Prop tax assessments: plus: practice privilege, Nevada LLCs and more.

• Author: Williams, Leonard W.
• Position: California tax

A client took out a building permit to remodel her home and received a letter from the county asking her how much the work would cost. She asked her CPA how she should respond and her CPA posted the question on TaxTalk.

When a homeowner pulls a building permit, the city forwards the information to the county assessor for reassessment, according to material from a Spidell Publishing course. Only new construction results in a reassessment, however. Remodeling and alterations are not considered new construction and hence are not subject to a property tax reassessment.

Letters to Assessor No. 78/188 include these examples of alterations that should not be considered new construction:

* Roof replacement;

* Replacement of bathroom and kitchen fixtures; and

* Replacement of interior partitions. Features that, if added, would be considered new construction include:

* Converting existing floor space to an additional bath;

* Finishing previously unfinished areas, such as attics, porches and basements; and

* Addition to any previously nonexistent structure.

One caveat: "Substantially equivalent of new" can be considered new construction when an owner does a major remodel. Check out Property Tax Rules No. 463 at www.boe.ca.gov/proptaxes/pdf/r463.pdf and also the Letters to the Assessors on the subject. The current year index can be found at www.boe.ca.gov/proptaxes/pdf/lta05001.pdf.

Nevada LLCs & CA Residents

Everyone probably has heard the ads about the alleged tax benefits of incorporating in Nevada, or forming a Nevada LLC. In virtually all cases involving California resident ownership, or all business operations in California, the benefits alleged in the ads simply don't exist.

A specific question was posted on TaxTalk about a California resident owning a Nevada LLC and whether California Form 568 is required.

The answer is yes.

California will take the position that management control is exercised in California. The only way to avoid California nexus for the Nevada LLC would be to have all board meetings outside of California; the LLC or corporate records, including accounting, would have to be maintained outside of California; and every time there was a purchase or sale of a security, it would have to be done outside of California, irrespective of where the brokerage house is located.

See the State Board of Equalization decision in the Appeal of Norton Simon. Simon was a prominent Los Angeles resident with timber interests in Washington...