CBPA, in partnership with our friends at the California Taxpayer’s Association and several other groups, has also announced opposition to AB 561 (Ting; D-San Francisco), which would allow counties and/or cities to impose a potentially massive tax increase on commercial, industrial, and residential rental property by adopting the “change in ownership” definition from property tax law for purposes of determining whether a documentary transfer tax is due.

California’s documentary transfer tax took effect in 1968, to replace the repealed federal Documentary Stamp Tax. It authorizes counties and/or cities to approve an ordinance to impose a documentary transfer tax, which applies to deeds of transfer of realty sold within that jurisdiction, and is based on the value of the transfer. All 58 counties apply the tax at a rate of $1.10 for each $1,000 of value. The transfer tax is due and payable on property transfers, irrespective of whether the transfer instrument is submitted for recording in the county real estate records.

Under this bill, a legal entity that owns real estate and undergoes a change in ownership for property tax purposes would be required to pay a transfer tax. The bill interjects the concept of “change in ownership” into the sale, transfer or conveyance of real property. Even prior to Proposition 13, when the stock of a company changed hands, transfer tax was not triggered because there was no “writing” evidencing “realty sold.” The legal entity that owned the property didn’t change.

The bill expands the transfer tax to apply where there is no “transfer”… the sale of stock is not an instrument evidencing “realty sold,” so the bill just arbitrarily expands the definition of “realty sold” to circumstances where there is no “transfer.” AB 561 attempts to treat the sale of a corporation (or other legal entity) as a sale of real property the corporation (or other legal entity) owns, which it is not.

Although the bill is being described as a “technical” bill that merely “authorizes” local governments the ability to do this, we are worried that it could be seen simply as a revenue-raiser and another easy way to tax real estate.

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