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State of California
State of California
Board of Equalization
Legal Department-MIC:83
Office of the Chief Counsel
(916) 445-4380
Fax: (916) 322-0341
Memorandum
To:
Honorable Jerome E. Horton, Chairman
Honorable Michelle Steel, Vice Chair
Honorable Betty T. Yee, First District
Senator George Runner, Second District
Honorable John Chiang, State Controller
From:
Randy
Chief Counsel
Date: August 22, 2013
Ferris ~~
Subject: Board Meeting, September 10,2013
Item J, Chief Counsel's Rulemaking Calendar
Property Tax Rules 263, 462.020, 462.060, 462.160, 462.180, 462.220, 462.240
We request your approval to place proposed changes to Property Tax Rules 263 , Roll
Corrections, 462.020, Change in Ownership - Tenancies in Common ; 462.060, Change in
Ownership - Life Estates and Estates for Years; 462.160, Change in Ownership - Trusts ,
462.180, Change in Ownership - Legal Entities; 462.220, Change in Ownership - lnterspousal
Transfers; and 462.240, The Following Transfers Do Not Constitute a Change in Ownership,
on the Chief Counsel ' s Rulemaking Calendar for the September 10, 2013 , Board meeting. The
proposed changes make Property Tax Rules 462.020, 462.060, 462.160, 462.180, 462.220, and
462.240 consistent with recent legislative enactments.
Revenue and Taxation Code (RTC) section 62, subdivision (p) was enacted by Senate Bill
No. 565 (Stats. 2005, ch. 416, § 2) and provides that a change in ownership does not include
certain transfers between registered domestic partners. The excluded transfers are identical to
the interspousal transfers that are excluded from change in ownership under RTC section 63.
Property Tax Rules 462.020, 462.060, 462.160, 462.180, and 462.220 all refer to the
interspousal transfer exclusion from change in ownership. Therefore, to be consistent, these
rules should be amended to include the exclusion from change in ownership for transfers
between registered domestic partners in RTC section 62, subdivision (p).
In addition, RTC section 62.3 was enacted by Assembly Bill No. (AB) 1700 (Stats. 2012,
ch. 781 , § 1) to provide an exclusion from change in ownership for certain transfers between
cotenants that occur upon death. Property Tax Rule 462.020 addresses transfers of tenancy in
common interests. Therefore, Rule 462.020 should be amended to include the new exclusion
provided by R TC section 62.3 for transfers of cotenancy interests between cotenants.
Further, Property Tax Rule 462.240 addresses transfers that are not considered changes in
ownership. Effective September 30, 2012, AB 2046 (Stats. 2012, ch. 817, § 1) added section
62.5 to the RTC to create a change in ownership exclusion for the transfer of a floating home
Item J
September 10, 2013
Honorable Board Members
August 22,2013
-2-
marina to an entity formed by the tenants of the marina. Therefore, Property Tax Rule 462.240
should be amended to include the exclusion from change in ownership for transfers of floating
homes created by the enactment ofRTC section 62.5 and the previously discussed exclusion
from change in ownership for transfers between registered domestic partners provided in RTC
section 62, subdivision (p).
Finally, the proposed changes add an inadvertently omitted period to the end of Property Tax
Rule 263, subdivision (h)(2). The proposed changes make the citations to the Revenue and
Taxation Code and Property Tax Rules consistent throughout Property Tax Rules 263,
462.160, 462.180, 462.220, 462.240, and generally make the citations in these regulations
consistent with the format prescribed in the California Style Manual. The proposed changes
replace the word "law" with a reference to the law being referred to, RTC section 63.1, in
Property Tax Rules 462.020, subdivision (b)(4), and 462.160, subdivisions (b)(4) and (d)(5).
The proposed changes replace the word "co-tenancy" with the word "cotenancy" in Property
Tax Rule 462.020, subdivision (b)(l)(B) and (C), replace the word "coowners" with the word
"co-owners" in Property Tax Rule 462.160, example 4 and Property Tax Rule 462.220,
subdivision (c) and example 2, and replace the "%" symbol with the word "percent" in
Property Tax Rules 462.020, 462.160, and 462.180. The proposed changes also correct a
typographical error by changing the word "owed" to the word "owned" in Property Tax Rule
462.180, example 1, and correct the placement of quotations marks in Property Tax Rules
462.160, example 2, 462.180, example 5, and 462.220, example 3. Attached are strikeout and
underline versions ofthe Property Tax Rules illustrating all ofthe proposed changes.
Based on the foregoing, Board staffwill request the Board's authorization to change Property
Tax Rules 263,462.020,462.060,462.160,462.180,462.220, and 462.240 under California
Code of Regulations, title 1, section (Rule) 100 without the normal notice and public hearing
process. These changes to the California Code of Regulations are appropriate for processing
under Rule 100 because they make the code consistent with recent legislative enactments,
make minor grammatical and formatting edits, and do not materially alter any requirement,
right, responsibility, condition, prescription or other regulatory element of any California Code
of Regulations provision.
If you have any questions regarding this request, please let me know or contact Mr. Bradley
Heller at 916-323-3091.
