A taxpayer challenged a county assessor’s reassessment of real property after the taxpayer transferred his joint tenancy interest to himself as a tenant in common. A court of appeal held that the property was subject to reassessment after the joint tenancy was terminated and the property’s legal title was then held by the taxpayer as a tenant in common. (Benson v. Marin County Assessment Appeals Board (--- Cal.Rptr.3d ----, Cal.App. 1 Dist., September 26, 2013).
When James Mikkelsen’s father died, he left a home to James’ mother, Dagmar Mikkelsen. Dagmar created a joint tenancy in the property with James’ brother, Peter Mikkelsen. Peter became the sole owner of the property when Dagmar died in July 1997. That same year, Peter created a joint tenancy in the property with James, resulting in each brother holding a 50 percent undivided interest in the property, with a reciprocal right of survivorship. They owned the home as joint tenants until November 2007. At that time, James severed the joint tenancy when he executed and recorded a deed that granted his interest to himself as a tenant in common.
After James severed the joint tenancy, the Marin County Assessor concluded there was a change in ownership that triggered reassessment under Proposition 13. The property was assessed at $525,323, up from $100,631, resulting in a $2,682.84 increase in the amount of tax due. James challenged the reassessment alleging that the change in legal title from joint tenancy to tenancy in common was not a change in ownership. After the Assessor rejected his challenge, James appealed to the Assessment Appeals Board of Marin County. The Board reversed the Assessor’s decision. The Marin County Superior Court denied the Assessor’s petition for writ of review.
The court of appeal reversed the judgment of the superior court and found that there was “a change in ownership when the family joint tenancy was terminated.” The court noted that when Proposition 13 was approved, joint tenancies were commonly used as estate planning tools. In such circumstances, parents would deed the property to themselves and their children so that the property would automatically pass to the children upon the death of the last surviving parent.
Proposition 13 provides, “The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of each property.” “Full cash value” is defined by the measure as “the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” However, Proposition 13 did not explain the meaning of the phrase “change in ownership” and a statutory framework was adopted to implement it. Since 1979, the State Board of Equalization treated joint tenancies in the following manner—the “creation of a family joint tenancy does not result in a change of ownership, but termination of a joint tenancy does.”
Section 60 of the Revenue and Taxation Code provides that a “change in ownership” occurs where there is a transfer of a present interest in real property. James asserted that, because there was no transfer of a present interest when he terminated his joint tenancy and created a tenancy in common, there was no changes in ownership. However, the court noted that section 60 does not stand alone in defining what constitutes a change in ownership.
Revenue and Taxation Code section 62, subdivision (a)(1), provides that a change of ownership does not include “[a]ny transfer between co-owners that results in a change in the method of holding title to the real property transferred without changing the proportional interests of the co-owners in that real property, such as a partition of a tenancy in common.” The term “co-owners” can include joint tenants and tenants in common. The court found that after analyzing the statutory scheme “in its entirety, it is apparent family joint tenancies are not embraced within the change in the method of holding title exception set forth in section 62, subdivision (a)(1).”
Section 62 lists numerous property transactions and transfers that do not constitute a change in ownership. The court stated, “Consistent with the view that creation of a family joint tenancy is akin to making a will and should be similarly treated, [section 62] subdivision (f) specifies no change in ownership occurs upon ‘[t]he creation or transfer of a joint tenancy interest if the transferor, after the creation or transfer, is one of the joint tenants as provided in subdivision (b) of Section 65.’” Section 65, subdivision (b), “governs family joint tenancies and defines the term ‘original transferor,’ a term essential to and pertaining exclusively to family joint tenancies.” Section 61 lists transactions and transfers that do constitute a change in ownership and specifically addresses joint tenancies. Section 61 provides that “the creation, transfer or termination of a joint tenancy does result in a change in ownership, except as to family joint tenancies as provided for in other statutes.”
Section 61 also provides that the creation, transfer, or termination of any interest in tenancy in common is a change of ownership except between spouses and under section 62, subdivision (a)(1), which governs the transfer between co-owners. The court found that while ‘the term ‘co-owners’ in section 62, subdivision (a)(1), is sufficiently broad to include family joint tenancies, the other statutes which comprise the statutory scheme defining change in ownership and of which it is a part, demonstrate the term does not include such joint tenancies.” The court concluded that the exception set forth in section subdivision (a)(1) does not apply to the termination of family joint tenancy at issue in this case.
The court noted that James got the advantage of the Legislature’s decision “to accommodate the use of joint tenancy as an estate planning tool” when Peter created the joint tenancy and at that point no change of ownership was deemed to have occurred. The court opined, “The price for that property tax break, so to speak, was a change in ownership when the family joint tenancy was terminated.”