Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2010
 

Revenue and Taxation Code

Property Taxation

Part 0.5. Implementation of Article XIII A of the California Constitution

Chapter 2. Change in Ownership and Purchase

Section 61

61. "Change in ownership" includes. Except as otherwise provided in Section 62, change in ownership, as defined in Section 60, includes, but is not limited to:

(a) The creation, renewal, sublease, assignment, or other transfer of the right to produce or extract oil, gas, or other minerals regardless of the period during which the right may be exercised. The balance of the property, other than the mineral rights, shall not be reappraised pursuant to this section.

(b) The creation, renewal, extension, or assignment of a taxable possessory interest in tax exempt real property for any term. For purposes of this subdivision:

(1) "Renewal" and "extension" do not include the granting of an option to renew or extend an existing agreement pursuant to which the term of possession of the existing agreement would, upon exercise of the option, be lengthened, whether the option is granted in the original agreement or subsequent thereto.

(2) Any "renewal" or "extension" of a possessory interest during the reasonably anticipated term of possession used by the assessor to value that interest does not cause a change in ownership until the end of the reasonably anticipated term of possession used by the assessor to value that interest. At the end of the reasonably anticipated term of possession used by the assessor, a new base year value, based on a new reasonably anticipated term of possession, shall be established for the possessory interest.

(3) "Assignment" of a possessory interest means that the transfer of all rights held by a transferor in a possessory interest.

(c) The creation of a leasehold interest in taxable real property for a term of 35 years or more (including renewal options), the termination of a leasehold interest in taxable real property which had an original term of 35 years or more (including renewal options), and any transfer of a leasehold interest having a remaining term of 35 years or more (including renewal options); or (2) any transfer of a lessor's interest in taxable real property subject to a lease with a remaining term (including renewal options) of less than 35 years.

Only that portion of a property subject to that lease or transfer shall be considered to have undergone a change of ownership.

For the purpose of this subdivision, for 1979–80 and each year thereafter, it shall be conclusively presumed that all homes eligible for the homeowners' exemption, other than manufactured homes located on rented or leased land and subject to taxation pursuant to Part 13 (commencing with Section 5800) and floating homes subject to taxation pursuant to Section 229, that are on leased land have a renewal option of at least 35 years on the lease of that land, whether or not in fact that renewal option exists in any contract or agreement.

(d) (1) (A) A sublease of a taxable possessory interest in tax-exempt real property for a term, including renewal options, that exceeds half the length of the remaining term of the leasehold, including renewable options.

(B) The termination of a sublease of a taxable possessory interest in tax-exempt property with an original term, including renewal options, that exceeds half the length of the remaining term of the leasehold, including renewal options.

(C) Any transfer of a sublessee's interest with a remaining term, including renewal options, that exceeds half of the remaining term of the leasehold.

(2) Any transfer of a possessory interest in tax-exempt real property subject to a sublease with a remaining term, including renewable options, that does not exceed half the remaining term of the leasehold, including renewal options.

(e) The creation, transfer, or termination of any joint tenancy interest, except as provided in subdivision (f) of Section 62, and in Section 63 and in Section 65.

(f) The creation, transfer, or termination of any tenancy-in-common interest, except as provided in subdivision (a) of Section 62 and in Section 63.

(g) Any vesting of the right to possession or enjoyment of a remainder or reversionary interest that occurs upon the termination of a life estate or other similar precedent property interest, except as provided in subdivision (d) of Section 62 and in Section 63.

(h) Any interests in real property that vest in persons other than the trustor (or, pursuant to Section 63, his or her spouse) when a revocable trust becomes irrevocable.

(i) The transfer of stock of a cooperative housing corporation, vested with legal title to real property that conveys to the transferee the exclusive right to occupancy and possession of that property, or a portion thereof. A "cooperative housing corporation" is a real estate development in which membership in the corporation, by stock ownership, is coupled with the exclusive right to possess a portion of the real property.

(j) The transfer of any interest in real property between a corporation, partnership, or other legal entity and a shareholder, partner, or any other person.