Recommendation by:
Approved:
BOARD AP ROVED
At the 1 I f) I 3 Board Meetina
,
David Gau, Deputy Director
Property and Special Taxes Department
(
•
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CG....L ~.t<tr~(
Moann Richmond, Chief
:
Board Proceedings Division
Honorable Board Members
-3-
RF:brnh;yg
Attachment
cc:
Mr. Robert Tucker
Mr. David Gau
Ms. Joann Richmond
Mr. Dean Kinnee
Mr. Bradley Heller
Mr. Richard Moon
Mr. Daniel Paul
Ms. Glenna Schultz
MIC:82
MIC:63
MIC:80
MIC:64
MIC:82
MIC:82
MIC:82
MIC:64
August 22, 2013
RULE 263. ROLL CORRECTIONS.
Authority: Section 15606, Government Code.
Reference: Sections 4831, 4831.5, 4834, 4835, 4836, 4838 and 4840, Revenue and Taxation Code.
(a) Any error or omission not involving the exercise of value judgment which results in an
incorrect entry or entries on the roll may be corrected after the roll is delivered to the
auditor, provided that the correction is made within four years after the making of the
assessment that is being corrected.
If an error or omission not involving the exercise of value judgment is discovered as the
result of an audit of a taxpayer's books and records, that error or omission may be corrected
at any time prior to the expiration of six months after the completion of the audit.
(b) Any error or omission involving the exercise of value judgment that arises solely from
a failure to reflect a decline in the taxable value of real property, floating homes subject to
taxation pursuant to Revenue and Taxation Code section 229, and manufactured homes
subject to taxation under Ppart 13 (commencing with section 5800) of Ddivision 1 of the
Revenue and Taxation Code, as required by paragraph (2) of subdivision (a) of Revenue
and Taxation Code section 51, shall be corrected within one year after the making of the
assessment that is being corrected.
(c) Any incorrect entry on the roll resulting from a defect of description or clerical error, as
determined by the assessor upon audit, made by the assessee in the property statement or
in other information or records which causes the assessor to assess taxable tangible
property which was not subject to assessment or to assess taxable tangible property at a
substantially higher value may be corrected under this article. The correction shall be made
after the roll is delivered to the auditor within the time period for making escape
assessments as provided in Revenue and Taxation Code sections 532 and 532.1. The
change to be made on the roll shall be certified to the auditor by the assessor.
(d) If a correction will increase the amount of unpaid taxes, the assessor shall notify the
assessee of the procedure for obtaining review by the county board under Revenue and
Taxation Code section 1605 and the procedure for applying for cancellation under Revenue
and Taxation Code section 4986.
(e) If a correction will decrease the amount of unpaid taxes, the consent of the board of
supervisors is necessary to make the correction.
1
(f) Corrections authorized under this rule shall be made by the auditor upon delivery of
the relevant information by the assessor.
(g) The provisions of this rule do not apply to escape assessments caused by the
assessee's failure to report the information required by Aarticle 2 (commencing with section
441) of Cchapter 3 of Ppart 2 of Ddivision 1 of the Revenue and Taxation Code, and roll
corrections are not a prerequisite for escape assessments or base year value corrections.
(h) If the roll of any taxing agency in the course of preparation is lost or destroyed
because of public calamity and is reconstructed from available data, at any time before the
declaration of default, the assessor may correct any erroneous assessment. The assessor
shall:
(1) Send certified notices of the correction to the tax collector, the auditor, and the
Controller.
(2) Enter the date and nature of the correction with reference to the property for which the
correction is being made.
(i) On receipt of satisfactory, verified, written evidence that taxes have been entered on
the secured roll as a lien on real property on which they are not legally a lien, the assessor
shall transmit the evidence and his or her cancellation to the auditor. On direction of the
board of supervisors, the auditor shall cancel the entry as a lien on that real property and
reenter such taxes as follows:
(1) If the assessee has real property sufficient, in the assessor's opinion, to secure the
payment of the taxes, as a lien on real property.
(2) Where there is not sufficient real property to secure the taxes on locally-assessed
property, the taxes shall be placed on the unsecured roll. In the case of state-assessed
property, the taxes shall be placed on the secured roll.
RULE 462.020. CHANGE IN OWNERSHIP—TENANCIES IN COMMON.
Authority: Section 15606, Government Code.
Reference: Sections 60, 61, 62, 63, 63.1, 65, 65.1 and 67, Revenue and Taxation Code.
(a) GENERAL RULE. The creation, transfer, or termination of a tenancy in common
interest is a change in ownership of the undivided interest transferred.
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(b) EXCEPTIONS. The following transfers do not constitute a change in ownership:
(1) The transfer is between or among co-owners and results in a change in the method of
holding title but does not result in a change in the proportional interests of the co-owners,
such as:
(A) a partition,
(B) a transfer from a co-tenancycotenancy to a joint tenancy, or
(C) a transfer from a co-tenancycotenancy to a legal entity which results solely in a
change in the method of holding title and in which the proportional ownership interests in
the property remain the same after the transfer. (Such transferees shall be considered to be
the "original co-owners" of the property for purposes of determining whether a change in
ownership has occurred upon the subsequent transfers of the ownership interests in the
property.)
Example 1: A and B own a parcel of real property as tenants in common each owning a
50% percent interest. They transfer the property to a newly formed corporation each
receiving 50% percent of the stock. Such a transfer would not be regarded as a change in
ownership.
