Property Tax: Corporation-Owned Residence Not Eligible for Exemption, Value Transfer

In Grotenhuis v. County of Santa Barbara, (182 Cal.App.4th 1158, Cal.App. 2 Dist., March 15, 2010), an individual, who was a trustee of a family trust and owner of a closely held corporation that owned a residence, did not qualify to claim either a homeowner’s exemption from California property tax on the residence or a base year value transfer from the residence to a replacement residence because the individual did not sell the original residence, did not purchase the replacement residence, and rented the replacement residence from the corporation. In addition, the individual lacked standing to bring a refund action on behalf of the corporation and the county was not estopped from denying the tax basis transfer. A trial court ruling in favor of the individual was reversed.

Exemption, Value Transfer

A homeowner’s property tax exemption could not be granted to property that is rented, and the corporation, as landlord of the replacement residence, could not "occupy" the dwelling for purposes of the exemption. In order to transfer the tax basis of the original residence, it had to be the principal residence of a person over the age of 55 years who was the owner of record at the time of the sale of the original property. In this case, it was stipulated that the corporation, as owner of record, sold the original residence and purchased the replacement residence.

Alter Ego Standing

The individual lacked standing as the alter ego of the corporation to file a tax refund claim. The individual claimed that the very corporation he formed should have its veil pierced so that he, as an individual, could obtain a tax advantage. The individual had elected the corporate form for business reasons unrelated to tax and should not be permitted to weave in and out of corporate status when it suited the business objective of the day. Statutes provided that a tax refund action could only be brought by the person who paid the tax, and the individual could not seek a refund of taxes paid by the corporation.

Equitable Estoppel

Despite the fact that the county mistakenly failed to revoke the homeowner’s exemption when the property was conveyed to the corporation, the individual was not entitled to rely on that mistake to argue that he would have conveyed the original residence to himself before it was sold. Both the individual and the corporation profited from the mistake for six or seven years.

In addition, the individual violated property tax law when he failed to notify the county that he no longer was eligible for the homeowner’s exemption when he transferred the property to the corporation and when he refinanced the property. A notice was printed on each secured property tax statement warning the individual that he must notify the county of any ownership changes. That requirement was not met by a letter to the county at the time of the refinancing in which the individual argued that the property should not be reassessed because the letter did not mention the homeowner’s exemption and stated that the individual was the owner of record.

Equitable estoppel would only apply if there was a representation or concealment of a material fact by the county, the representation or concealment was made with the intention to induce the corporation to sell the original residence and purchase the replacement residence, and the individual justifiably relied on the representation or concealment. The mere failure to enforce the law, without more, did not estop the government from subsequently enforcing it.


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