Laws, Regulations & Annotations
Property Taxes Law Guide – Revision 2010
Revenue and Taxation Code
Part 0.5. Implementation of Article XIII A of the California Constitution
Chapter 2. Change in Ownership and Purchase
64. Corporation and partnership interests. (a) Except as provided in subdivision (i) of Section 61 and subdivisions (c) and (d) of this section, the purchase or transfer of ownership interests in legal entities, such as corporate stock or partnership or limited liability company interests, shall not be deemed to constitute a transfer of the real property of the legal entity. This subdivision is applicable to the purchase or transfer of ownership interests in a partnership without regard to whether it is a continuing or a dissolved partnership.
(b) Any corporate reorganization, where all of the corporations involved are members of an affiliated group, and that qualifies as a reorganization under Section 368 of the United States Internal Revenue Code and that is accepted as a nontaxable event by similar California statutes, or any transfer of real property among members of an affiliated group, or any reorganization of farm credit institutions pursuant to the federal Farm Credit Act of 1971 (Public Law 92-181), as amended, shall not be a change of ownership. The taxpayer shall furnish proof, under penalty of perjury, to the assessor that the transfer meets the requirements of this subdivision.
For purposes of this subdivision "affiliated group" means one or more chains of corporations connected through stock ownership with a common parent corporation if both of the following conditions are met:
(1) One hundred percent of the voting stock, exclusive of any share owned by directors, of each of the corporations, except the parent corporation, is owned by one or more of the other corporations.
(2) The common parent corporation owns, directly, 100 percent of the voting stock, exclusive of any shares owned by directors, of at least one of the other corporations.
(c) (1) When a corporation, partnership, limited liability company, other legal entity, or any other person obtains control through direct or indirect ownership or control of more than 50 percent of the voting stock of any corporation, or obtains a majority ownership interest in any partnership, limited liability company, or other legal entity through the purchase or transfer of corporate stock, partnership, or limited liability company interest, or ownership interests in other legal entities, including any purchase or transfer of 50 percent or less of the ownership interest through which control or a majority ownership interest is obtained, the purchase or transfer of that stock or other interest shall be a change of ownership of the real property owned by the corporation, partnership, limited liability company, or other legal entity in which the controlling interest is obtained.
(2) On or after January 1, 1996, when an owner of a majority ownership interest in any partnership obtains all of the remaining ownership interests in that partnership or otherwise becomes the sole partner, the purchase or transfer of the minority interests, subject to the appropriate application of the step-transaction doctrine, shall not be a change in ownership of the real property owned by the partnership.
(d) If property is transferred on or after March 1, 1975, to a legal entity in a transaction excluded from change in ownership by paragraph (2) of subdivision (a) of Section 62, then the persons holding ownership interests in that legal entity immediately after the transfer shall be considered the "original coowners." Whenever shares or other ownership interests representing cumulatively more than 50 percent of the total interests in the entity are transferred by any of the original coowners in one or more transactions, a change in ownership of that real property owned by the legal entity shall have occurred, and the property that was previously excluded from change in ownership under the provisions of paragraph (2) of subdivision (a) of Section 62 shall be reappraised.
The date of reappraisal shall be the date of the transfer of the ownership interest representing individually or cumulatively more than 50 percent of the interests in the entity.
A transfer of shares or other ownership interests that results in a change in control of a corporation, partnership, limited liability company, or any other legal entity is subject to reappraisal as provided in subdivision (c) rather than this subdivision.
(e) To assist in the determination of whether a change of ownership has occurred under subdivisions (c) and (d), the Franchise Tax Board shall include a question in substantially the following form on returns for partnerships, banks, and corporations (except tax-exempt organizations):
If the corporation (or partnership or limited liability company) owns real property in California, has cumulatively more than 50 percent of the voting stock (or more than 50 percent of total interest in both partnership or limited liability company capital and partnership or limited liability company profits) (1) been transferred by the corporation (or partnership or limited liability company) since March 1, 1975, or (2) been acquired by another legal entity or person during the year–? (See instructions.)
If the entity answers "yes" to (1) or (2) in the above question, then the Franchise Tax Board shall furnish the names and addresses of that entity and of the stock or partnership or limited liability company ownership interest transferees to the State Board of Equalization.