(2) The transfer is of an undivided interest of less than five percent of the value of the
total property and has a value of less than $10,000; provided, however, that transfers of
such interests during any one assessment year (the period from January 1 through
December 31) shall be accumulated for the purpose of determining the percentage interest
and value transferred. When the value of the accumulated interests transferred during any
assessment year equals or exceeds five percent of the value of the total property or
$10,000, then that percentage of the property represented by the transferred accumulated
interests shall be reappraised. For purposes of this subsection, the "accumulated interests
transferred" shall not include any transfer of an interest that is otherwise excluded from
change in ownership.
Example 2: At the end of the assessment year the value of the accumulated interests
transferred equals 3 percent of the value of the total property and the dollar value of these
interests is $12,000. There will be a reappraisal of the transferred accumulated interests
because their value exceeds $10,000.
Example 3: At the end of the assessment year the value of the accumulated interests
transferred equal 7 percent of the value of the total property and the dollar value of these
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interests is $9,000. There will be a reappraisal of the transferred accumulated interests
because they exceed 5 percent of the value of the total property.
(3) The transfer is one to which the interspousal exclusion, pursuant to Revenue and
Taxation Code section 63, or the registered domestic partner exclusion, pursuant to
Revenue and Taxation Code section 62, subdivision (p), applies.
(4) The transfer is one to which the parent-child or grandparent-grandchild exclusion
applies, and for which a timely claim has been filed as required by lawRevenue and
Taxation Code section 63.1.
(5) The transfer is one to which the cotenancy exclusion, pursuant to Revenue and
Taxation Code section 62.3, applies.
RULE 462.060. CHANGE IN OWNERSHIP—LIFE ESTATES AND ESTATES
FOR YEARS.
Authority: Section 15606, Government Code.
Reference: Sections 60, 61, 62, 63 and 67, Revenue and Taxation Code.
(a) LIFE ESTATES. The creation of a life estate in real property is a change in ownership
at the time of transfer unless the instrument creating the life estate reserves such estate in
the transferor or the transferor's spouse, pursuant to Revenue and Taxation Code section
63, or registered domestic partner, pursuant to Revenue and Taxation Code section 62,
subdivision (p). However, the subsequent transfer of such a life estate by the transferor or
the transferor's spouse or registered domestic partner to a third party is a change in
ownership. Upon termination of such a reserved life estate, the vesting of a right to
possession or enjoyment of a remainderman (other than the transferor or the transferor's
spouse or registered domestic partner) is a change in ownership.
(b) ESTATE FOR YEARS. The creation of an estate for years for a term of 35 years or
more in real property is a change in ownership at the time of transfer unless the instrument
creating the estate for years reserves such estate in the transferor or the transferor's
spouse, pursuant to Revenue and Taxation Code section 63, or registered domestic
partner, pursuant to Revenue and Taxation Code section 62, subdivision (p). However, the
subsequent transfer of such an estate for years by the transferor or the transferor's spouse
or registered domestic partner to a third party is a change in ownership. Upon the
termination of a reserved estate for years for any term, the vesting of the right to possession
or enjoyment of a remainderman (other than the transferor or the transferor's spouse or
4
registered domestic partner) is a change in ownership. The creation or transfer of an estate
for years for less than 35 years is not a change in ownership.
RULE 462.160. CHANGE IN OWNERSHIP—TRUSTS.
Authority: Section 15606, Government Code.
Reference: Sections 60, 61, 62, 63, 63.1, 63.1 note and 64, Revenue and Taxation Code.
(a) CREATION. General Rule. The transfer by the trustor, or any other person, of real
property into a trust is a change in ownership of such property at the time of the transfer.
(b) EXCEPTIONS. The following transfers do not constitute changes in ownership:
(1) Irrevocable Trusts.
(A) Trustor-Transferor Beneficiary Trusts. The transfer of real property by the trustor to a
trust in which the trustor-transferor is the sole present beneficiary of the trust. However, a
change in ownership of trust property does occur to the extent that persons other than the
trustor-transferor are or become present beneficiaries of the trust unless otherwise excluded
from change in ownership.
Example 1: M transfers income-producing real property to revocable living Trust A, in
which M is the sole present beneficiary. Trust A provides that upon M's death, Trust A
becomes irrevocable, M's brother B becomes a present beneficiary, and income from the
trust property is to be distributed to B for his lifetime. Upon M's death, 100% percent of the
property in Trust A, representing B's present beneficial interest, undergoes a change in
ownership.
Where a trustee of an irrevocable trust has total discretion ("sprinkle power") to distribute
trust income or property to a number of potential beneficiaries, the property is subject to
change in ownership, because the trustee could potentially distribute it to a non-excludable
beneficiary, unless all of the potential beneficiaries have an available exclusion from change
in ownership.
Example 2: H and W transfer real property interests to the HW Revocable Trust. No
change in ownership. HW Trust provides that upon the death of the first spouse the assets
of the deceased spouse shall be distributed to "A Trust,", and the assets of the surviving
spouse shall be distributed to "B Trust,", of which surviving spouse is the sole present
beneficiary. H dies and under the terms of A Trust, W has a "sprinkle" power for the benefit
of herself, her two children and her nephew. When H dies, A Trust becomes irrevocable.
5
There is a change in ownership with respect to the interests transferred to the A Trust
because the sprinkle power may be exercised so as to omit the spouse and children as
present beneficiaries for whom exclusions from change in ownership may apply, and there
are no exclusions applicable to the nephew. However, if the sprinkle power could be
exercised only for the benefit of W and her children for whom exclusions are available, the
interspousal exclusion and the parent/child exclusion would exclude the interests
transferred from change in ownership, provided that all qualifying requirements for those
exclusions are met.
