Proposition 13 and Domestic Partners

The State Board of Equalization adopted a rule exempting real property transfers to registered domestic partners via intestate succession from the definition of “change of ownership” under Proposition 13. In Strong v. State Board of Equalization, case no. C052818 (3d Dist. Oct. 2, 2007) County assessors claimed the rule was unconstitutional because such exceptions can only be implemented by constitutional amendment. The court disagrees.

Proposition 13 bases property taxes on value at the time of acquisition of the property, and a reassessment is triggered by a change in ownership. Here, the State Board of Equalization extended to domestic partners an exception to the definition of “change in ownership” similar to that afforded spouses by the California constitution.

The court upholds the rule. The rule was ratified by the legislature when it made corresponding changes to the Family Code and Revenue and Taxation Code that granted an exception for any transfer between domestic partners, according to a blog from Valley Tax Law. The legislature has authority to create exceptions to the “change in ownership” definition in the Proposition 13 implementing statutes because the California constitution, unlike the federal constitution, does not grant powers to the legislature; rather, the legislature is vested with the law-making authority for the state except to the extent limited by the constitution. No such limit on exceptions for domestic partners is imposed here by the mere fact that the spousal transfer exception is already in the constitution. That provision only requires that the legislature may not amend or repeal the spousal exception without voter approval.

UPDATE (10/03/07): Tom Caso at The Opening Brief has an interesting comment on how this might impact the equal protection arguments against “one man – one women” marriage in the consolidated cases now fully briefed in the California Supreme Court.

Life Estates and Proposition 13

Since Proposition 13 (passed by initiative in 1978) changed the property tax system in California from one based on current assessed value to one based on assessed value at the time of acquisition, the issue of whether a change in title is a change in ownership for purposes of Proposition 13 haunts every transaction, as it can mean a huge increase in property taxes. In Steinhart v. County of Los Angeles, case no. B190957 (2d Dist. Sept. 28, 2007), the Court of Appeal faced the issue of “whether Steinhart’s acquisition of a life estate in real property upon the death of her sister constituted a change of ownership so as to trigger a reassessment” under Proposition 13.

The court’s answer: no. According to Charter Partners accountants Gympie, under one of Proposition 13’s implementing statutes, Revenue and Taxation Code section 60, a “change in ownership” requires the transfer of a present interest of a value that “is substantially equal to the value of the fee interest.” The court reasons:

a life estate is an estate of questionable value because subject to complete defeasance at an unknown time. [Citation.] Therefore, by definition, the value of a life estate is not “substantially equal to the value of the fee interest” for purposes of a statutory change in ownership. [Citation.]

The County contended that the Supreme Court language cited by the court was dictum, but the court reminds us that:

even if properly characterized as dictum, statements of our Supreme Court should be considered “persuasive” [citation] and “its dicta command our serious respect. [Citations.]” [Citation.] When, as here, “the Supreme Court has conducted a thorough analysis of the issues and such analysis reflects compelling logic, its dictum should be followed. [Citation.]” [Citation.]