California Supreme Court to Review Controversial Documentary Transfer Tax Case
The California Court of Appeal recently held, in 926 North Ardmore Avenue v. County of Los Angeles, that a documentary transfer tax is triggered when a transfer of an interest in a business entity that owns real property results in a Proposition 13 change in ownership, even though the underlying real property is not transferred.1 The California Documentary Transfer Tax Act, which was adopted verbatim in Section 4.60.020 of the Los Angeles County Code, applies a documentary transfer tax to “realty sold.”2 However, the California Documentary Transfer Tax Act does not explicitly provide for a documentary transfer tax on the transfer of interests in a business entity that owns real property (other than transfers of partnership interests that result in termination of the partnership within the meaning of Section 708 of the Internal Revenue Code).3 On January 14, 2015, the California Supreme Court agreed to review the California Court of Appeal’s decision.
1 229 Cal. App. 4th 1335 (Cal. Ct. Appl. 2014).
2 Cal. Rev. & Tax Code §§ 11911-11930.
3 Id. Although the Documentary Transfer Tax Act does not explicitly define “realty sold” to include Proposition 13 changes in ownership, several county and city ordinances do. S.F., Cal., Bus. & Tax Reg. Code art. 12-C, § 1114; Napa, Cal., Cnty. Code § 3.24.020, Monterey, Cal., Cnty. Code § 5.32.020; Santa Clara, Cal., Cnty. Ordinance Code § A30-39.6, Oakland, Cal., Mun. Code § 4.20.020.