Example 3: Same as Example 2 above, except that "A Trust" is without any sprinkle
power. When H dies, A Trust becomes irrevocable. Since A Trust holds the assets for the
benefit of W, the two children, and the nephew in equal shares, with any of W's share
remaining at her death to be distributed to the two children and the nephew in equal shares,
there is a change in ownership only to the extent of the interests transferred to the nephew,
providing that the parent/child exclusion of Revenue and Taxation Code Ssection 63.1 and
the interspousal exclusion of Revenue and Taxation Code Ssection 63 apply to the interests
transferred to the two children and to W respectively. Upon the death of W, there is a
change in ownership to the extent of the interests transferred to the nephew, although the
parent/child exclusion of Revenue and Taxation Code Ssection 63.1 may exclude from
change in ownership the interests transferred to the two children. If A Trust had included a
sprinkle power, instead of specifying the beneficiaries of the trust income and principal, then
as in Example 2, none of the exclusions would apply.
(B) 12 Year Trustor Reversion Trusts. The transfer of real property or ownership interests
in a legal entity holding interests in real property by the trustor to a trust in which the trustortransferor retains the reversion, and the beneficial interest of any person other than the
trustor-transferor does not exceed 12 years in duration.
(C) Irrevocable Trusts Holding Interests in Legal Entities. The transfer of an ownership
interest in a legal entity holding an interest in real property by the trustor into a trust in which
the trustor-transferor is the sole present beneficiary or to a trust in which the trustortransferor retains the reversion as defined in subdivision (b)(1)(B) of this rule. However, a
change in ownership of the real property held by the legal entity does occur if Revenue and
Taxation Code section 61, subdivision (i), 64, subdivision (c), or 64, subdivision (d) applies
because the change in ownership laws governing interests in legal entities are applicable
regardless of whether such interests are held by a trust.
Example 4: Husband and Wife, partners in HW Partnership who are not original coowners
co-owners, transfer 70 percent of their partnership interests to HW Irrevocable Trust and
6
name their four children as the present beneficiaries of the trust with equal shares. Husband
and Wife do not retain the reversion. Under Revenue and Taxation Code section 64,
subdivision (a) the transfer of the partnership interests to HW Irrevocable Trust is excluded
from change in ownership because no person or entity obtains a majority ownership interest
in the HW Partnership.
(2) Revocable Trusts. The transfer of real property or an ownership interest in a legal
entity holding an interest in real property by the trustor to a trust which is revocable by the
trustor. However, a change in ownership does occur at the time that a revocable trust
becomes irrevocable unless the trustor-transferor remains or becomes the sole present
beneficiary or unless otherwise excluded from change in ownership.
(3) Interspousal and Registered Domestic Partner Trusts. The transfer is one to which the
interspousal exclusion, pursuant to Revenue and Taxation Code section 63, or registered
domestic partner exclusion, pursuant to Revenue and Taxation Code section 62,
subdivision (p), applies. However, a change in ownership of trust property does occur to the
extent that persons other than the trustor-transferor's spouse or registered domestic partner
are or become present beneficiaries of the trust unless otherwise excluded from change in
ownership.
(4) Parent-Child or Grandparent-Grandchild Trusts. The transfer is one to which the
parent-child or grandparent-grandchild exclusion applies, and for which a timely claim has
been made as required by lawRevenue and Taxation Code section 63.1. However, a
change in ownership of trust property does occur to the extent that persons for whom the
parent-child or grandparent-grandchild exclusion is not applicable are or become present
beneficiaries of the trust unless otherwise excluded from change in ownership.
(5) Proportional Interests. The transfer is to a trust which results in the proportional
interests of the beneficiaries in the property remaining the same before and after the
transfer.
(6) Other Trusts. The transfer is from one trust to another and meets the requirements of
(1), (2), (3), (4), or (5) of this subdivision.
(c) TERMINATION. General Rule. The termination of a trust, or portion thereof,
constitutes a change in ownership at the time of the termination of the trust.
(d) EXCEPTIONS. The following transfers do not constitute changes in ownership:
(1) Prior Change in Ownership. Termination results in the distribution of trust property
according to the terms of the trust to a person or entity who received a present interest
7
(either use of or income from the property) when the trust was created, when it became
irrevocable, or at some other time. However, a change in ownership also occurs when the
remainder or reversionary interest becomes possessory if the holder of that interest is a
person or entity other than the present beneficiary unless otherwise excluded from change
in ownership.
Example 5: B transfers real property to Trust A and is the sole present beneficiary. Trust
A provides that when B dies, the Trust terminates and Trust property is to be distributed
equally to R and S ,who are unrelated to B. B dies, Trust A terminates, and the transfers of
the Trust property to R and S result in changes in ownership, allowing for reassessment of
100 percent of the real property.
(2) Revocable Trusts. Termination results from the trustor-transferor's exercise of the
power of revocation and the property is transferred by the trustee back to the trustortransferor.
(3) Trustor Reversion Trusts. The trust term did not exceed 12 years in duration and, on
termination, the property reverts to the trustor-transferor.
(4) Interspousal and Registered Domestic Partner Trusts. Termination results in a transfer
to which the interspousal exclusion, pursuant to Revenue and Taxation Code section 63, or
the registered domestic partner exclusion, pursuant to Revenue and Taxation Code section
62, subdivision (p), applies.
