Taxable Possessory Interests
A taxable possessory interest is created when a private party is granted the exclusive use for private benefit of real property owned by a non-taxable entity.
An expanded definition may be found in Revenue and Taxation Code Section 107.
The key criteria that must exist to have a taxable possessory interest are the possession or right to possession of real property owned by a non-taxable entity. The possession must be independent, durable, and exclusive of the rights held by others, and provide a private benefit to the possessor above that which is granted to the general public.
Taxable possessory interests can be created in virtually any use of government owned real property. Common examples would be campgrounds, government employee housing, forest cabins, golf courses, ski resorts, airplane hangers and terminals, anchorages, restaurants, grazing rights, stores, homes, apartments, cable television rights-of-way, easements and boat slips.
Property Tax Law covering possessory interest can be found in Revenue and Taxation Code Sections 61, 107 – 107.9, 480.6, and property tax rules 20-28.
Discovery of Taxable Possessory Interests
The Assessor, by law, must search out and value all taxable property in the county as of the lien date, January 1, each year. This includes all taxable possessory interests. Annually, pursuant to Revenue and Taxation Code Section 480.6, assessor’s staff request every governmental agency in the county to provide various items of information such as leases and other agreements that are related to the real property they own. This information includes the name, mailing address, situs, etc., for each property. The Assessor analyzes this information when making the possessory interest assessments.
It is important that the lessee keeps this information current with their government landlords and that the agencies cooperate fully with the Assessor so that accurate assessments and billing can be made by the county.
Valuing the Taxable Possessory Interest
Base year values are established for taxable possessory interests upon change in ownership or completion of new construction under the guidelines of Proposition 13. The requirements for a change in ownership of a taxable possessory interest are found in Revenue and Taxation Code Section 61. A change in ownership occurs when a possessory interest is created, assigned, or upon expiration of the reasonably anticipated term of possession used by the Assessor.
When valuing a taxable possessory interest there are two key factors that differentiate the value from real property unencumbered fee values:
- The assessor must value only the legally permitted use under the agreement, which may not be the highest and best use of the property.