History.—Stats. 1979, Ch. 1161, in effect September 29, 1979, added the third paragraph of subdivision (c). Stats. 1980, Ch. 285, in effect June 30, 1980, operative July 1, 1980, added "other than mobilehomes located on rented or leased land and subject to taxation pursuant to Part 13 (commencing with Section 5800)," to the third paragraph in subdivision (c). Stats. 1980, Ch. 1081, in effect September 26, 1980, added "Section 65" to the end of subdivision (d). Stats. 1985, Ch. 186, effective January 1, 1986, substituted "regardless of the period during which the right may be exercised" for "for so long as they can be produced or extracted in paying quantities" after "minerals" in the first sentence of subdivision (a). Stats. 1986, Ch. 608, effective January 1, 1987, deleted "in" before "Section 65." in subdivision (d), added "or her" before "spouse" in subdivision (g), and deleted "as defined in Section 17265," before "vested" in the first sentence of subdivision (h) and added the second sentence thereto defining a cooperative housing corporation. Stats. 1987, Ch. 1094, in effect September 25, 1987, added the second sentence of subdivision (b). Stats. 1992, Ch. 523, in effect January 1, 1993, added "extension," after "renewal," in the first sentence of subdivision (b); and substituted "and 'extension' do" for "does" after " 'renewal' ", and added "or extend" after "renew" in the second sentence of subdivision (b). Stats. 1994, Ch. 1222, in effect January 1, 1995, substituted "that" for "such" after "subject to" in the second paragraph of paragraph (1) of subdivision (c); substituted "manufactured homes" for "mobilehomes" after "other than", substituted "that" for "which" after "Section 5800)," and substituted "that" for "such" twice in the third paragraph of paragraph (1) of subdivision (c); added "and in" after "62," in subdivision (d); and substituted "that" for "which" after "property" and "that" for "such" after "possession of" in subdivision (h). Stats. 1996, Ch. 388, in effect January 1, 1997, deleted "sublease," after "extension," in the first sentence of subdivision (b), substituted "subdivision: (1) "Renewal" for "subdivision, "renewal" ", and added paragraph (2) and (3) to subdivision (b); added subdivision (d); relettered former subdivisions (e), (f), (g), (h), and (i) as subdivisions (f), (g), (h), (i), and (j) respectively; and substituted "that" for "which" in subdivisions (g) and (h). Stats. 2006, Ch. 364 (AB 3076), in effect January 1, 2007, deleted the designation of the first paragraph of subdivision (c) as paragraph (1) and added "and floating homes subject to taxation pursuant to Section 229" after "(commencing with Section 5800)" in the first sentence of the third paragraph therein.

Note.—Section 22 of Stats. 1980, Ch. 285, provided no payment by state to local governments because of this act.

Note.—Section 2 of Stats. 1987, Ch. 1094, provided that the amendment made by this act does not constitute a change in, but is declaratory of, the existing law.

Construction.—The construction of Section 60 and Section 61 are governed by two precepts: the drafters intended Section 61 to provide "examples" of common applications of Section 60 rather than exceptions to it, and applications of Section 61 must be consistent with Section 60. Pacific Southwest Realty Co. v. Los Angeles County, 1 Cal.4th 155. The transfer of any interest in real property, as used in Revenue and Taxation Code Section 61, subdivision (j), means a "transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest," as set forth in Revenue and Taxation Code Section 60. Fashion Valley Mall, LLC v. County of San Diego, 176 Cal.App.4th 871.

Possessory interest.—An extension of a lease term from 40 years to 66 years was not a change in ownership for purpose of this section where the extension was automatic under a provision of the original lease whereby the parties intended to create a possessory interest for the maximum term allowed by the city's charter; where at the time the lease was signed, a charter amendment increasing the permissible term was on the ballot for an election less than a month away; and where the assessor recognized and based his first valuation of the lease on the longer term. Wrather Port Properties, Ltd. v. Los Angeles County, 209 Cal.App.3d 517.

Subdivision (b) does not unconstitutionally place a heavier tax burden on lessees of government land, as compared to lessees of private land. In the case of private property, reassessment is triggered only if the leases are for 35 years or more. Since the tax-exempt status of government land gives rise to no taxes to pass on to lessees of government land, taxing those lessees every time they lease government land to the extent of their possessory interest does not inevitably impose an excess tax burden on them as compared to short-term lessees of private property, who may be subjected to the full tax burden of the private property owner and to the reassessment that occurs every time the property is sold. United Air Lines, Inc. v. San Diego County, 1 Cal.App.4th 418.

