California Court Struck Down San Francisco Vacancy Tax
The ruling removes a tax on empty homes, impacting how property owners manage unit availability in the city.
Updated on Oct. 2, 2026 in Apartments
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The California Court of Appeal upheld a ruling in September 2026 declaring San Francisco's vacancy tax illegal. The decision impacts property owners who were previously subject to the tax under Proposition M, which voters originally passed in 2022.
Why it matters
The court determined the local tax conflicts with the state's Ellis Act, which protects the right of property owners to withdraw rental units from the market. This decision resolves a legal challenge initiated by property owners and trade associations in 2023.
The ruling invalidates the tax mandated by Proposition M, which voters approved in 2022. While Oakland continues to collect $6 million in annual revenue from its own vacancy tax, the status of such programs remains uncertain following this legal precedent.
The players
California Court of Appeal
The state judiciary body that determined local vacancy taxes conflict with established state housing protections.
Proposition M
The 2022 San Francisco ballot measure that sought to impose a tax on residential units left vacant for extended periods.
Ellis Act
A California state law that grants landlords the right to exit the residential rental business and withdraw their property from the market.
The details
The court found that the tax pressured property owners to re-enter the rental market, which violates the Ellis Act. This state law explicitly guarantees property owners the right to remove units from the rental market entirely. Because local vacancy taxes conflict with these state protections, the court ruled that the San Francisco measure was superseded by California law.
Timeline
Voters passed Proposition M in 2022.
Property owners challenged the tax in court in 2023.
The Superior Court of San Francisco ruled against the tax in 2024.
The appeals court upheld the ruling against the tax in September 2026.
The Home Front
This decision marks a significant boundary for municipal housing policy in California. It reinforces the power of the state Ellis Act to override local efforts aimed at influencing housing inventory through tax penalties.
Property owners in San Francisco should consult with a qualified legal professional to understand how this ruling impacts any outstanding tax liabilities related to the invalidated measure. Review your current property tax status to ensure you are not paying fees under a law that has been declared illegal.
The takeaway
This ruling establishes that cities cannot use tax policy to circumvent the right of owners to withdraw units from the rental market under state law. Property owners should keep records of any past tax payments related to this measure in case of future developments regarding refunds or credits.
Further reading
For more on the local rental climate, see Apartments.
Source note: This article includes information reported by Reason.
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