Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2017

Revenue and Taxation Code

Property Taxation

Part 1. General Provisions

Chapter 1. Construction

Section 107.1

107.1. Valuation of certain possessory interests. The full cash value of a possessory interest, when arising out of a lease of exempt property, is the excess, if any, of the value of the lease on the open market, as determined by the formula contained in the case of De Luz Homes, Inc. v. County of San Diego (1955), 45 Cal.2d 546, over the present worth of the rentals under said lease for the unexpired term thereof.

A possessory interest taxable under the provisions of this section shall be assessed to the lessee on the same basis or percentage of valuation employed as to other tangible property on the same roll.

This section applies only to possessory interests created prior to the date on which the decision of the California Supreme court in De Luz Homes, Inc. v. County of San Diego (1955), 45 Cal.2d 546, became final. It does not, however, apply to any of such interests created prior to that date that thereafter have been, or may hereafter be, extended or renewed, irrespective of whether the renewal or extension is provided for in the instrument creating the interest.

This section does not apply to leasehold estates for the production of gas, petroleum and other hydrocarbon substances from beneath the surface of the earth, and other rights relating to such substances which constitute incorporeal hereditaments or profits a prendre.

History.—Added by Stats. 1957, p. 3741, in effect September 11, 1957. Stats. 1970, p. 1071, in effect November 23, 1970, deleted paragraph preceding the present first paragraph; substituted "a" for "such" preceding "possessory" in the first paragraph, and added ", when arising out of a lease of exempt property," to the first paragraph.

Construction.—To give this section retrospective effect would be to authorize an unconstitutional gift of public funds. The Texas Co. v. Los Angeles County, 52 Cal.2d 55. Leasehold interests in tax-exempt land are not personal property within the meaning of Section 14 of Article XIII of the State Constitution and that portion of the above section which declares such leasehold interests to be personal property is invalid; however, the remaining provisions of the above section are valid. Forster Shipbldg. Co. v. Los Angeles County, 54 Cal.2d 450.

In computing such full cash value for a given year, deduction of rentals accruing after the assessment date, not rentals accruing after the beginning of the fiscal year, is proper. Host International, Inc. v. San Mateo County, 35 Cal.App.3d 286.