(5) Parent-Child or Grandparent-Grandchild Trusts. Termination results in a transfer to
which the parent-child or grandparent-grandchild exclusion applies, and for which a timely
claim has been filed as required by lawRevenue and Taxation Code section 63.1.
(6) Proportional Interests. Termination results in the transfer to the beneficiaries who
receive the same proportional interests in the property as they held before the termination of
the trust.
(7) Other Trusts. Termination results in the transfer from one trust to another and meets
the requirements of (1), (2), (3), (4), (5), or (6) of subdivision (b).
(e) For purposes of this rule, the term "trust" does not include a Massachusetts business
trust or similar trust, which is taxable as a legal entity and managed for profit for the holders
of transferable certificates which, like stock shares in a corporation, entitle the holders to
share in the income of the property. For rules applicable to Massachusetts business trusts
or similar trusts, see Revenue and Taxation Code Ssection 64 of the Revenue and Taxation
Code and Rule 462.180, which address legal entities.
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RULE 462.180. CHANGE IN OWNERSHIP—LEGAL ENTITIES.
Authority: Section 15606, Government Code.
Reference: Sections 60, 61, 62, 63, 64, and 67, Revenue and Taxation Code; Sections 16909 and 17554,
Corporations Code; and Section 1351, Civil Code.
(a) TRANSFERS OF REAL PROPERTY TO AND BY LEGAL ENTITIES.
General Rule. The transfer of any interest in real property to a corporation, partnership,
limited liability company, or other legal entity is a change in ownership of the real property
interest transferred. For purposes of this rule, "real property" or "interests in real property"
includes real property interests and fractional interests thereof, the transfer of which
constitute a change in ownership under Revenue and Taxation Code Ssections 60 and the
following applicable sections of the Revenue and Taxation Code, and under the applicable
change in ownership provisions of the Property Tax Rules.
(b) EXCEPTIONS. The following transfers do not constitute changes in ownership of the
real property:
(1) Affiliated Corporation Transfers. Transfers of real property between or among affiliated
corporations, including those made to achieve a corporate reorganization if:
(A) the voting stock of the corporation making the transfer and the voting stock of the
transferee corporation are each owned 100 percent by one or more corporations related by
voting stock ownership to a common parent, and
(B) the common parent corporation owns directly 100 percent of the voting stock of at
least one corporation in the chain(s) of related corporations.
9
A transfer of real property by P, A, B, or C to any of the other three corporations would not
be a change in ownership.
Example 1: Any transfer by C (wholly owned by A and B) to B (wholly owned by A and P)
would not be a change in ownership because of those relationships and because P owns
100% percent of A.
If real property is transferred between non-affiliated corporations, only the property
transferred shall be deemed to have undergone a change in ownership.
(2) Proportional Transfers of Real Property. Transfers of real property between separate
legal entities or by an individual to a legal entity (or vice versa), which result solely in a
change in the method of holding title and in which the proportional ownership interests in
each and every piece of real property transferred remain the same after the transfer. (The
holders of the ownership interests in the transferee legal entity, whether such interests are
represented by stock, partnership interests, or other types of ownership interest, shall be
defined as "original co-owners" for purposes of determining whether a change in ownership
has occurred upon the subsequent transfer of the ownership interests in the legal entity.)
This subdivision shall not apply to a transfer of real property which is also excluded from
change in ownership pursuant to subdivision (b)(1) of this rule (transfers between or among
affiliated corporations).
Examples of Transfers of Real Property in Legal Entities:
Example 2: A transfer of real property from A and B, as equal co-tenants, to Corporation
X, where A and B each take back 50 percent of the stock. No change in ownership.
However, if A and B each take back 49 percent of the stock and C receives 2 percent of the
stock then there will be a change in ownership of the entire property.
Example 3: A transfers Whiteacre to Corporation X and B transfers Blackacre (equal in
value to Whiteacre) to Corporation X. A and B each take back 50 percent of the stock.
Change in ownership of 100 percent of both Whiteacre and Blackacre.
Example 4: Corporation X owns Blackacre and Whiteacre (both are of equal value). A
and B each own 50% percent of Corporation X's shares. X transfers Whiteacre to A and
Blackacre to B. Change in ownership of 100% percent of both Blackacre and Whiteacre.
However, if Corporation X transfers Whiteacre and Blackacre to both A and B as joint
tenants or as equal tenants in common, there is no change in ownership.
10
Example 5: A transfer of real property from Corporation X to its sole shareholder A. No
change in ownership, even if A is an "original co-owner,", because interests in real property,
and not ownership interests in a legal entity, are being transferred.
(c) TRANSFERS OF OWNERSHIP INTERESTS IN LEGAL ENTITIES.
General Rule. The purchase or transfer of corporate stock, partnership interests, or
ownership interests in other legal entities is not a change in ownership of the real property
of the legal entity, pursuant to Revenue and Taxation Code Ssection 64, subdivision (a) of
the Revenue and Taxation Code.
