City of Desert Hot Springs v. County of Riverside

This case involves the taxability of the possessory interest of a private contractor-builder under a lease of property owned by the City of Desert Hot Springs, leased to the builder for the purpose of construction by him of certain buildings, and leased back to the city under a lease with option to purchase the buildings at the expiration of the five-year and ten-year anniversary dates of the sublease.

The taxes in issue were assessed not on the fee interest in the property owned by the city, which is exempt, but rather on the possessory interest of the contractor as owner of the leasehold estate. The city, having obligated itself under the sublease to pay all taxes levied upon the contractor’s interest in the property, paid under protest the taxes levied for the tax years 1973-1974, 1974-1975, and 1975-1976, and brought this action against the County of Riverside to recover the sums paid. The trial court entered judgment in favor of the taxpayer, and the county appeals.

The Facts

Prior to the year 1970, the City of Desert Hot Springs city offices were located in rented facilities. In that year a four-and-one-half acre parcel of land was donated to the city to be used…