The Los Angeles County assessor's office may have defied state regulations when he jacked up the property tax bills for two L.A. supermarkets following a corporate property transfer, but he was still correct under the law, the California State Supreme Court has ruled.
In the decision handed down May 30, a unanimous state high court said it believed a law governing implementation of California's Proposition 13 should be interpreted to allow for property tax reassessments in the event of certain previously excluded transfers, even if a property is transferred from a corporation to a trust that already runs the corporation and which would otherwise leave the property essentially under the same control.
The case centered on a challenge brought by a trust associated with Super A Foods chain of supermarkets in L.A. to actions taken by Los Angeles County Assessor Jeffery Prang nearly 10 years ago to double the assessment of taxable value for two supermarket properties.
California Supreme Court Justice Kelli Evans
| Courtesy: Commission on Judicial Appointments
According to court documents, the Amen family, which had owned the supermarkets since the 1970s, moved in 2014 to transfer title of two supermarket properties to a trust, identified as the Amen Family 1990 Revocable Trust.
According to court documents, the trust held a majority of voting stock in the corporate structure which had held the property previously and would continue to exercise that control.
According to court documents, the trustees overseeing the revocable trust considered the transfer to be a mere formality, and not an actual change in ownership.
Assessor Prang, however, disagreed.
Under the state constitution, as amended under California's Prop 13, the county was strongly limited in its ability to reassess the property for tax purposes, unless there is a change in ownership.
Following the transfer of the supermarket properties to the revocable trust, Prang declared the property had changed owners, and increased the assessment on the property from about $5 million to more than $10 million.
The Amen family, through its trust, then challenged the decision, asserting Prang's actions violated regulations which should have exempted the transfer from reassessment. Specifically, they pointed to a provision in state tax and revenue law known as Section 62(a)(2), which states property transfers are exempted from reassessment under Prop 13 if it “results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remain the same after the transfer.”
They particularly pointed to the language in Section 62(a)(2) concerning "stock," asserting that the revocable trust's majority voting stock within the corporation meant it retained control of the property, as it had before the transfer.
A panel of the California Second District Appellate Court, however, sided with Prang, declaring they believed a change in ownership had actually occurred, ruling that the term "stock" in the law doesn't mean "voting stock," but rather "proportional beneficial ownership interests" in the property itself, and not only shares of control in corporations.
Since the transfer eliminated the ownership interests in those particular supermarkets of all involved in Super A Foods except the Amen family's revocable trust, the transfer amounted to a change in ownership, which could trigger reassessment, the appeals court said.
On appeal, the state Supreme Court agreed with the lower court.
That decision also came over the objections of the California state Board of Equalization. The state board had filed an amicus brief, or "friend of the court" brief, saying the courts had answered the question incorrectly.
They asserted the regulations and rules the board has implemented to deal with such ownership transfers align with the position taken by the trust. Specifically, the Amen family and the State Board pointed to State Board Rule 462.180, which allows for assessment exceptions "when original coowners subsequently transfer 'more than 50 percent of the total control or ownership interests, as defined in subdivision (d)(1) of this rule, in that partnership, corporation, limited liability company or legal entity[.]'”
That subdivision of the rule indicates the State Board considers "the measure of corporate control as 'more than 50 percent of the voting stock.'”
However, the state Supreme Court said they believed the State Board has misunderstood the law since at least 2002, and its interpretation of the law is a relatively recent invention.
"The State Board’s amicus brief ... did not acknowledge, let alone attempt to explain, the failure of Rule 462.180 to refer to 'voting stock' in this context. Thus, contrary to the State Board’s representations ..., it appears the interpretation found in its more recent materials is neither 'consistent' nor 'longstanding.' It was certainly not made contemporaneously with the enactment of section 62(a)(2) (by California state lawmakers in 1981)," the justices wrote.
The Supreme Court justices said they believed both the Amen family and the State Board of Equalization had advanced a legal interpretation of Section 62(a)(2) that runs contrary to the law's "plain meaning."
The state high court further rejected concerns raised by the Amen family that to reject the State Board's interpretation of the law would invite chaos, by allowing individual county assessors to simply ignore the State Board's guidance on such questions and would create "a patchwork, county-by-county system of differing reassessment methods that is the opposite of what the Legislature intended.”
The high court justices said they are not concerned, however, because county assessors throughout the state filed a joint amicus brief in the case, reassuring the court that they embraced Prang's interpretation of the law and would apply the law in the same way when addressing alleged ownership changes on similar corporate-owned properties which had long enjoyed artificially low assessments, suppressed under Prop 13.
The Amen revocable trust has been represented by attorneys Colin W. Fraser and Cris K. O'Neall, of the firm of Greenberg Traurig, of Orange County.
Assessor Prang has been represented by the firm of Lamb & Kawakami, of Los Angeles; attorneys Thomas G. Kelch and Michael K. Slattery, of the Renne Public Law Group, of San Francisco; and attorneys with the L.A. County Counsel, including Mary C. Wickham, Rodrigo A. Castro-Silva, Nicole Davis Tinkham, Peter M. Bollinger, Richard Girgado and Justin Y. Kim.
The State Board of Equalization was represented by the California Attorney General's Office.