Top State Court Upholds Tax Boost on Firms : Involves Companies Acquired in Mergers

Times Staff Writer

The state Supreme Court, upholding tens of millions of dollars in corporate property taxation, ruled Monday that property held by the subsidiary of a company acquired in a merger is subject to higher taxes under Proposition 13.

The justices found unanimously that in such circumstances, the subsidiary’s property has undergone a “change in ownership” and thus may be reappraised--just as would residential property that changes hands.

The ruling resolved a major legal question remaining under the 1978 property tax-reduction initiative.

Among other things, the measure tied property values to 1975-76 levels but allowed for reappraisal at market value following a change of ownership. But lower courts had been divided over whether that provision applied to property owned by a business whose parent merges with another company.


In Monday’s ruling, the high court said a 1979 statute implementing the initiative was meant to equalize the burden between individual and corporate purchasers of real property by providing for reappraisal when control changes over a subsidiary’s property.

Properties Reassessed

The Legislature recognized that it would be “patently unfair” to require ordinary homeowners to bear the burden that would result if corporations could avoid higher taxes by placing the property they acquire in the name of a corporate subsidiary, the court said in an opinion by Justice Stanley Mosk.

The justices upheld an interpretation of the law adopted by the state Board of Equalization, which in 1979 advised county assessors to reassess at market value any property held by a subsidiary in a newly merged corporation.


In the wave of corporate mergers in recent years, large amounts of property held by subsidiaries have changed hands and been reassessed by counties. Attorneys in the case said that, had the court struck down such reappraisals, tens of millions of dollars or more in taxes paid on the holdings might have been subject to refund.

“This case was extremely important from a fiscal point of view,” said state Deputy Atty. Gen. Timothy G. Laddish, who represented the Board of Equalization before the court. “Had it gone the other way, the counties would have had to pay a considerable amount in refunds.”

Ruling Backed Firm

An attorney for the Institute of Property Taxation, a taxpayer group that supported the company challenging the reassessment at issue in the case, said it was unlikely Monday’s ruling would significantly deter corporate mergers in the state.

“My sense is that property taxes usually are not the primary concern of big corporate mergers,” said Charles J. Moll, a San Francisco lawyer. “When they’re deciding whether to merge or not, property taxes are usually far down the list of considerations.”

The case arose after Southern Pacific Co. merged in 1979 with Ticor, another corporation that held a wholly owned subsidiary, Title Insurance & Trust Co. Tax assessors in Riverside and Merced counties sought to reappraise property held there by Title Insurance, but the company challenged the action, saying the merger had not resulted in a change in ownership of its property.