(d) EXCEPTIONS. The following transfers constitute changes in ownership, except as
provided in subdivision (d)(4) of this rule which is an exclusion from change in ownership:
(1) Control. When any corporation, partnership, limited liability company, Massachusetts
business trust or similar trust, other legal entity or any person:
(A) obtains through a reorganization or any transfer, direct or indirect ownership or control
of more than 50 percent of the voting stock in any corporation which is not a member of the
same affiliated group of corporations as described in subdivision (b)(1) of this rule, or
(B) obtains through multi-tiering, reorganization, or any transfer direct or indirect
ownership of more than 50 percent of the total interest in partnership or LLC capital and
more than 50 percent of the total interest in partnership or LLC profits, or
(C) obtains through any transfer direct or indirect ownership of more than 50 percent of
the total ownership interest in any other legal entity.
Upon the acquisition of such direct or indirect ownership or control, which may include any
purchase or transfer of 50 percent or less of the ownership interest through which control or
a majority ownership interest is obtained, all of the property owned directly or indirectly by
the acquired legal entity is deemed to have undergone a change in ownership.
(2) Transfers of More Than 50 Percent. When on or after March 1, 1975, real property is
transferred to a partnership, corporation, limited liability company, or other legal entity and
the transfer is excluded from change in ownership under Revenue and Taxation Code
Ssection 62, subdivision (a)(2) of the Revenue and Taxation Code, and the "original coowners" subsequently transfer, in one or more transactions, cumulatively more than 50
percent of the total control or ownership interests, as defined in subdivision (d)(1) of this
rule, in that partnership, corporation, limited liability company or legal entity, there is a
change in ownership of only that property owned by the entity which was previously
11
excluded under Ssection 62, subdivision (a)(2). However, when such transfer would also
result in a change in control under Revenue and Taxation Code Ssection 64, subdivision (c)
of the Revenue and Taxation Code, then reappraisal of the property owned by the
corporation, partnership, limited liability company, or other legal entity shall be pursuant to
Ssection 64, subdivision (c) rather than sSection 64, subdivision (d).
For purposes of this subdivision ((d)(2)), interspousal transfers excluded under Section 63
of the Revenue and Taxation Code section 63, transfers between registered domestic
partners excluded under Revenue and Taxation Code section 62, subdivision (p), transfers
into qualifying trusts excluded under Revenue and Taxation Code Ssection 62, subdivision
(d) of the Revenue and Taxation Code, and proportional transfers excluded under Revenue
and Taxation Code sSection 62, subdivision (a)(2) of the Revenue and Taxation Code shall
not be cumulated or counted to determine a change in ownership.
Examples of Transfers of Interests in Legal Entities:
Example 6: A and B each own 50 percent of the stock of Corporation X. Corporation X
acquires Whiteacre from Corporation Y, an unaffiliated corporation in which neither A nor B
has interests, and Whiteacre is reappraised upon acquisition. A transfers 30 percent of
Corporation X's stock to C, and B later transfers 25 percent of Corporation X's stock to C.
Upon C's acquisition of 55 percent of Corporation X's stock, there is a change in control of
Corporation X under Revenue and Taxation Code Ssection 64, subdivision (c) and a
reappraisal of Whiteacre.
Example 7: Spouses H and W acquire as community property 100% percent of the capital
and profits interests in an LLC which owns Blackacre. Each of H and W is treated as
acquiring 50 percent of the ownership interests as defined in subdivision (c) of this rule and
Revenue and Taxation Code section 64, subdivision (a). Since the selling members of the
LLC are not original co-owners (because they did not transfer the property to the LLC under
the Revenue and Taxation Code Ssection 62, subdivision (a)(2) exclusion), no change in
control of the LLC would occur under Revenue and Taxation Code section 64, subdivision
(c) and no change in ownership of Blackacre under Revenue and Taxation Code section 64,
subdivision (d).
Example 8: A and B, hold equal interests as tenants in common in Greenacre, a parcel of
real property. A and B transfer Greenacre to Corporation Y and in exchange A and B each
receive 50 percent of the corporate stock. No change in ownership pursuant to Revenue
and Taxation Code sSection 62, subdivision (a)(2). Pursuant to Revenue and Taxation
Code sSection 64, subdivision (d), A and B become original coowners. A transfers 30
percent of Corporation Y's stock to C (A's child), and B then transfers 25 percent of
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Corporation Y's stock to D (B's grandchild). Change in ownership of Greenacre upon B's
transfer to D. Parent/child and grandparent/grandchild exclusions are not applicable to
transfers of interests in legal entities. However, if the same transfers were made by A and B
to their respective spouses, no change in ownership pursuant to Revenue and Taxation
Code Ssection 63 and Rule 462.220.
(3) Cooperative Housing Corporation. When the stock transferred in a cooperative
housing corporation ("stock cooperative" as defined in subdivision (m) of Ssection 1351 of
the Civil Code) conveys the exclusive right to occupancy of all or part of the corporate
property, unless:
(A) the cooperative was financed under one mortgage which was insured under
Ssections 213, 221(d)(3), 221(d)(4), or 236 of the National Housing Act, as amended, or
was financed or assisted pursuant to Ssections 514, 515, or 516 of the Housing Act of 1949
or sSection 202 of the Housing Act of 1959, or was financed by a direct loan from the
California Housing Finance Agency, and
(B) the regulatory and occupancy agreements were approved by the respective insuring
or lending agency, and
(C) the transfer is from the housing cooperative to a person or family qualifying for
purchase by reason of limited income.