History.—Stats. 1979, Ch. 1161, in effect September 29, 1979, substituted "A corporation, partnership, other legal entity or any other person" for "one corporation", and substituted "any" for "another" after "in" in the first sentence of subdivision (c). Stats. 1980, Ch. 1349, in effect January 1, 1981, added "and (d)" after "subdivision (c)" in subdivision (a); added "or obtains a majority ownership interest in any partnership or other legal entity" before "through the purchase", substituted "partnership interest, or ownership interests in other legal entities" for "exclusive of any shares owned by directors" after "corporate stock", added "or other interest" before "shall be" and "partnership, or other legal entity" before "in which" in subdivision (c); and added subdivisions (d) and (e). Stats. 1982, Ch. 1465, in effect January 1, 1983, deleted "by merger or consolidation," after "reorganization," in the first sentence of subdivision (b); substituted "If" for "Whenever" before "property," added "on or after March 1, 1975," after "transferred", "paragraph (2) of" before "subdivision (a)", and "then" after "Section 62," in the first sentence, and substituted "that" for "the " before "real property", added "which . . . Section 62" before "shall be", and deleted "by the assessor pursuant to Section 65" after "reappraised" in the second sentence of the first paragraph of subdivision (d), and added the fourth paragraph thereof; and substituted "subdivision (c) and (d)" for "subdivision (c)" after "under" in the first paragraph of subdivision (e), substituted "has cumulatively . . . person" for "was control of the corporation (partnership) transferred or sold" after "California," in the second paragraph thereof, and substituted "the" for "an" after "If", added "(1) or (2) in "after 'cyes' to", substituted "shall" for "will" after "Board", substituted "names and addresses of that" for "name and address of such" after "furnish the", and added "and of . . . transferees" after "entity" in the third paragraph thereof. Stats. 1984, Ch. 678, in effect January 1, 1985, deleted the former third paragraph of subdivision (d) which stated that "The persons holding ownership interests in the legal entity immediately following the reappraisal shall be considered the new original co-owners." Stats. 1988, Ch. 560, in effect January 1, 1989, added ", or any reorganization of farm credit institutions pursuant to the Federal Farm Credit Act of 1971 (Public Law 92-181), as amended," before "shall" in the first sentence of subdivision (b). Stats. 1994, Chs. 1200 and 1243, in effect September 30, 1994, added references to limited liability company throughout text; added "(as enacted . . . 1955)" after "25105" and substituted "the" for "such" and substituted "that" for "such" in subdivision (c). Stats. 1995, Ch. 497, in effect January 1, 1996, added the second sentence in subdivision (a); substituted "that" for "which" twice in the first paragraph in subdivision (b); added "both of . . . are met" after "corporation if" in the second paragraph of subdivision (b); substituted a period for "; and" after "corporations" in paragraph (1) of subdivision (b); added paragraph number designation (1) before first paragraph of subdivision (c), substituted "through direct . . . stock of" for ", as defined in Section 25105 (as enacted by Chapter 938 of the Statutes of 1955), in", after "obtains control", added "including any . . . is obtained," after "legal entities,", and added "the real" after "ownership of" therein; added paragraph (2) to subdivision (c); and substituted "that" for "which" twice in the first paragraph and in the third paragraph of subdivision (d). Stats. 1998, Ch. 591 (SB 2237), in effect January 1, 1999, substituted "subdivision (i)" for "subdivision (h)" after "as provided in" in the first sentence of subdivision (a). Stats. 1999, Ch. 83 (SB 966), in effect January 1, 2000, added a comma after "this subdivision" in the first sentence of the second paragraph of subdivision (b), and deleted "In order" before "To assist" in the first sentence of the first paragraph of subdivision (e).
Note.—Section 40 of Stats. 1995, Ch. 497, providing the following:
The Legislature finds and declared that the amendments of subdivision (a) and paragraph (1) of subdivision (c) of Section 64 of the Revenue and Taxation Code made by this act do not constitute a change in, but are declaratory of, existing law.
The Legislature further finds and declares that the amendment adding paragraph (2) to subdivision (c) of Section 64 of the Revenue and Taxation Code that is made by this act is necessary to correctly state the change in ownership results intended by the Legislature when a majority partner acquires the minority partners' ownership interests. It is the Legislature's intent that, absent the appropriate application of the step-transaction doctrine or one of the express exceptions listed in subdivision (a) of Section 64 of the Revenue and Taxation Code, the transfer of minority interests in a partnership to the majority owner shall not constitute a change in ownership of the partnership real property, on or after January 1, 1996.
Note.—Section 5 of Stats. 1980, Ch. 1349, provided the amendments made to Section 64 shall be effective for the 1981–82 assessment year and years thereafter. It is the intent of the Legislature that the provisions of this act shall apply to the determination of base year values for the 1981–82 fiscal year, and shall apply to any change in ownership occurring on or after March 1, 1975. No escape assessments shall be levied and no refund shall be made for any years prior to 1981–82 for any increases or decreases in value made for the 1981–82 fiscal year or fiscal years thereafter as the result of the enactment of this act. Section 6 thereof provided the provisions of subdivision (d) of Section 64 as added by this act shall be operative with respect to returns for years beginning in 1981 and thereafter.