Leasehold interest.—"Change of ownership", as used in Article XIII A, section 2(a) of the Constitution (real property acquired after 1975 to be assessed according to appraised value at time of acquisition), is not so certain and clear that it requires no construction, and the definitions provided in the section, including that of subdivision (c)(1), comport with the intended meaning of the Article. Further, the term of 35 years chosen by the Legislature was neither an arbitrary nor an unreasonable term; and reappraisal of shopping center property at the time the lessee finished construction of a department store on the property and opened it for business was not prohibited either because the initial term of the lease was only for 30 years since the lease had 2 10-year renewal options and such options are included within the 35-year computation of the section, or because the lease was of the building and not the land underneath it, since the right to use and occupy the land is inherent in a lease of a structure upon the land. E. Gottschalk & Co., Inc. v. Merced County, 196 Cal.App.3d 1378. The leaseback for a term of 50 years, including renewal options, of a building pursuant to a sale and leaseback arrangement was a change in ownership within the meaning of Section 61(c)(1), triggering reassessment of the property. Industrial Indemnity Co. v. City and County of San Francisco, 218 Cal.App.3d 999. The creation of a leasehold interest in taxable real property for a term of 35 years or more may be subject to a documentary transfer tax under Revenue and Taxation Code Section 11911. Thrifty Corp. v. Los Angeles County, 210 Cal.App.3d 881. The extension of a leasehold interest in taxable real property extending the remaining term of the lease to 28 years is not subject to a documentary transfer tax under Section 11911. McDonald's Corporation v. Board of Supervisors, 63 Cal.App.4th 612. Pursuant to subdivision (c) of Section 61, because the ground lease at issue was for only 20 years, the subsequent transfer of the underlying land included a change in ownership and reassessment of the improvements even though the lessee, and not the ground lessor, had constructed and owned the improvements under the terms of the lease. Additionally, all three parts of the Section 60 test must be applied to a change in ownership analysis of a real property transfer. Auerbach v. County of Los Angeles Assessment Appeals Board No. 1, 39 Cal.4th 153.

Mineral interests.—Fixed long-term mineral interests are not governed by subdivision (c), and all such interests in real property are not subject to reassessment simply because one mineral interest is transferred. The leaseholds referred to in subdivision (c) are estates for years, not mineral profits A prendre; and subdivision (c) was intended to provide an example of a change in ownership consistent with the general definition of Section 60. However, the transfer of a mineral interest is a change of ownership of the mineral estate regardless of whether such a transaction is expressly listed in this section. The estate has been transferred and hence a "change of ownership" has occurred within the meaning of Article XIII A, Section 2(a) and (d) of the Constitution and Section 60. Howard v. Amador County, 220 Cal.App.3d 962.

Trusts.—A change in ownership occurred when a revocable trust becomes irrevocable upon the trustor's death and the full beneficial interests in the real property transferred to the residual beneficiaries of the trust. Empire Properties v. Los Angeles, 44 Cal.App.4th 781.

Partnership.—Under Section 60 and this section, a partnership's transfer of parcels of real property to a partner was a change in ownership requiring a 100 percent reassessment. The beneficial use of the partnership properties underwent a significant change upon transfer to the partner, who obtained the absolute and exclusive rights to possess, use, enjoy, and dispose of the entire fee interest in the property without limitation or condition. Munkdale v. Giannini, 35 Cal.App.4th 1104.

Limited Liability Company.—A 100 percent change in ownership occurred as a result of a corporation's (insurer's) sale of a shopping mall to a limited liability company (LLC). The corporation did not, due to its status as a member of the LLC's parent company, retain a beneficial interest in the mall. It was the parent, through the LLC, that exercised control over the mall, not the corporation. Fashion Valley Mall, LLC v. County of San Diego, 176 Cal.App.4th 871.

Step transaction doctrine.—The step transaction doctrine applied to a four-step real property transaction between a parent corporation, its subsidiary corporation, and a developer, so as to justify reassessment on the basis that a 100 percent change in ownership had occurred where the doctrine's "interdependence test" was satisfied. The interdependence test analyzes the relationship between the steps, rather than their ultimate result, and all four steps by the parties were aimed at developing the land with a developer. The developer came into the partnership, which had been formed by the two original, affiliated corporations, to assume all of the entitlement of the parent corporation, and the parent corporation withdrew. It was reasonable to infer that the developer's goals would not have been met without the transfer of title from the parent corporation to the partnership. Even if the two corporations had internal corporate reasons to take the steps they did, the steps would have been fruitless had they not found a developer to join the project. Also, it was not improper for the trial court to consider the timing of the steps in its analysis of the doctrine; timing should be considered when analyzing an entire set of circumstances. McMillin-BCED/Miramar Ranch North v. San Diego County, 31 Cal.App.4th 545.