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Property Taxes: California's Property Tax Regime (Portfolio 1630)

Product Code: TPOR44
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Property Taxes: California's Property Tax Regime examines the past and current state of California's property tax practices, concentrating on article XIIIA of the California Constitution, which codified Proposition 13. Written by Thomas H. Steele, Esq., Morrison & Foerster and Charles J. Moll, III, Esq., Winston & Strawn LLP, this Portfolio provides a brief overview of the basic provisions of the Proposition and devotes significant attention to the ambiguities still surrounding Proposition 13, including the definitions of the terms “new construction” and “change in ownership.”  It also examines recent litigation challenging the constitutionality of the base year value assessment limitation. 

In addition, this Portfolio provides an overview of other key provisions—including “Prop 8” reductions and Proposition 218 fees and taxes, statutory provisions, and the property tax rules applicable to leased property. Property Taxes: California's Property Tax Regime also provides a review of relevant issues regarding legal entities, including:  

  • Transfers to and from legal entities,
  • The “Toll Charge” for Section 62(a)(2),
  • Transfers of property between affiliated corporations,
  • The general rule for transfers of interests in legal entities,
  • Reorganizations involving affiliated entities,
  • Transfers of control, and
  • Ambiguities in the application of § 64(c).

This Portfolio describes the rules of current California law and explains why they must be approached with a keen appreciation of the power of the Legislature and the courts.  The Portfolio also discusses various valuation issues that typically arise in property tax practice in California. 

Property Taxes: California's Property Tax Regime allows you to benefit from: 

  • Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
  • Invaluable practice documents including tables, charts and lists.
  • Plain-English guidance from world-class experts.
  • Real-world and in-depth analysis that lets you explore various options.
  • Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
  • Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

 

