Litigation Alert

• Jurisdiction: California,United States
• Author: By Jeremiah J. Moffit, Esq.,* Catherine M. Swafford, Esq.,* Matthew R. Owens, Esq.,* and Courtney A. Sorensen, Esq.*
• Publication year: 2021
• Citation: Vol. 27 No. 2

LITIGATION ALERT

By Jeremiah J. Moffit, Esq.,* Catherine M. Swafford, Esq.,* Matthew R. Owens, Esq.,* and Courtney A. Sorensen, Esq.*

BOTH VOTING AND NON-VOTING SHARES OF A CORPORATION MUST BE CONSIDERED WHEN DETERMINING OWNERSHIP FOR PURPOSES OF EXCLUSION FROM PROPERTY TAX REASSESSMENT

Prang v. Amen (2020) 58 Cal.App.5th 246

The Second District Court of Appeal, in determining proportionate ownership interests in property for purposes of exclusion from property tax reassessment, held that both voting and non-voting shares of a corporation must be considered.

A corporation owned two pieces of real property. The voting stock of the corporation was issued to a trust. The non-voting stock of the corporation was issued to the trust and several other individuals. The other individuals who held non-voting stock of the corporation were not beneficiaries of the trust. The corporation transferred the two pieces of real property to the trust. The assessor's office determined the transfer of the real property constituted a change of ownership from the corporation to the trust, and reassessed the property for tax purposes. The trust appealed the change-of-ownership determination to the Assessment Appeals Board. The Assessment Appeals Board reversed the reassessment. The Assessment Appeals Board concluded that only voting stock should be considered when analyzing whether a change-of-ownership has occurred. Since the trust owned all of the voting stock of the corporation and the transferee was the trust, the Assessment Appeals Board determined the transfer was excluded from reassessment. The assessor filed a petition for writ of administrative mandate in the trial court, arguing that ownership interest should include both voting and non-voting stock. The trial court agreed and vacated the decision of the Assessment Appeals Board. The trustee appealed.

The Court of Appeal affirmed. When ownership of a property changes, the property may be reassessed for tax purposes. One of the legislative exceptions to reassessment provides that there is no change of ownership in a transfer between legal entities that results solely in a change in the method of holding title to real property, in which "proportional ownership interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred remain the same after the transfer." The Court of Appeal reviewed the use of "stock" and "voting stock" in other provisions of the Revenue and Tax Code and determined the Legislature knew how to refer to "voting stock" when defining ownership interests and deliberately chose a different test for the exception relied upon by the trust. Additionally, the Court of Appeal noted the Revenue and Taxation Code defines a change in ownership to mean a "transfer of a present interest in real property, including the...