926 North Ardmore v. County of L.A.
S222329A
| Cal. | Jun 30, 2017Background
- Beryl and Gloria Averbook placed an apartment building (926 North Ardmore Ave.) into a family trust; Gloria retained beneficial ownership after Beryl's death.
- Successor trustees created LLC (title holder) and BA Realty (partnership controlling the LLC); legal title moved among entities but Gloria's beneficial interest initially remained unchanged.
- In Jan. 2009, Gloria's subtrusts transferred partnership interests in BA Realty to trusts for her sons (Allen and Bruce), who thereby acquired beneficial interests in the Building; the transfers were effected by unrecorded written partnership-transfer agreements and promissory notes based on an appraisal.
- County Assessor determined the January 2009 transfers triggered a change in ownership of the Building under Revenue & Taxation Code § 64(d) and issued a supplemental property tax assessment; LLC paid that assessment.
- Los Angeles County Recorder then assessed documentary transfer tax under Cal. Rev. & Tax. Code § 11911 on the written instruments effecting the partnership-interest transfers; LLC sought a refund and litigation followed, ultimately reaching the California Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §11911 permits taxing written instruments that transfer legal-entity interests (not deeds) when the entity owns real property | §11911 applies only to instruments that directly reference or convey real property; instruments transferring entity interests are not taxable absent mention/location of realty | §11911 covers instruments that effect a sale of real property, including indirect transfers via legal-entity-interest transfers that result in a change in beneficial ownership | Court: §11911 may be applied to written instruments transferring entity interests when they reflect a sale (consideration) that effects a transfer of beneficial ownership of the real property |
| Whether unrecorded instruments transferring entity interests can be taxed under §11911 and related county ordinances | The tax is limited to recorded instruments; statutory provisions requiring parcel numbers and recording imply tax applies only to documents submitted for recording | Recording-related provisions are collection/recording requirements and do not limit the statute’s substantive scope; county may assess based on change-in-ownership information | Court: Unrecorded instruments transferring entity interests may be taxable; recording requirements do not confine taxability |
| Role of §11925 (partnership exemption) in construing §11911 | §11925 shows Legislature did not intend to tax transfers of entity interests generally | §11925 is a conditional exemption, demonstrating the Legislature contemplated that entity-interest transfers could otherwise trigger the tax | Court: §11925 indicates Legislature recognized entity-interest transfers can cause tax liability and provided specific exemptions; it supports taxing such transfers when a §64 change in ownership occurs |
| Proper test for imposing documentary transfer tax on indirect transfers | Tax should apply only to formal conveyances of real property (deeds) | Tax applies when an entity-interest transfer results in a sale that transfers beneficial ownership of real property; the change-in-ownership rules (§64(c),(d)) inform that analysis | Court: Critical factor is a sale that transfers beneficial ownership; transfers of entity interests that cause a §64 change in ownership and involve consideration may be taxed under §11911 |
Key Cases Cited
- United States v. Seattle-First Nat’l Bank, 321 U.S. 583 (U.S. 1944) (federal stamp tax did not apply where consolidation transferred assets without formal instruments and not in ordinary sense a sale)
- Carpenter v. White, 80 F.2d 145 (1st Cir. 1935) (stamp tax applied where transfer produced a change in both legal title and beneficial ownership)
- Thrifty Corp. v. County of Los Angeles, 210 Cal.App.3d 881 (Cal. Ct. App. 1989) (federal stamp-act interpretation supports using property tax change-in-ownership principles to decide transfer-tax applicability)
- Texaco, Inc. v. United States, 624 F.2d 20 (5th Cir. 1980) (federal test that tax reaches instruments conveying a bundle of rights approximating an estate in fee simple)
- McDonald’s Corp. v. Board of Supervisors, 63 Cal.App.4th 612 (Cal. Ct. App. 1998) (used property tax rules to determine documentary transfer tax applicability to leases)