The Battle Over Property Taxes Continues

By Cori Badgley

Since the passage of Proposition 13, cities and counties have been prohibited from reassessing property taxes until a property is sold or transferred, at which point the property tax cannot exceed one percent of the assessed value. This means that once the initial assessed value has been determined, the assessment for the purpose of property tax evaluation is essentially “frozen” in time, with a maximum increase in the annual cap for inflation of two percent. This leaves the cities and counties with one opportunity to reassess the property value upon acquisition of the property. Generally, the question of what constitutes a “transfer” or “sale” is easily answered. In terms of corporations and partnerships, however, the question can become a more difficult.

In Fashion Valley Mall, LLC v. County of San Diego (2009) 176 Cal.App.4th 871, ownership of a mall transferred from Equitable Life Assurance Company of the United States (“Equitable”) to Mallco. Mallco was a wholly owned subsidiary of Fashion Valley Mall, Inc. (“FVM”), and 50 percent of FVM’s shares belonged to Equitable. Although Equitable owned 50 percent of FVM and Mallco was a subsidiary of FVM, the County of San Diego, upon transfer of the property, reassessed 100 percent of the property value. Taking the County to court, Equitable argued that the County could only reassess 50 percent of the value because only 50 percent of the ownership in the property was transferred.

The court disagreed. The court began by enunciating the test for “change of ownership” under Proposition 13 (Constitution Art. XIIIA):

A “change in ownership” means (1) a transfer of a present interest in real property, (2) including the beneficial use thereof, (3) the value of which is substantially equal to the value of the fee interest.

Under this test, the court focused on whether there was a transfer of a beneficial interest. In other words, the issue was “whether Equitable retained a 50 percent beneficial interest in the Mall due its status as a member in FVM.” Evidence Code section 662 creates a presumption that “[t]he owner of the legal title to property is presumed to be the owner of the full beneficial title,” and states that “[t]his presumption may be rebutted only by clear and convincing evidence.”

Other cases in which the presumption has been successfully rebutted involve fiduciary relationships, such as a trustee and the beneficiary. The court found that, under the circumstances in this case where no fiduciary relationship existed, the presumption was not overcome. Therefore, Mallco alone held 100 percent of the beneficial interest in the property because Mallco alone held title to the property.

The court also found that Equitable’s power to exercise a small degree of control over the mall did not amount to a beneficial interest in the mall. Any powers or rights held by Equitable in relation to Mallco related to Equitable’s personal property interest as a member of FVM. Therefore, the court held that there was 100 percent change in ownership in the mall, and the County properly reassessed 100 percent of the value.

Cori M. Badgley is an associate at Abbott & Kindermann, LLP.  For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.

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