What is the Measure E Tax?

We’ve all bought things over the years that were priced at something like $6.99 or maybe $39.99 and I’m sure there is plenty of research to be found on how and why those retail pricing strategies make sense. I’m happy to leave that debate to others, and I won’t really touch it here. But have you noticed many San Jose properties have been selling for an interesting amount of $1,199,999? Just a coincidence? No, it’s because of buyer and seller “creativity” to prevent them from having to pay the Measure E Tax.

First, I’ll explain the transfer (or “conveyance”) tax before Measure E took effect. In a typical San Jose real estate transaction, there are two transfer taxes that have to be paid for the property to change hands. One is the county transfer tax of $1.10 per thousand dollars of sale price, which is customarily paid by the seller. The second is the city transfer tax of $3.30 per thousand dollars of sale price and this one is customarily split 50-50 between buyer and seller. Note that who pays is what’s typical and customary, but is negotiable and is not set by law. These fees become a closing cost on each side of the buyer/seller transaction, and payments to the tax authorities are generally handled through escrow.

Let’s assume a property is going to sell for that $1,999,999 mentioned above. Here’s what needs to be paid (rounding up to the nearest dollar):

County transfer tax: $2,200, usually paid by the seller
City transfer tax: $6,600, split to $3,300 for each side

Now enter Measure E, which was passed by voters on March 3, 2020 and took effect on July 1, 2020. Measure E Tax applies to properties at $2M or more and is ON TOP OF the two mentioned taxes above. Measure E imposed taxes are as follows:

$2M – $5M = $7.50 per thousand dollars of sale price 
$5M – $10M = $10 per thousand dollars of sale price 
$10M+ = $15 per thousand dollars of sale price

Taking the example above of a sales price of $1,999,999 equates to a total transfer tax of $8,800. When the price is increased one dollar more to $2 million, the transfer tax obligations break down like this:

County transfer tax: $2,200, usually paid by the seller
City transfer tax: $6,600, split to $3,.300 for each side
Measure E transfer tax: $15,000, split to $7500 for each side

So a $1.00 increase in sales price would change the total transfer tax from $8,800 to $23,800. Ahhh, so that’s why we are seeing so many homes sell for just under $2M!

Every property in the county is subject to the county transfer tax, but only Mountain View, Palo Alto, and San Jose tack on an additional city transfer tax. Many counties and cities in California have substantially different transfer tax liabilities.

I was talking about this to another broker recently and they mentioned that they didn’t think there would be that many properties in the confines of San Jose that sold for $2 million or more. In reality, according to MLS records, there have been 2,051 residential properties that have sold for more than $2 million since Measure E came into affect in July 2020.

I hope San Jose uses those additional tax dollars wisely.