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California Supreme Court Decision Changes the Transfer Tax World

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    • TAKEAWAYS
    • The California Supreme Court’s Ardmore decision concludes counties and cities are permitted to impose transfer tax on entity transfers that result in R&TC §§ 64(c) or 64(d) changes in ownership.
    • Litigation over how to implement this taxation is a certainty.

    In 926 North Ardmore Avenue LLC v. County of Los Angeles,1 the California Supreme Court concluded that, subject to certain limitations, California’s Documentary Transfer Tax Act (the California DTTA), applicable to direct sales of real estate, is also applicable to transfers of entity interests in entities holding real estate if those transfers result in a Proposition 13 “change in ownership” under Revenue and Taxation Code (R&TC) sections 64(c) or (d). In its 6-1 decision, the California Supreme Court reasoned that Proposition 13’s property tax “change in ownership rules are designed to identify precisely the types of indirect real property transfers that the Transfer Tax Act [(California DTTA)] is designed to tax.”2

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