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TAKEAWAYS

  • New initiative seeks to eliminate Proposition 13 protection for commercial and industrial property by requiring fair market value reassessments at least every three years
  • Initiative seeks to add a $500,000 tangible personal property tax exemption for all taxpayers and a full exemption for taxpayers with less than 50 California employees.

Initiative 17-0055 seeks to put two significant changes to California’s property tax system before voters in November—(1) the elimination of Proposition 13 protection for commercial and industrial properties in favor of reassessment at least every three years and (2) the addition of a tangible personal property tax exemption of $500,000 for all taxpayers and a full tangible personal property tax exemption for taxpayers with less than 50 California employees. Proponents of the Initiative claim these revisions are needed to raise funding to support California schools.

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TAKEAWAYS

  • It is estimated that about $65 million annually would be collected from the commercial real estate industry under the Housing for All tax.
  • It is estimated that about $150 million annually would be collected from the commercial real estate industry under the Universal Childcare for San Francisco Families tax.
  • The election presents commercial landlords with the prospect of a massive tax increase from the current 0.3% rent tax, though the Housing for all Measure is clearly the less burdensome of the two.

There will be competing commercial rent tax measures on San Francisco’s June 2018 ballot. The “Housing for All” measure would impose a new 1.7% tax on commercial rents in San Francisco, effective January 1, 2019. The “Universal Childcare for San Francisco Families” measure would impose a new 3.5% tax on commercial rents (1% on rents from warehouses) in San Francisco (also operative January 1, 2019). Both measures specify that only one measure can be adopted, and that if both measures secure sufficient votes for passage, the measure with the most votes will prevail. If either of these measures were to be adopted it would be in addition to San Francisco’s existing 0.3% gross receipts tax on rentals.

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State and local real estate transfer taxes have become larger planning concerns for investors in U.S. real property, particularly in gateway cities like New York, Los Angeles and San Francisco. This article by colleagues Craig A. Becker, Richard E. Nielsen, Breann E. Robowski and  Andrew J. Weiner describes a recent expansion of the scope of California real estate transfer taxes.

The full text of this article can be read on page 19 of AFIRE News, 2017 Issue 3.

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(This article originally was published by Law360 on October 10, 2017.)

States historically have had one major impediment to their ability to collect sales tax—the decision in Quill Corporation v. North Dakota to uphold a physical presence test standard for determining nexus.[1] Since the Quill decision, states have applied various approaches to limit or even eliminate Quill’s physical presence nexus standard. These approaches included lobbying Congress to provide federal legislation that would redefine nexus, enacting state “click-through” nexus statutes, and taking aggressive audit positions that limit the applicability of physical presence nexus.

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(This article originally was published by Law360 on October 7, 2017.)

On Sept. 16, 2017, California Governor Jerry Brown signed Assembly Bill (A.B.) 131 into law,[1] which takes effect immediately and makes various changes to the Taxpayer Transparency and Fairness Act of 2017 enacted on June 27, 2017.[2] The Act overhauled the California State Board of Equalization (BOE) and created two new tax agencies.

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On September 16, 2017, California Governor Jerry Brown signed Assembly Bill (A.B.) 131 into law, making various changes to the Taxpayer Transparency and Fairness Act of 2017 (Act) enacted on June 27, 2017. The Act overhauled the California State Board of Equalization (BOE) and created two new tax agencies.

To learn more, please contact the author.

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(This article originally was published by Law360 on September 7, 2017.)

On Aug. 28, 2017, in California Cannabis Coalition v. City of Upland, the California Supreme Court held local taxes imposed by taxpayers via initiative are subject to less stringent requirements than taxes imposed by local governments pursuant to Proposition 218.[1] This opinion has far-flung ramifications on how local taxes can be imposed in California.

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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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(This article originally was published by Law360 on July 7, 2016.)

Rarely does a subject as mundane as a documentary transfer tax become worthy of its own article. However, the June 29, 2017, decision of the California Supreme Court in 926 North Ardmore Avenue LLC v. County of Los Angeles (Ardmore)[1] is a worthy exception. Affirming the Court of Appeal, the California Supreme Court held in Ardmore that California’s documentary transfer tax may be imposed by localities on transfers of interests in legal entities holding title to real property when three criteria are met: (1) the legal entity interest transfer is memorialized in writing; (2) the transfer is made for consideration; and (3) the transfer constitutes a “change of ownership” in the legal entity within the meaning of “change of ownership” for property tax reassessment purposes as set forth in Cal. Rev. & Tax. Code[2] § 64, subds. (c) or (d).[3] Under the Ardmore holding, it is irrelevant whether the written instrument at issue memorializing the legal entity interest transfer is recorded or directly references the real property.[4] Moving forward, every transaction involving a transfer of an interest in a legal entity holding title to real property in California is going to require thorough investigation and due diligence concerning the possible triggering of Ardmore documentary transfer tax imposition.

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The majority of states impose a form of a corporate income tax. However, currently five states—Delaware, Ohio, Nevada, Texas and Washington—impose a broad-based, statewide corporate gross receipts tax. The most recent addition to that list is Nevada, which in its 2015 Legislative Session enacted a new Commerce Tax that is imposed on gross revenue. More recently, there have been and are, at the time of writing, ongoing efforts in Oregon to enact a corporate gross receipts tax, either as a separate tax or as an alternative tax to the existing Oregon corporate income/excise tax. Even more recently, both West Virginia and Louisiana have considered a gross receipts tax.

(The remainder of this article can be access in the July 2017 edition of the Journal of Multistate Taxation and Incentives.)