Note.—Section 11 of Stats. 1988, Ch. 560, provided that the amendment made to Section 64 shall be applicable to the 1985–86 fiscal year and fiscal years thereafter. The Legislature finds and declares that farm credit banks are instrumentalities of the federal government, and that the recent reorganization of these farm credit institutions was effected pursuant to federal law and regulations. The Legislature further finds and declares that the reorganization of these institutions was of a type which would have avoided a change in ownership reappraisal under Section 64 of the Revenue and Taxation Code if the institutions had been members of a privately owned "affiliated group" connected through stock ownership with a common parent, rather than a federal instrumentality.
Construction.—This section applies to true changes in ownership, rather than "paper" ones. Where a corporation is involved, the term exempts a mere change in the form of ownership or corporate organization, but it encompasses outright sale of either land or the company to a stranger, whether for cash or for shares of stock. Thus, reassessment may not be avoided by selling all or a majority of the stock in real estate holding companies, and all realty held by a holding company and its former parent corporation was subject to reassessment upon a surviving corporation's acquisition of control of the holding company by merger with the former parent corporation. The change of ownership of the realty occurred within the meaning of section 64(c) when the shareholders of the former parent corporation became proportionate, but minority, shareholders in the surviving corporation, thereby losing control, and conversely, the surviving corporation obtained control of the holding company by acquiring a majority of its voting shares. Section 64(b) was not applicable since the merger was not between members of an affiliated group where none of the corporations owned 100 percent of the voting stock of the other at the time the merger tender offer was accepted. Sav-on Drugs, Inc. v. Orange County, 190 Cal.App.3d 1611.
A corporation, which obtained direct control of an intermediary corporation by conversion of its wholly owned subsidiary's common stock into the common stock of the intermediary, obtained indirect control of a separate subsidiary corporation that was wholly owned by the intermediary. Thus, notwithstanding the fact that the acquiring corporation did not directly purchase the stock of the intermediary's subsidiary, a change in ownership of that subsidiary's real property holdings occurred within the meaning of Section 64(c). The determinative factor as to whether a change in ownership of corporate property has occurred is control of the corporation that owns the property, not the right to occupy the property or to take possession of it. Title Ins. & Trust Co. v. Riverside County, 48 Cal.3d 84.
A corporate reorganization effecting a change in the majority controlling ownership of the corporate entities results in a change of ownership of the real property under Section 64(c), even though the reorganization itself was exempt from state and federal income taxation. The reorganization involved affiliated entities that were not affiliated after the transaction, and for Section 64(b) to be applicable, "members of an affiliated group" must have been affiliated from beginning to end, under the same ownership and control before a transfer and after. Pueblos Del Rio South v. City of San Diego, 209 Cal.App.3d 893.
A change in ownership of corporate real property triggering reassessment of the property occurred within the meaning of Section 64(c) where the taxpayer and another corporation formed a new corporation which set up two wholly owned subsidiary corporations which were then merged into the taxpayer and the other corporation, but which left the taxpayer's shareholders with a majority interest in the stock of the new corporation. Kraft, Inc. v. Orange County, 219 Cal.App.3d 1104. The acquisition of a film corporation by another corporation, specially created for that purpose, constituted a change in ownership within the meaning of Section 64(c) so as to allow reassessment of real property owned by the film corporation, even though none of the investors in the acquiring corporation owned more than 50 percent of its stock. The ultimate control theory, reflected in that section and which looks through the titleholder to the entity ultimately responsible, did not require that the acquiring corporation be ignored in order to focus instead on the individual investors. Twentieth Century Fox Film Corp. v. Los Angeles County, 223 Cal.App.3d 1158. The statutory definition of "control", in a partnership, a majority ownership interest, prevails over the concept that a choice in action represents indirect, constructive or effective control. Shuwa Investments Corporation v. Los Angeles County, 1 Cal.App.4th 1635. While acquisition of a minority partnership interest does not constitute a change of ownership under this section, this exemption applies only to transfers involving continuing entities. Thus, where the majority partner purchased the minority partners' partnership interests, in this case the partnership dissolved, this was a change in ownership, and the partnership's subsequent transfer of title to its real property to the sole partner was a mere formality. Zapara v. Orange County, 26 Cal.App.4th 464.
Section 64(e) is designed to assist the appropriate authorities in determining whether a change of ownership has occurred by alerting them to stock purchases that might lead to reassessment of real property, not to state the circumstances under which a property value tax reassessment should occur. Title Ins. & Trust Co. v. Riverside County, 48 Cal.3d 84.
Legislative intent.—The intent of the Legislature is the end and aim of all statutory construction. The Legislature's failure to adopt a proposed amendment to Section 64(c) which would have expressly extended application of the subdivision to corporate subsidiaries is not conclusive evidence of its intent that the subdivision not apply to subsidiaries. The Legislature may have objected to other portions of the bill, which contained numerous other provisions, or it may have determined that further clarification of the status of subsidiaries was unnecessary. Title Ins. & Trust Co. v. Riverside County, 48 Cal.3d 84.