Detailed Analysis

1630.01. INTRODUCTION

1630.02. OVERVIEW OF THE KEY PROVISIONS

Introductory Material

A. Assessment Limitation

B. Definition of Full Cash Value

C. Assessments Limited to Fair Market Value-“Prop 8” Reductions

D. Article XIIIA Applies Only to Locally Assessed Real Property

E. Assessment and Property-Related Fee Reform

1. Fees Excluded From Proposition 218 Requirements

2. Fees and Taxes Imposed in Compliance With Proposition 218

3. Fees and Taxes Found to be in Violation of Proposition 218

1630.03. CONSTITUTIONAL CHALLENGE TO THE BASE YEAR VALUE LIMITATION

A. The Nordlinger Case

1. Equal Protection Challenge in Nordlinger

2. Legal Basis of the Nordlinger Challenge

3. The Allegheny Pittsburgh Case Precedence

4. The Right–to–Travel Argument

B. The Nordlinger Decision

1. Distinguishing Allegheny Pittsburgh

2. Other Provisions of Article XIIIA

3. Nordlinger's Right–to–Travel Argument

4. Justice Thomas' Concurring Opinion

5. Justice Stevens' Dissent

C. Reflections on Nordlinger

1630.04. RULES GOVERNING WHAT CONSTITUTES A CHANGE IN OWNERSHIP OR NEW CONSTRUCTION

Introductory Material

A. Legislative History of the Reassessment Provisions

B. The Temporary Implementing Statutes

C. Adoption of Permanent Legislation

1630.05. OVERVIEW OF STATUTORY PROVISIONS

1630.06. GENERAL STATUTORY DEFINITION OF “CHANGE IN OWNERSHIP”

1630.07. PROPERTY TAX RULES APPLICABLE TO LEASED PROPERTY

Introductory Material

A. Rationale for the Leasehold Rule

B. Sale–Leasebacks

C. Modifications of Long–Term Leaseholds

D. Mineral Leaseholds

E. Substance Over Form

1630.08. LEGAL ENTITIES

Introductory Material

A. Transfers to and from Legal Entities

1. In General

2. Pre–Transfer Realignment of Property Interests

B. The “Toll Charge” for Section 62(a)(2)

C. Transfers of Property Between Affiliated Corporations

D. Transfers of Interests in Legal Entities––General Rule

E. Reorganizations Involving Affiliated Entities

F. Transfers of Control

G. Ambiguities in the Application of 64(c)

1. What Constitutes Acquisition of a Controlling Interest in a Second Tier Entity Owned by the Target?

2. What Constitutes “Control” Under Section 64(c)?

3. What Constitutes Acquisition of a “Majority Ownership Interest” in a Partnership or Other Legal Entity?

4. What Constitutes a Partnership for Section 64(c)?

1630.09. OTHER CHANGE IN OWNERSHIP RULES

Introductory Material

A. Deeds of Trust and Mortgages

B. Family Transfers

C. Interspousal Transfers

D. Joint Tenancy

E. Estate Planning Trusts

F. Life Estates

G. Undivided Interests

H. Possessory Interests

I. Substantially Damaged Property

J. Transfers by Taxpayers over Age 55

K. Transfers Involving Employee Benefit Plans

L. Replacement of Condemned or Destroyed Property

1630.10. NEW CONSTRUCTION

Introductory Material

A. Assessments During the Course of Construction

B. Special Rules Applicable to Certain Types of Construction

C. Removal of Property As New Construction

1630.11. SUPPLEMENTAL ASSESSMENTS

1630.12. REPORTING REQUIREMENTS

1630.13. STATUTE OF LIMITATIONS ON REASSESSMENTS ARISING FROM CHANGES IN OWNERSHIP

1630.14. PROCEDURE GOVERNING PROPERTY TAX PROCEEDINGS: BASE YEAR VALUE

1630.15. APPROACHES TO VALUE

A. General

1. Full Cash Value Concept

2. Valuation Unit

3. Highest and Best Use

4. Cash Equivalency

1630.16. METHODS OF APPRAISAL

Introductory Material

A. Sales or Market Approach

B. Reproduction and Replacement Cost Approach

C. Income Approach

1. Introduction

2. Determination of Income

a. Economic Rent

b. Enterprise Value

c. Vacancy and Collection Allowances

3. Deductible Expenses

4. Capitalization Rate

5. Discounted Cash Flow Analysis

1630.17. EXEMPTION FOR INTANGIBLES

A. General Exemption of Intangibles from Property Taxation

B. Special Exemptions Recognized by the Courts

C. Enhancement Value

D. Adjustment to the Assessment for Intangible Property

Working Papers

Table of Worksheets

Worksheet 1 IPR Examples in Title Insurance and Trust Co.

Bibliography

Bibliography

Charles Moll, III
Charles Moll, III, A.B. degree from Cornell University in 1976, J.D. from George Washington University in 1979. He served as an Attorney Advisor to Chief Judge C. Moxley Featherston of the United States Tax Court from 1979 through 1981. Thereafter, he joined the Tax Department of Morrison & Foerster in San Francisco and became a partner of the firm on January 1, 1989.  Mr. Moll's practice primarily involves the resolution of tax controversies through litigation and negotiation. He practices extensively in state and local tax matters before all levels of California's courts, taxing authorities, and a wide variety of county assessment appeals boards. His practice also covers federal tax matters, including the representation of clients in federal courts and at appellate hearings before the Internal Revenue Service.   Mr. Moll has lectured and written on a variety of federal and state tax issues, including teaching in the Golden Gate University graduate tax program and speaking at the Southern California Annual Tax Institute.
Thomas Steele
Mr. Steele received his B.A. degree in 1970 from the University of Virginia and his J.D. in 1976 from the School of Law at the University of California, Davis. He was editor–in–chief of the U.C.D. Law Review, Order of the Coif, and received the U.C. Davis Law School Medal. He associated with the law firm of Morrison & Foerster in 1976, becoming a partner in 1982. Mr. Steele was Chairman of the Tax Section of the Bar Association of San Francisco during 1985. From 1981 through 1984, Mr. Steele was an adjunct professor of law at the University of San Francisco Law School. From 1978 through 1982, he was a lecturer at Golden Gate University. He is a frequent speaker on state and local tax matters. He also is an instructor at the Advanced Sales Tax School sponsored by the Committee On State Taxation. Mr. Steele is a member of the Advisory Committee of the National Institute on State and Local Taxation and a member of the California and Colorado bars.