926 N. Ardmore Ave., LLC v. Cnty. of L. A.
219 Cal. Rptr. 3d 695
Cal.2017Background
- Beryl and Gloria Averbook transferred an apartment building into a family trust; Gloria retained the sole beneficial interest after Beryl’s death.
- Trustees moved legal title among entities: administrative trust → single-member LLC (LLC) → BA Realty (LLLP) → subtrusts, without changing Gloria’s beneficial ownership.
- In Jan 2009 Gloria’s subtrusts transferred interests in BA Realty to trusts for her sons (Allen and Bruce); those transfers were effected by written partnership-interest agreements, not deeds, and consideration was paid by promissory notes based on an appraisal.
- The County Assessor determined the 2009 transfers triggered a property tax ‘‘change in ownership’’ under Rev. & Tax. Code § 64(d); Recorder assessed and collected Los Angeles County documentary transfer tax and denied LLC’s refund claim.
- LLC sued for refund arguing the documentary transfer tax applies only to instruments that directly convey real property (or that reference property) and not to transfers of entity interests; courts below upheld the county.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether county may impose documentary transfer tax on written instruments transferring legal-entity interests when entity owns real property | Transfer tax applies only to instruments that directly convey or reference real property; instruments transferring entity interests (and unrecorded) are not taxable | Transfer of entity interests that results in a property ‘‘change in ownership’’ may trigger the transfer tax even if no deed references the property | The tax may be imposed where the instrument reflects a sale for consideration and the transfer causes a change in ownership under §64(c)/(d) |
| Whether absence of parcel reference or recording precludes tax | Statutory provisions requiring parcel numbers or recording do not limit substantive scope of tax to recorded instruments | County relies on property tax change-in-ownership statements and statutory scheme to identify taxable indirect transfers | Parcel-number/recording requirements do not confine tax; unrecorded instruments can be taxable if they effect a sale of beneficial ownership |
| Proper interpretive sources: federal stamp-act precedent v. state property tax rules | Rely on federal interpretations of the now-repealed federal stamp act to limit DTTA to direct property conveyances | Use property tax change-in-ownership rules (§60–64) to determine when indirect transfers constitute taxable conveyances for DTTA | Adopt hybrid approach: federal precedents inform analysis, and California change-in-ownership rules identify indirect transfers that approximate sales and may be taxed |
| Whether consideration was present and taxable measure | LLC argued transfers were not sales of the Building and involved no conveyance of legal title to the realty itself | County showed promissory notes and appraisal-based payments — consideration for the partnership interests that changed beneficial ownership | Trial evidence showed consideration and a transfer of beneficial ownership; tax properly assessed and refund denied |
Key Cases Cited
- United States v. Seattle Bank, 321 U.S. 583 (U.S. 1944) (consolidation without formal instruments transferring realty did not constitute a taxable sale under the federal stamp act)
- Carpenter v. White, 80 F.2d 145 (1st Cir. 1935) (tax applied where transfer of shares resulted in a transfer of beneficial ownership of conveyed realty)
- Texaco, Inc. v. United States, 624 F.2d 20 (5th Cir. 1980) (federal stamp tax applies to instruments transferring a bundle of rights approximating fee simple)
- Socony-Vacuum Oil Co. v. Sheehan, 50 F. Supp. (E.D. Mo. 1943) (example of federal cases examining when transfers do not change beneficial ownership for tax purposes)
- Thrifty Corp. v. County of Los Angeles, 210 Cal.App.3d 881 (Cal. Ct. App.) (California appellate decision applying property tax change-in-ownership concepts to determine documentary transfer tax applicability)