Business Property

Complete the appropriate form below. For business owners use the Business Property Account Update form. For vessel, aircraft, or possessory interest closures, use the Personal Property Account Update form.

Business Property Account Update:

Docusign Form Downloadable Form

Personal Property Account Update:

Docusign Form Downloadable Form

What Business Property is Taxable?

The California Constitution and the Revenue & Taxation Code state that all property is taxable, including business property, unless it is specifically exempt by law. Examples of taxable business property are:

• Supplies
• Machinery & Equipment
• Tools
• Office Furniture & Equipment
• Computer Hardware & Operating Systems
• Buildings/Fixtures/Land Improvements
• Leasehold Improvements
• Property Leased to Others
• Construction in Progress

Most business property is assessed by the Cost Approach. The Replacement Cost New (RCN) is determined by indexing the historical cost, and then an allowance for depreciation is applied.

The Real Property Division of the Assessor’s Office assesses the land and real property structures to the land owner. The Business/Personal Property Division assesses the remaining taxable business property (above) to the owner of the business.

The Business Property Statement

Every year in January, identified businesses receive a request from the Assessor to file the Business Property Statement (form 571-L) or the Agricultural Property Statement (form 571-A) for business property owned as of 12:01 a.m., January 1st (lien date) of that year. The property statement should be completed in its entirety, signed, and returned to the Assessor by April 1st. All businesses that receive a property statement are to file; Businesses owning $100,000 (cost) or more of taxable personal property are required to file a property statement even if the Assessor does not send one and will be penalized if they do not file.

Specific instructions are provided with the property statement. The Assessor requests general information regarding the business ownership, type of business, business location, and mailing address, etc. In addition, the owner is required to report business property by acquisition cost, year acquired, and category.

Penalties

If a business fails to file the Business or Agricultural Property Statement, or if it is filed late (postmarked after May 7th) (exception: If May 7 falls on a Saturday, Sunday, or legal holiday, a property statement that is mailed and postmarked on the next business day shall be deemed to have been filed between the lien date and 5 p.m. on May 7.), a 10% penalty will be applied as required by Revenue & Taxation Code Section 463. Willful concealment of tangible personal property may result in a 25% penalty (R & T Sec 504). Fraud causing the escape of taxable tangible property may result in a penalty of 75% (R & T Sec 503).

Audits

All businesses are subject to audit in order to verify the accuracy of the reported information and the correctness of the Assessor's work in valuing. Some audits are required by the State Board of Equalization ("mandatory") per R & T Code Section 469. Any other audit is considered a "non-mandatory" audit. Information requested by the Assessor per Sections 441 or 442 of the Revenue & Taxation Code must be provided by the Assessee.

Complete the appropriate form below. For business owners use the Business Property Account Closure form. For vessel, aircraft, or possessory interest closures, use the Personal Property Account Closure form.

Business Property Account Closure:

Docusign Form Downloadable Form

Personal Property Account Closure:

Docusign Form Downloadable Form

Vessels

Privately owned boats held for personal use are assessable each year for property tax purposes. The registration fee paid to the DMV each year does not contain a portion based on value. For this reason, the boat is assessed by the local Assessor. Boat values are placed on the Unsecured Roll. Bills are mailed mid-July each year and are payable by August 31st.

R & T Code Section 1141 provides that boats “…shall be assessed where they are habitually moored when not in use”. Domicile of the owner is the usual tax situs. However, proof that the boat is kept elsewhere when not in use overrides that presumption.

Boats should be registered with the DMV according to their place of habitual mooring. If that location changes, the DMV and the Assessor should both be notified. Proof of situs other than the DMV registration could include receipts of docking fees (at January 1 and current), proof of registration in another county or state, and/or a copy of an uncancelled current tax bill from another county.

Boats are valued using Blue Books. The value estimate is for current market value on the January 1st Lien Date.

Vessels Property Statements

A Vessel Property Statement (576-D) must be filed by April 1st each year for any vessel(s) that is(are) valued at $100,000 or more. Failure to file the Vessel Property Statement in a timely manner may result in a 10% late filing penalty.

Vessels - 4 % Assessment

For the following types of vessels, it may benefit the vessel owner to file the Affidavit for 4 Percent Assessment (576-E), for a reduced assessment of their vessel:

• Commercial Fishing Vessels
• Oceanographic Research Vessels
• Commercial Passenger Fishing Vessels

In order to qualify for the reduced assessment, the vessel and its use must meet certain criteria. To earn the maximum reduction, the form must be received by our office by February 15th. As a courtesy, the Affidavit for 4 Percent Assessment (576-E) is mailed out in early January each year. Call our office if you have questions regarding their completion or your eligibility.

Aircraft

As with boats, privately owned aircraft are also subject to annual assessment. Aircraft are also valued by Blue Book at the current market value on the Lien Date. To assist the Assessor, an Aircraft Property Statement (577) is mailed each year. That statement must be completed and returned by April 1st. Failure to return the statement will result in a penalty of 10% (R & T Sec 5367).

