Property taxes in California

Morrison & Foerster LLP - William H. Gorrod

In California, real property, possessory interests, and personal property are subject to property tax. Under Proposition 13, real property is reassessed to current market value (base-year value) only on a change of ownership or completion of new construction (Cal. Const. art. XIII A, § 2). Annual increases in the base-year value are limited to a maximum of 2%, except when property changes ownership or undergoes new construction (Cal. Rev. & Tax. Code 51(a)(1)(D)). Changes of control of legal entities owning real property may result in change of ownership requiring reassessment, unless an exclusion or exemption applies (Cal. Rev. & Tax. Code § 64). The primary valuation methods include:

• the comparable sales method;
• the cost method; and
• the income method.

Proposition 13 does not apply to personal property or state-assessed property.

The California State Board of Equalization’s (BOE) property tax functions are administered by the County-Assessed Properties Division and the State-Assessed Properties Division. The County-Assessed Properties Division is responsible for:

• establishing policies and standards for proper assessment practices state-wide; and
• measuring state-wide compliance and uniformity in county-assessment procedures and practices.

The State-Assessed Properties Division is responsible for administering the assessment program of California state assessees under the BOE’s jurisdiction, including property owned or used by:

• regulated railway, telegraph, or telephone companies;
• car companies operating on railways in California; and
• companies transmitting or selling gas or electricity.

State-assessed property is assessed at its fair market value, or its full value, as of each January 1.

State rate

What is the state property tax rate?

Generally, property tax rates are set at the local level under limitations imposed by state law.

Local rates

What is the range of local property tax rates levied in your state?

The local property tax rate includes:

• a general tax levy, which is set at 1% by Proposition 13;
• voter-approved indebtedness repayment;
• parcel taxes;
• Mello-Roos taxes; and
• special district assessments.

Property tax rates do not apply uniformly by locality, and the combined local property tax rates generally range from 1% to 1.6%.

Exemptions and deductions

What exemptions and deductions are available?

Several types of property are fully or partially exempt from property tax, if certain requirements are met, including:

• churches and religious organizations (Cal. Const., art. XIII, §§ 3(f), 5; Cal. Rev. & Tax. Code §§ 206, 207);
• non-profit colleges (Cal. Rev. & Tax. Code § 203);
• homeowners ($7,000 maximum exemption);
• lessors of property to certain institutions (Cal. Rev. & Tax. Code § 202.2);
• free public museums (Cal. Const., art. XIII, § 3(d); Cal. Rev. & Tax. Code § 202);
• public schools (Cal. Const., art. XIII, § 3(d); Cal. Rev. & Tax. Code § 202(a)(3));
• welfare organizations (i.e., religious, hospital, or charitable purposes held by a non-profit organization) (Cal. Rev. & Tax. Code § 214); and
• works of art available for display in an art gallery or museum (Cal. Rev. & Tax. Code § 217).

Filing requirements

What filing requirements and procedures apply?

Real property

On or before November 1 of each year, the county tax collector issues a county tax bill for property carried on the secured roll for the fiscal year beginning the previous July 1 (Cal. Rev. & Tax. Code §§ 75.6, 2610.5). The first equal installment of real property taxes on the secured roll is due on November 1 and becomes delinquent on December 10. The second equal installment of real property taxes on the secured roll are due on February 1 and become delinquent on April 10 (Cal. Rev. & Tax. Code §§ 2605, 2606, 2617, 2618, 2701, 2702, 2704, 2705).

Unsecured property taxes are due on January 1 and become delinquent on August 31. Property taxes added to the unsecured roll after July 31 become delinquent on the last day of the month after the month in which the assessment was added to the unsecured roll (Cal. Rev. & Tax. Code §§ 2192, 2901, 2922).

Personal property

Business property statements are due on April 1. Personal property taxes are due on August 31 of each year (Cal. Rev. & Tax. Code §§ 441(b), 2922).

Real estate transfer tax

How is the transfer of real estate taxed in your state (including tax base, rates, exemptions, and filing formalities)?

