California real property taxation - Tips and traps of the state's property and transfer taxes

January 2014
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California real property taxation - Tips and traps of the state's property and transfer taxes

At a glance

In this January 31, 2014, BNA Weekly State Tax Report article,Sean Kanousis, Sam Melehani, Reed Schreiter, and Adam Robbins explore how the intersection of California's real property tax and transfer tax cause significant issues for businesses owning California real property.

California’s real property tax regime is as unique as it is complex.  Similar to other states, California imposes two separate taxes that potentially impact real property ownership—the annual real property tax and the documentary transfer tax.  Two areas that provide challenges for taxpayers are California’s unique 'change in ownership' rules and the complexities that arise when the real property and transfer taxes interact.  Although limits imposed by the change in ownership rules on real property tax assessment valuations can be beneficial to real property owners, these provisions, potentially affecting both tax levies, can trap the unwary and result in a reappraisal for property tax purposes and imposition of the transfer tax.

This article addresses many of the real property tax questions faced by taxpayers owning California real property or owning interests in entities that own California real property.  What transactions qualify as a change in ownership of real property?  When will a transfer of ownership of an entity’s interest result in the taxation of the entity’s real property? What exemptions exist for transfers of property or ownership interests between legal entities? Can certain future actions trigger property reassessment for previously exempt transactions? Can changes of control and changes of ownership trigger real property transfertaxes?