Pueblos Del Rio South v. City of San Diego

On this appeal, we enter the fascinating world of real property reassessments after the passage of Proposition 13 [1] to determine whether a corporate reorganization, exempt from state and federal income taxation, results in a "change of ownership" under the Revenue and Taxation Code thereby triggering reassessment of the real property transferred.

Revenue and Taxation Code section 64 [2] was enacted as part of the legislative effort to interpret when a change of ownership has occurred under Proposition 13. ( Sav-on Drugs, Inc. v. County of Orange (1987) 190 Cal. App.3d 1611, 1617 [ 236 Cal. Rptr. 100 ].) Subdivision (a) provides the general rule that, with certain stated specific exceptions, the purchase or transfer of corporate stock is not a transfer of the property of the corporation. [3] Unless one of the exceptions to this rule applies, a transfer of shares of stock does not result in reassessment of a corporation's property under Proposition 13.

Subdivision (b) of section 64 also provides that: "Any corporate reorganization, where all of the corporations involved are members of an affiliated group, and which qualifies as a reorganization under…

On this appeal, we enter the fascinating world of real property reassessments after the passage of Proposition 13 1 to determine whether a corporate reorganization, exempt from state and federal income taxation, results in a “change of ownership” under the Revenue and Taxation Code thereby triggering reassessment of the real property transferred.

*896 Revenue and Taxation Code section 64 2 was enacted as part of the legislative effort to interpret when a change of ownership has occurred under Proposition 13. (Sav-on Drugs, Inc. v. County of Orange (1987) 190 Cal.App.3d 1611, 1617 [ 236 Cal.Rptr. 100 ].) Subdivision (a) provides the general rule that, with certain stated specific exceptions, the purchase or transfer of corporate stock is not a transfer of the property of the corporation. 3 Unless one of the exceptions to this rule applies, a transfer of shares of stock does not result in reassessment of a corporation’s property under Proposition 13.

Subdivision (b) of section 64 also provides that: “Any corporate reorganization, where all of the corporations involved are members of an affiliated group, and which qualifies as a reorganization under Section 368 of the…

The majority concludes that any “D” type reorganization will result in reassessment of real property owned by the corporate entities involved in the reorganization. While the facts of the instant case are somewhat complicated, they are nevertheless typical of “D” reorganizations, the essentials of which are simple. Perhaps not coincidentally, a “D” reorganization is a “divisive” reorganization. As set forth in Internal Revenue Code section 368, it is one of the several types of changes in corporate structure or ownership deemed by the federal (and usually *909 state) government not to be sufficiently substantive as to warrant recognition for income tax purposes.

Simplifying the facts (more fully reported in the majority opinion), the real property in question was initially owned by a partnership, which in turn was owned by a corporation. The corporation was owned equally by Allred and Sammis. The “divisive” reorganization entered into by the parties resulted in division of their corporate entity and division of its assets. Allred wound up as sole owner of a corporation which held the real property. Hence, overlooking the interposition of corporate and other structures, Allred…