California bill would modify what triggers a real property tax reassessment and would add new property tax filing requirements

February 2013


Assembly Bill 188 proposes that a 'change of ownership'  in real property held by a legal entity will occur if 100% of that legal entity's interest is sold or transferred within a three-year period, even if no one person or entity acquires more than 50% of the entity’s ownership interests.  Such a change of ownership would trigger property tax reassessment for the property. Additionally, the bill would impose significant reporting requirements regarding the transfer of legal entity interests.

The proposed changes would create significant tax and business concerns for companies operating in California. Businesses, especially publicly traded corporations, with California property should be aware of the proposed 100% interest transfer rule and the additional burden imposed by the proposed reporting requirements. Companies should begin the process of evaluating their contracts to determine if increases in property tax costs can be passed through to their tenants. Finally, companies should consider the impact these changes may have on their internal reporting, as well as the rate of return for real estate in California.

The proposed legislation raises significant unanswered questions. Would publicly-traded companies be compelled to report to the State Board of Equalization every time its shares are sold? Would publicly-traded companies be required to file a deed every time its shares are sold? These are questions that should be resolved through the legislative process or through regulatory guidance. [California Assembly Bill 188, introduced 1/28/13, referred to Committee on Revenue and Taxation 2/7/13]

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Peter Michalowski
National SALT Practice Leader
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