Aircraft will be assessed in the county and at the location where the plane is habitually situated when not in flight.

Historical Aircraft Exemption

An aircraft which is 35 years or older on the January 1st Lien Date (or one of less than 5 known to exist worldwide) may qualify for exemption if all the following conditions are met:

• Assessee is individual owner; plane is not held for sale.
• Aircraft is not used for commercial purposes or general transportation.
• Aircraft is displayed to public 12 days during 12 months just prior to Lien Date.

An exemption form must be filed by February 15th each year. As a courtesy, the Historical Aircraft (260-B) is mailed out in early January each year. Call our office if you have questions regarding their completion or your eligibility. There is a $35 fee - one time per aircraft, per county.

These links to two letters written by the Board of Equalization (LTA's 88/36 and 89/84) define the terms “use” and “public display” for purposes of the exemption.

What is a Possessory Interest?

A taxable possessory interest (PI) is created when a private party is granted the exclusive use of real property owned by a non-taxable entity. An expanded definition may be found in Revenue and Taxation (R&T) Code Sections 61, 62, 107-107.9, 480. 6, and Property Tax Rules 20, 21, 22, 27, 28 and 29. In very simple terms, for a possessory interest to be taxable it must be independent, durable, and exclusive of the rights held by others.

• Independent: The use must be independent of the public owner. That is, its holder may exercise authority and control of the property apart from the rules and regulations of the public owner.
• Durable: There must be reasonably certain evidence to show that the possession will continue for a determinable period of time.
• Exclusive: Its holder must be able to exclude others from interfering with the use of the property, (or, where there is concurrent use, the concurrent use does not significantly interfere with the holder’s use).

Examples of Possessory Interests

Taxable PIs can be created in virtually any use of government-owned real property. They are typically created when private individuals, companies or corporations lease, rent, or use federal, state or local government-owned facilities and/or land for their own benefit.

Examples of possessory interests include such things as:

• Private companies leasing government buildings.
• Boat slips in public marinas.
• An airplane tie-down at a county airport.

The variety and form of such interests vary widely and evolve continually, and those listed above represent only a portion of the possible possessory interests that may be found.

Property Taxes

California law exempts public agencies from paying taxes on the property they own, thus the lessee, who acquires the possessory interest, must pay property taxes on the possessory interest. The taxation of these interests is rooted in historical precedent. The California legislature first authorized the valuation of possessory interests for property tax purposes in 1859.

Those who receive possessory interest assessments are often puzzled by the seemingly unfairness of paying rent to a government entity while being asked to pay property taxes on property they don’t own. However, government entities do not have to pay property tax and thus, their rent charges do not include an increment to recover such taxes (similar to a triple net lease).

At the same time, the private possessor still receives the services and benefits (fire and police protection, schools, and local government) that other similar taxable properties enjoy, and the possessory interest tax helps to pay the holder’s fair share of those costs.

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 requests every government 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, lease amendments, assignments, new construction, etc., for each property. The Assessor analyzes this information when making the possessory interest assessments. It is important that the lessees keep this information current with their government landlords and that the agencies cooperate fully with the Assessor so that accurate assessments can be made by the County.

Valuing Possessory Interests

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.

The valuation of PIs differs significantly from other forms of property tax appraisal, as it is the appraiser’s job to value only those rights held by the private possessor. The appraiser must not include the value of any rights retained by the public owner or any rights that will revert back to the public owner (the “reversionary interest”) at the end of a reasonable term of possession.

Taxable PI values differ from real property unencumbered fee values in two ways:

• The Assessor must value only the legally permitted possessory interest use under the agreement, which may not be the highest and best use of the property.
• The Assessor must not include the value of the lessor’s retained rights in the property; the government’s interest is exempt.

As a result, PI assessments are normally and often significantly less than fee simple assessments of similar, privately owned property.

The determined base year value is protected by Proposition 13; it will only increase by a maximum of 2% per year, until a reappraisable event (change in ownership or new construction) occurs or the property suffers a decline in value (when sales prices or rents of similar properties decline, or the anticipated term of possession decreases – Proposition 8).

Possessory Interests are Assessed on the Unsecured Roll

Possessory interests are normally assessed on the Unsecured Tax Roll because the property rights being assessed are for the possession of and not the ownership of the real property and cannot provide security for the taxes owed. In other words, the property cannot be used to satisfy any delinquent property tax. Therefore, PIs are assessed as real property on the Unsecured Roll, but still fall under the umbrella of Proposition 13. That is to say, that although they appear on the Unsecured Roll, they are still assessed according to the laws pertaining to secured real property.

Unsecured Tax Bills

The payment schedule for Unsecured Roll tax bills is significantly different than for Secured Roll tax bills and taxpayers should be aware of that difference. Unsecured bills are due and payable in full no later than August 31, each year. If paid after August 31, a penalty of 10% plus costs will be added to the amount due. Unsecured bills are not split into two installments with two different delinquency dates, as is true of Secured Roll tax bills.