(4) Proportional Interest Transfers. Transfers of stock, partnership interests, limited
liability company interests, or any other interests in legal entities between legal entities or by
an individual to a legal entity (or vice versa) which result solely in a change in the method of
holding title and in which proportional ownership interests of the transferors and transferees,
in each and every piece of property represented by the interests transferred, remain the
same after the transfer, do not constitute changes in ownership, as provided in subdivision
(b)(2) of this rule and Revenue and Taxation Code sSection 62, subdivision (a)(2) of the
Revenue and Taxation Code. This provision shall not apply to a statutory conversion or
statutory merger of a partnership into a limited liability company or other partnership (or a
limited liability company into a partnership) when the law of the jurisdiction of the converted
or surviving entity provides that such entity remains the same entity or succeeds to the
assets of the converting or disappearing entity without other act or transfer and the partners
or members of the converting or disappearing entity maintain the same ownership interest
in profits and capital of the converted or surviving entity that they held in the converting or
disappearing entity.
Examples of Excluded Proportional Interest Transfers:
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Example 9: General Partnership (GP), which owns Whiteacre and in which A and B hold
equal partnership interests, converts to Limited Partnership (LP) under the Revised Uniform
Partnership Act of 1994 (California Corporations Code section 16100 et seq.). As a result of
the conversion, A and B each hold 50 percent of the LP interests in capital and profits. No
change in ownership of Whiteacre upon the conversion, because, under Ssection 16909 of
the Corporations Code, there is no transfer of Whiteacre. Revenue and Taxation Code
Ssection 62, subdivision (a)(2) of the Revenue and Taxation Code does not apply.
However, if A and B were "original coowners" in GP, they remain "original coowners" in LP.
Example 10: Following the conversion in Example 9, A and B each transfer 30 percent of
their capital and profits interests in LP to Limited Liability Company (LLC), which is owned
equally by A and B. Each retain an equal 20 percent interest in LP. No change in ownership
of Whiteacre pursuant to Revenue and Taxation Code Ssection 62, subdivision (a)(2)
because A and B own 100 percent of both LP and LLC and their respective proportional
interests remain the same after the transfer. Neither Revenue and Taxation Code section
64, subdivision (c) nor section 64subdivision (d) of the Revenue and Taxation Code applies
to this transfer, although A and B become "original coowners" with respect to their interests
in LLC.
Example 11: A limited partnership (LP), which owns Blackacre and in which C and D hold
equal partnership interests, changes its form to a limited liability company (LLC), in which C
and D hold equal membership interests, by statutory merger under the California Revised
Limited Partnership Act (Corporations Code section 15611 et seq.) and the Beverly-Killea
Limited Liability Company Act (California Corporations Code section 17000 et seq.). No
change in ownership of Blackacre upon the change in form because under section 17554 of
the California Corporations Code, there is not a transfer of property from LP to LLC.
Revenue and Taxation Code Ssection 62, subdivision (a)(2) of the Revenue and Taxation
Code does not apply. However, if C and D were "original coowners" in LP, they remain
"original coowners" in LLC.
(e) PARTNERSHIPS.
(1) Transfers of Real Property By Partnerships.
General Rule. Except as provided by subdivision (b)(2) of this rule where the proportional
ownership interests remain the same, when real property is contributed to a partnership or
is acquired, by purchase or otherwise, by the partnership there is a change in ownership of
such real property, regardless of whether the title to the property is held in the name of the
partnership or in the name of the partners with or without reference to the partnership.
Except as provided by subdivision (b)(2) of this rule where the proportional ownership
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interests remain the same, the transfer of any interest in real property by a partnership to a
partner or any other person or entity constitutes a change in ownership.
(2) Except as provided in subdivision (d)(1)(B) and (d)(2) of this rule, the addition or
deletion of partners in a continuing partnership does not constitute a change in ownership of
partnership property.
RULE 462.220. CHANGE IN OWNERSHIP—INTERSPOUSAL AND
REGISTERED DOMESTIC PARTNER TRANSFERS.
Authority: Section 15606, Government Code.
Reference: Sections 60, 61, 62, 63, 64, 65, 65.1 and 67, Revenue and Taxation Code.
Notwithstanding any other provision of Rules 460 through 471, a change in ownership shall
not include any interspousal transfer, pursuant to Revenue and Taxation Code section 63,
or any transfer between registered domestic partners, pursuant to Revenue and Taxation
Code section 62, subdivision (p), including, but not limited to:
(a) Transfers of ownership interests in legal entities,
(b) Transfers of ownership interests in legal entities resulting in one spouse or registered
domestic partner obtaining control as defined in Revenue and Taxation Code Ssection 64,
subdivision (c) of the Revenue and Taxation Code,
Example 1: Husband (H) owns a 30 percent ownership interest in a partnership and wife
(W) owns a 30 percent ownership interest in the same partnership. W transfers her interest
to H; H now owns a 60 percent ownership interest. There is no change in ownership.
(c) Transfers of ownership interests in legal entities by “original coowners co-owners"
which would otherwise be cumulated or counted for purposes of Revenue and Taxation
Code Ssection 64, subdivision (d) of the Revenue and Taxation Code,
Example 2: Spouses H and W are "original coownersco-owners" of a partnership; each
originally owned a 50 percent partnership interest. They have previously each transferred a
10 percent interest to X and to Y, leaving H and W each with a 30 percent partnership
interest. W transfers a 15 percent interest to H. Although cumulatively more than 50 percent
has been transferred, there is no change in ownership.
