purchase agreement, where parties can agree to split the cost, or have one party assume the entire burden. For instance, a seller might offer to pay the tax to make their property more attractive to buyers in a competitive market. Conversely, a buyer might agree to cover the tax in exchange for other concessions, such as a lower purchase price.

Certain types of property transfers may qualify for an exemption from the San Francisco transfer tax. Transfers between spouses, such as those occurring due to divorce or interspousal transfers, are generally exempt. Transfers into or out of certain types of trusts, particularly revocable living trusts where there is no change in beneficial ownership, may also be exempt. Additionally, transfers that merely change the method of holding title without altering the underlying beneficial ownership can avoid the tax. To claim an exemption, specific documentation, such as an Affidavit of Exemption or a Preliminary Change of Ownership Report, must be properly filed with the Assessor-Recorder’s Office.

Submitting the Transfer Tax Payment

The process for submitting the San Francisco real property transfer tax payment is typically handled as part of the closing procedures for a real estate transaction. Usually, an escrow or title company manages this payment on behalf of the involved parties. This integration into the escrow process ensures that the tax is paid accurately and on time, facilitating a smooth transfer of property ownership.

The payment, along with necessary documentation, is submitted to the San Francisco Office of the Assessor-Recorder. Required documents often include the Grant Deed and a Preliminary Change of Ownership Report (PCOR). The PCOR provides the Assessor with information about the transfer, helping to determine if reappraisal is necessary or if any exemptions apply. The transfer tax payment is due concurrently with the recording of the deed, which generally occurs at the close of escrow.