Possessory Interests
What is a Possessory
Interest?
Possessory interests are taxable interests held by persons,
based upon their occupancy of publicly owned land.
Section 107 of the California Revenue and Taxation Code and
California Code of Regulations Rule 20 et. seq. provide the legal
definition of possessory interests. A synopsis of the Section
and the Rule states that Possessory Interests in real property
exist as a result of the following:
- a possession of real property that is independent, durable,
and exclusive of the rights held by others in the real property,
and that provides a private benefit to the possessor, except
when coupled with the ownership of a fee simple or life estate
in the real property in the same person."
- A right to the possession of real property, or a claim to
a right to the possession of real property that is independent,
durable, and exclusive of the rights held by others and that
provides a private benefit to the possessor...' or
- Taxable improvements on tax-exempt land."
What determines the
legal existence of Possessory Interests?
By law, a possessory interest is created when a person or
entity, for private benefit, rents or otherwise possesses certain
kinds of public land owned by an agency of the federal, state
or local government.
What are some examples
of Possessory Interests?
Examples of Possessory Interests include the following:
OCCUPANCIES OF PUBLIC LAND WHICH ARE
- Christmas tree lot operators at fairgrounds or other public
lands
- Radio/microwave transmission towers on public lands
- Grazing permit rights on US Forest Service land
- Cabins on US Forest Service land
- Farming on airport, sewer farm, cemetery expansion or river
bottom land
- T-hangars at airports
- Entertainment promoters at fairgrounds
- Hangar buildings at airports
- Rafting companies operating at rivers
- Watchman occupying a mobile home on public or school lands
- Pack companies or backpackers operating on public lands
- Hunting rights granted on public lands
- Mining operations on public land
- Cable television systems buried in public roads
- Retail/wholesale business operations in publicly owned buildings
- Employee occupants of cabins on US (Forest Service, etc.)
state, county, city, or district property
- Midway operators at fairgrounds
- Any person whose occupancy is not continuous, but is recurring,
such as air show promoters, concert or dance promoters on public
lands or in public buildings
- Skating rink operator on public lands
- Pro shop or golf operator at a public golf course
- Food concessionaire or bar operator at a public golf course
- Rent-a-Car facilities on public lands
- Auto racing promoters and concessionaires on public racetracks
- Cab or bus company operating out of a public building
- Builder/operator of power generation or other facilities
on irrigation district property
- Promoters of annual events, e.g., "Old Timers Day,"
antique shows, gun shows, bird shows, country jamboree
- Corporations who hold their annual company dinner on public
property
- Privately owned medical/dental/other clinics operating out
of a publicly owned hospital or building
- Adult/evening school operating out of a public school facility
- Privately owned pharmacy operating out of a publicly owned
hospital
What causes the creation
of a Possessory Interest?
Governmental agencies rent facilities such as camp grounds,
factories, stables, acreage, parking lots, cabins, golf courses,
ski resorts, airplane hangars and terminals, water rights, restaurants,
farmland, pro shops, grazing rights, stores, homes, apartments,
cable TV franchises, easements and boat slips. A person's occupancy
of the public domain is taxed because their occupancy prevents
the remainder of the owners, who are all of the people of the
United States of America, from occupying land technically owned
by them.
Why are Publicly Owned
Properties available for personal occupancy?
Federal, state and local governments are major landowners.
Government ownership of land has existed throughout our nation's
history. Certain government-owned lands are devoted to the public
welfare, such as airports and fairgrounds, because these are
large-scale public endeavors, created through publicly-paid tax
dollars. When a person obtains the exclusive use of a large hangar
for an airplane repair company, an individual stores an airplane
in a small T-hangar, or a midway operator sets up at the county
fair, an occupancy of the public domain occurs which creates
a taxable possessory interest.
How are property taxes
on Possessory Interests levied?
California law exempts public agencies from paying property
taxes on the property they own. However, persons renting property
from public agencies, like a city or county department, may,
under certain circumstances, acquire a taxable possessory interest
in that property. To be taxable, the interest must be sufficiently
independent, last for a determinable time, and provide a private
benefit of exclusive use beyond mere entry and exit, or momentary
occupancy. The taxation of these interests is rooted in historical
precedent. As long ago as 1859, the California legislature authorized
the valuation of PI's for property tax purposes. The methods
that Assessors may use to value these interests include the market
sales approach, the cost method, and the income (rental) capitalization
approach. Adjustments are made to each of these methods to assess
only an interest less than the ownership of the property, the
possessory interest.
Property taxes pay for many services provided to the public,
including schools, police and fire departments, flood control,
community health and recreational organizations and the services
of many other public agencies. The taxes generated by possessory
interests contribute to the funding of these same services.
How are Possessory
Interests valued?
The major elements for determining the value are permitted
use, term of possession and economic rent, and/or improvements.
As with all locally assessed real property, the Assessor establishes
a base year value for the PI.
The actual permitted use under a lease or special use permit
is the first element of valuation considered by the Assessor.
The Assessor will also consider that there is only a lease held
by the occupant, not the fee ownership of the property. In addition,
the Assessor will consider the actual or anticipated term of
possession. Property leased from the government for ten years,
will revert back to the government at that time. It is the present
value of the rights for ten years, which are held by the occupant,
which are assessed. The rights that will revert back to the government
after the ten-year occupancy are not assessed to the holder of
the PI.
Perhaps the most common method of valuing PI's is the capitalization
of economic rent method. The staff of the Assessor's office can
explain this method to you.
The value determined represents the base year value and is
protected by Proposition 13, increasing only by a maximum of
2% per year, until a new reappraisable event occurs. A change
of ownership or new construction are examples of reappraisable
events.
Who is responsible
for paying the taxes?
All taxable PI's are assessed as the lien date, January 1,
of each year. The person in possession of the property on the
lien date is liable for the entire fiscal year's taxes. Unfortunately,
no provision exists for the proration of the bill upon termination
of the possessory interest.
How does the Assessor's
Office find Possessory Interests?
Annually, pursuant to Revenue and Taxation Code Section 480.6,
the Assessor's staff requests that every government agency in
the county provide information regarding all occupancies of their
property. The Assessor analyzes this and makes the appropriate
assessments.
What do I need to
do?
It is important that an occupant of public domain property
notify the Assessor's office whenever a change of ownership occurs.
By doing so, the former and current owner ensure that the tax
bills go to the proper person during the appropriate tax year.
In addition, if new construction occurs, it should be reported
timely to the Assessor. If either new construction or a change
of ownership is discovered after-the-fact, multiple escape bills
and costly penalties may result.
How do I get more
information?
For further information regarding possessory interests, see
the end of this page for contact information.
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Madera County Assessor's Office
200 W. 4th Street
Madera, CA 93637
Telephone: (559) 675-7710
Fax: (559) 675-7654
Office Hours: 8:00 AM to 5:00 PM
Monday through Friday
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