Tuesday, December 8, 2020
Page 1
Court of Appeal
Tax Reassessment Is Triggered by Transfer of Corporate Property to Family Trust
By Sandra Hong, Staff Writer
A transfer of real property between a corporation and a family trust, whose beneficiaries are those shareholders owning all of the company’s voting stock, triggers a reassessment of the property’s value for tax purposes, Div. Five of this district’s Court of Appeal held yesterday.
The opinion by Presiding Justice Laurence D. Rubin affirms a ruling by Los Angeles Superior Court Judge James C. Chalfant, who granted a petition for writ of mandate by Los Angeles County Assessor Jeffrey Prang.
Prang’s petition for a writ of administrative mandamus sought the vacating of a decision by the state Board of Equalization. It found that a commercial property transfer from Super A Foods grocery chain to the Amen Family Trust did not constitute a change in ownership under Revenue and Taxation Code §62(a)(2) and that reassessment of the property from $5 million to more than $10 million by Prang’s office was improper.
Change of Ownership
Under that provision, a transfer of real property occurs “whether represented by stock, partnership interest, or otherwise” where owners retain their proportional interest in the property after the transfer does not trigger a reassessment. Without a recognized change in ownership, a property’s assessed value is limited to an increase of no more than 2 percent a year as a result of Proposition 13, which was passed by California voters in 1978.
In finding there was no change of ownership in the property transfer from Super A Foods to the trust, the board said that only voting stock should be considered when determining whether the proportional ownership interest exclusion applies under §62(a)(2).
Super A Foods stock is owned by the family trust as well as several other individuals who do not have voting rights. But the trust argued that a corporation’s ownership interests in real property should be measured by voting stock only.
With this approach, Super A Foods’ ownership of the property remained the same before and after the transfer to the trust.
Trust’s Contention
Prang argued that “stock” under §62(a)(2) applies to both voting and non-voting stock. However the Board of Equalization said that limiting the meaning of “stock” under §62(a)(2) to voting stock avoided the difficulties of evaluating proportional ownership interests in other types of stock by having to assign “random percentages of ownership to particular classes of stock since… owners of corporation have no specific right to any corporate real property.”
In his opinion affirming Chalfant’s judgment, Rubin said:
“In the present case, the proportional ownership interests were not aligned before and after transfer. Before the transfer, the corporation had at least five stockholders, namely several individuals and the Trust, all five having economic interests in the Property held by the corporation. After the transfer, the Trust owned the Property, and the individuals no longer had any ownership interest in the Property. The proportional ownership interests of the transferor and transferee were different.”
Justice Carl H. Moor joined in Rubin’s opinion. In a dissenting opinion, Justice Lamar W. Baker said the majority’s interpretation of §62(a)(2) fails to harmonize with the statutory scheme of Proposition 13 or account for the practical difficulties in evaluating proportional ownership for the transfer of all types of stock interests.
Baker noted these concerns were raised in amicus briefs, including one from the Board of Equalization. He wrote:
“The Legislature has stated a preference for uniformity in the administration of property tax assessment practices throughout the state with the Board specifically charged with achieving that end.…The majority nonetheless permits the Los Angeles County Assessor to disregard the Board’s instructions and expertise, thereby opening the door to a patchwork, county-by-county system of differing reassessment methods that is the opposite of what the Legislature intended.”
The case is Prang v. Amen, 2020 S.O.S. 5809.
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