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(d) Transfers to a trustee for the beneficial use of a spouse or registered domestic
partner, or the surviving spouse or registered domestic partner of a deceased transferor, or
by a trustee of such a trust to the spouse or registered domestic partner of the trustor,
(e) Transfers which take effect upon the death of a spouse or registered domestic
partner,
Example 3: H and W each own a 30 percent interest in General Partnership (GP). H and
W transfer their respective partnership interests to the HW Revocable Trust. No change in
ownership. Trust provides that upon the death of the first spouse: the assets of the
deceased spouse, including partnership interests in GP, shall be distributed to "A Trust,",
and the assets of the surviving spouse, including partnership interests in GP, shall be
distributed to "B Trust." Surviving spouse is the sole present beneficiary of both A Trust and
B Trust. No change in ownership upon the death of the first spouse.
(f) Transfers to a spouse or registered domestic partner or former spouse or registered
domestic partner in connection with a property settlement agreement, including postdissolution amendment thereto, or decree of dissolution of a marriage or registered
domestic partnership, or legal separation,
(g) The creation, transfer, or termination, solely between spouses or registered domestic
partners, of any co-owner's interest, or
(h) The distribution of property of a corporation, partnership, or other legal entity to a
spouse or registered domestic partner or former spouse or registered domestic partner
having an ownership interest in the legal entity, in exchange for the interest of such spouse
in the legal entity in connection with a property settlement agreement, or decree of
dissolution of a marriage or registered domestic partnership, or legal separation.
RULE 462.240. THE FOLLOWING TRANSFERS DO NOT CONSTITUTE A
CHANGE IN OWNERSHIP.
Authority: Section 15606, Government Code.
Reference: Sections 60, 61, 62, 62.1, 62.2, 62.5, 64, 66, 67, Revenue and Taxation Code. Sections 37, 6401
and 6402, Probate Code.
The following transfers do not constitute a change in ownership:
(a) The transfer of bare legal title, e.g.,
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(1) Any transfer to an existing assessee for the purpose of perfecting title to the property.
(2) Any transfer resulting in the creation, assignment, or reconveyance of a security
interest not coupled with the right to immediate use, occupancy, possession or profits.
(b) Any transfer caused by the substitution of a trustee.
(c) Any purchase, redemption or other transfer of the shares or units of participation of a
group trust, pooled fund, common trust fund, or other collective investment fund established
by a financial institution.
(d) Any contribution of real property to an employee benefit plan, any acquisition by an
employee benefit plan of the stock of the employer corporation pursuant to which the
employee benefit plan obtains direct or indirect ownership or control of more than 50
percent of the voting stock in the employer corporation, or the creation, vesting, transfer,
distribution, or termination of a participant's or beneficiary's interest in such a plan. The
terms used herein shall have the meaning ascribed to them in the Employee Retirement
Income Security Act of 1974, which is codified as United States Code annotated, Ttitle 29,
Ssection 1002. (The term "any contribution" as used in Revenue and Taxation Code
Ssection 66, subdivision (b) of the Revenue and Taxation Code and this rulesection means
only those contributions of real property made to an employee benefit plan by an employer,
a group of employees, or both, without any consideration.)
(e) Any transfer of property or an interest therein between a corporation sole, a religious
corporation, a public benefit corporation, and a holding corporation as defined in Revenue
and Taxation Code Ssection 23701h of the Revenue and Taxation Code holding title for the
benefit of any of the aforementioned corporations, or any combination thereof (including any
transfer from one such entity to the same type of entity), provided that both the transferee
and the transferor are regulated by laws, rules, regulations, or canons of the same religious
denomination.
(f) Any transfer, occurring on or after January 1, 1983, which results from the reformation
or correction of a deed which, by mistake, inaccurately describes the property intended to
be conveyed, or adds or omits some term not agreed to by the parties, or in some other
manner fails to express the true intentions of the parties.
Example 1: A agrees to sell one acre to B. The deed mistakenly describes a two-acre
area. Reformation of the deed to describe the original acre intended to be transferred is not
a change in ownership.
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(g) Any transfer, occurring on or after January 1, 1983, of an eligible dwelling unit from a
parents or legal guardians to a minor child or children or among minor siblings, resulting
from a court order or judicial decree due to the death of one or both of the parents. An
"eligible dwelling unit" means the dwelling which was the principal place of residence of the
minor child or children prior to the transfer and remains such after the transfer.
(h) Any transfer of property to a disabled child or ward, whether minor or adult, or to a
trust for the sole benefit of such person, upon the death of a parent or guardian pursuant to
Revenue and Taxation Code Ssection 62, subdivision (n) of the Revenue and Taxation
Code.
(i) Any transfer, on or after January 1, 1985, of a mobilehome park or of rental spaces in
a mobilehome park pursuant to Revenue and Taxation Code Ssection 62.1 of the Revenue
and Taxation Code.
(j) Any transfer of a mobilehome park or of rental spaces in a mobilehome park pursuant
to Revenue and Taxation Code Ssection 62.2 of the Revenue and Taxation Code.
(k) Any transfer of a floating home marina pursuant to Revenue and Taxation Code
section 62.5. Any transfer of separate property inherited by a surviving domestic partner, as
defined in subdivision (b) of section 37 of the Probate Code, by intestate succession upon
the death of a registered domestic partner.
(l) Any transfer of real property between registered domestic partners, pursuant to
Revenue and Taxation Code section 62, subdivision (p).
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