State high court rejects SF property transfer tax challenge that cost company $12m

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The California Supreme Court on Wednesday dismissed a challenge to San Francisco’s voter-approved real estate transfer tax, which is higher than the statewide transfer tax rate and applies to more of transactions.

The tax, approved by local voters in 2008 and 2016, ranges from $2.50 to $12.50 for every $500 of real estate transactions. The state tax, enacted in 1967, is limited to 55 cents for every $500 of real estate sales. But it allows higher taxes by any of California’s 121 charter cities and by any “city and county.”

San Francisco tax also applies to the value of liens held on property, personal property, and other assets related to real estate ownership. Additionally, the city defines transactions broadly to include changes in ownership of corporations and other entities that own the property.

The owner of two office buildings in San Francisco who face nearly $12 million in taxes, interest and penalties claimed San Francisco should follow the state’s lower tax rate. A state appeals court disagreed in March, saying transfer taxes are subject to local regulations and noting that San Francisco is the only “city and county” in the state. The decision came last Wednesday when the state High Court unanimously denied consideration of the landlord’s appeal.

The buildings span 17 stories at 211 Main St., a few blocks from the Embarcadero, and 11 stories at 260 Townsend St., south of Market Street. San Francisco imposed transfer taxes on the owner, CIM Urban REIT, after a 2014 merger changed ownership of CIM’s parent company.

In a 2020 ruling upholding the taxes, Superior Court Judge Ethan Schulman said a local real estate transfer tax “is a municipal matter that does not involve significant state interests.” The First District Court of Appeals agreed in its March 3 ruling and also rejected CIM’s argument that the ownership of the two buildings had not actually changed, so they should not be subject to a transfer tax.

Although titles to buildings did not change hands, the court said, a 2008 ballot measure, Proposition N, approved by more than 68% of San Francisco voters, allowed the city to levy a transfer tax after a change in business ownership. immovable.

Prop. N was “intended to avoid transfer tax evasion by entities transferring ownership interests instead of transferring real estate”, Judge Henry Needham said in the 3-0 decision.

Needham cited Prop sponsors’ voting arguments. N who said multinational corporations cost San Francisco millions of dollars by using shell companies to conceal ownership transfers. He noted that the measure, which also increased transfer tax rates, only applied to assets worth more than $5 million.

City Attorney David Chiu, whose office defended the law in court, said Wednesday, “We have always maintained that San Francisco voters have the power to choose how the city taxes real estate transactions in within its borders, and today’s decision from the California Supreme Court confirms this. This ensures that large corporations cannot use complicated ownership regimes to avoid paying their fair share of taxes.

Lawyers for the owners were not immediately available for comment.

The case is CIM Urban REIT v. San Francisco, S274032.

Bob Egelko is a writer for the San Francisco Chronicle. Email: [email protected]: @BobEgelko

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