Tax base

California authorizes counties and cities to impose a documentary transfer tax (DTT) (Cal. Rev. & Tax. Code § 11911). Generally, DTT is imposed on each deed, instrument, or writing by which any lands, tenements, or other realty sold within the county are granted, assigned, transferred, conveyed to, or vested in the purchaser(s) when the consideration or value of the interest or property conveyed (excluding the value of any lien or encumbrance remaining) exceeds $100 (id). Leases of 35 years or more may be subject to DTT (Thrifty Corp. v. County of Los Angeles, 210 Cal. App.3d 881 (Cal. Ct. App 1989)). While counties and cities must conform to the California statutes, charter cities may adopt non-conforming taxes.   

Rates

Combined county and city DTT rates range from 0.11% to 3%.

Exemptions

Exemptions from DTT include:

• conveyance confirming title in a grantee (Cal. Rev. & Tax. Code § 11911);
• conveyance in dissolution of marriage (Cal. Rev. & Tax. Code § 11927);
• conveyance to secure a debt (Cal. Rev. & Tax. Code § 11921);
• reconveyance on satisfaction of a debt (Cal. Rev. & Tax. Code § 11921);
• conveyance transferring interests into or out of a living trust (Cal. Rev. & Tax. Code § 11930);
• conveyance changing the manner in which title is held (Cal. Rev. & Tax. Code §§ 11911. 11923);
• court-ordered conveyances not pursuant to sale (Cal. Rev. & Tax. Code § 11911);
• conveyance given for consideration or value not exceeding $100 (Cal. Rev. & Tax. Code § 11911);
• conveyance to establish sole and separate property of a spouse (Cal. Rev. & Tax. Code §§ 11911, 11927);
• conveyance to confirm a community property interest when property was purchased with community property funds (Cal. Rev. & Tax. Code § 11911);
• conveyance to confirm a change of name (Cal. Rev. & Tax. Code § 11911);
• conveyance of an easement or oil and gas lease where the consideration and value are less than $100 (Cal. Rev. & Tax. Code § 11911);
• conveyance where the liens and encumbrances are equal to or more than the value of the property and no further consideration is given (Cal. Rev. & Tax. Code § 11911);
• conveyance that results solely in a change in the method of holding title to the realty and in which proportional ownership interests in the realty—whether represented by stock, membership interest, partnership interest, cotenancy interest, or otherwise, directly or indirectly—remain the same immediately after the transfer (Cal. Rev. & Tax. Code § 11925(d)); and
• transfer of a partnership or entity treated as a partnership for federal tax purposes where the entity is a continuing partnership under IRC § 708 and the continuing partnership continues to hold the realty (Cal. Rev. & Tax. Code § 11925(a)).

Filing formalities

The filing procedures may be obtained from each county recorder’s office.

Controlling interest transfers

Certain California jurisdictions, including the City and County of San Francisco, the City of Oakland, and Santa Clara County, have adopted ordinances that impose DTT on transfers of controlled interests in legal entities. In 2017 the California Supreme Court determined that DTT may be imposed by localities on transfers of interest in legal entities owning real property where there is a change of ownership for property tax reassessment purposes (926 N. Ardmore Ave LLC v. County of Los Angeles, 3 Cal.5th 319 (Cal. 2017)). While the court’s decision expands the authority of localities to impose DTT, the federal Tax Cuts and Jobs Act 2017 repealed the partnership termination rules under IRC § 708 and Cal. Rev. & Tax. Code § 11925(a) provides an exemption for continuing partnerships. Accordingly, there is some uncertainty regarding how DTT will be applied to legal entity transfers.

Unclaimed and abandoned property

Reporting and remittance

Describe your state’s regime for reporting and remitting unclaimed and abandoned property. How is the value of such property calculated? How assertive is your state in enforcing its rights to unclaimed property?

The Unclaimed Property Law requires corporations, businesses, associations, financial institutions, and insurance companies (holders) to annually report and deliver property to the California State Controller’s Office after there has been no activity on the account or contact with the owner for a specified period—generally, three years or more.

Holders must review their records each year to determine whether they hold any unclaimed property, and must notify owners six to 12 months before the property becomes reportable to the state controller. Holder notice reports are due before November 1 (May 1 for life insurance companies). Holders are responsible for responding to all owner claims received before May 31 (November 30 for life insurance companies). Holder remit reports and property remittance are due between June 1 and June 15 (between December 1 and December 15 for life insurance companies).

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