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Entities and the "Missed" Change of Ownership
Proposition 13 revised the real property taxation system by limiting taxes
to one percent of a property's base-year value, compounded by an inflation
factor. Base-year values are reestablished only if property is purchased,
is newly constructed, or if there is a "change of ownership." As
applied to entities, transfers of ownership interests (i.e., stock, membership,
etc.) are typically not enough to trigger a "change of ownership."
Rather, without regard to an actual sale of the property, a "change
of ownership" prompting reassessment often occurs (and I am over-simplifying
here) when there is effectively a change in control of
the entity, such as when one person acquires over fifty percent of a corporation's
stock.
California courts have recently held that there is no statute of limitations
in "correcting" a missed change of ownership; by statute, the
assessor is required to immediately correct the base year when alerted to
the error.
As an example, if 10 years ago, a person went from a 49% to a 51% shareholder
in a company that owned real property, and the transaction was not reported
to the assessor, the assessor is still entitled to go back and reassess
the
property effective as of the date of transfer. (This has different implications
upon the tax payer, either in refunds or in liability for escape assessments,
depending upon whether or not the reassessment is favorable. These claims
are restricted by statute of limitations issues.)
Ross' Review: This is good, bad and ugly. The "good"
is that, other than merely challenging valuation, a taxpayer can correct its
base-year value at any time if a parcel was improperly reassessed based upon
a change of ownership, or to the extent that a correcting reassessment due
to a missed change of ownership would be advantageous. Sunrise Retirement
Villa v. Placer County Assessor, 97 Daily Journal DAR 13341. The "bad"
is that it cuts both ways; the assessor can do likewise, presumably to its
advantage. The "ugly" is in valuation. Expect the battles over
historical property values to be very frustrating, particularly in light
of the wild
value shifts in the late 80s and early 90s.
The better approach is to be aware
of "change of ownership" issues
whenever entity ownership interests are transferred, and to timely advise
the assessor's office where warranted. Granted, a given transaction may invite
reassessment due to a change of ownership, but if so, it is a cost of the
transaction which should be considered in determining its merit.
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