Slow-to-Sell Ranch Owners Could Get Tax Bonanza

The public reluctance by the owners of Taylor Ranch to sell 465 acres for a new California State University campus may eventually help them obtain a tax bonanza of more than $2 million, a survey of legal experts revealed this week.

Virtually assured of the tax windfall, owners of the ranch broke a yearlong silence this week, disclosing that they are actively negotiating the sale of their land while fighting to retain some oil-drilling rights.

Prompted by Cal State’s clear determination to use eminent domain powers to seize the ranch for a campus site, a lawyer representing the Taylor Ranch owners said they are now trying to work out “the best deal possible” with the state.

“It’s no longer a question of whether we are willing to sell,” said Santa Barbara attorney James Hurley, representing Taylor Ranch heiress Cynthia Wood and other family members. “The state has made it clear they plan to take the property. In that case, you then try to negotiate or make the best deal you can for the rest of the ranch.”

Primary Concerns

In negotiations with the state, Hurley said, the primary concerns will be in securing oil-drilling rights on the land, adequate water supplies for the rest of the ranch, a satisfactory price and environmental safeguards involving the proximity of oil-drilling operations.

Despite the tax advantages of having opposed a project headed for condemnation, Hurley said the potential tax benefits were never a consideration in opposing the campus site.

“Absolutely not,” Hurley said. “Our opposition from the start has been made primarily because of environmental concerns.”

While Hurley denied that a tax break was one of the motives for opposing the Cal State campus site, several leading California lawyers told The Times that one benefit of the opposition will be a considerable windfall for Taylor Ranch’s owners.

When a state agency moves to acquire private property for public use, they pointed out, the owners must resist the initial purchase offer to qualify for tax breaks.

Beverly Hills attorney Bruce I. Hochman, one of the leading tax lawyers on the West Coast, said that if the owners of Taylor Ranch had immediately accepted a state offer to purchase their land, they would have lost a chance for lucrative state and federal tax deferments.

Hochman said that if the state pays $7 million for the land, the sum earmarked for the purchase of the hillside parcel, the owners would have two years to reinvest tax-free profits in similar property and would never have to pay capital gains taxes on the profits if they did not resell the new holdings during their lifetime.

Tax Savings

The savings in state and federal capital gains taxes would be $2 million at that $7-million purchase price if the land had originally cost $1 million, Hochman said. Assuming that the initial land costs were significantly less, he said, the savings would be even greater.

The legal insights into the high-stakes tax maneuvers that accompany almost all major state land acquisitions followed a week of major new developments in Cal State’s continuing quest to acquire the Taylor Ranch site:

* After a unanimous vote by the Ventura City Council rezoning the hillside parcel for institutional use and encouraging Cal State to proceed with the project, the university took the first step toward seizing the land by obtaining authorization of the California Public Works Board for eminent domain proceedings.

* At the same time, state officials disclosed that constructive negotiations are in progress that could eliminate the need for eminent domain proceedings and produce a settlement in the next few months. Hurley’s confirmation followed.

* As Cal State moved closer to acquiring the ranch site, environmental forces opposed to converting the parcel into a bustling state university site filed a lawsuit seeking to block the purchase, pending revisions in an environmental impact report approved by the state last month.

Months of Speculation

The latest flurry of activity and the outside legal assessments of the economics involved in eminent domain cases came after months of speculation over why the ranch’s owners apparently were determined to resist potential legal action that almost always results in a successful state seizure.

The Taylor Ranch owners, Wood and her mother and stepfather, Pierre and Ailene Claeyssens, all of Montecito, have been on record as opposing the sale of the ranch since June, 1988, although Ventura officials have said Wood initially had a favorable attitude about selling the property for a university. The family has owned the ranch since the early 1900s.

In explaining the family’s opposition to selling the land, Wood’s attorney, J. Robert Andrews of Santa Barbara, initially cited alleged concerns by Shell Oil Co., which has oil leases on the ranch, that the presence of a campus could disrupt oil production and create potential liability problems. Shell officials, however, denied any opposition to a proposed campus.

Wood’s stepfather, Pierre Claeyssens, cited another possible factor in the family’s opposition in revealing last year that his wife had not known of the plans before her daughter told her of the proposal and was angry that she had been kept in the dark.

No Public Effort

Apart from those explanations, however, Wood and the Claeyssens had made no public effort to clarify their position in the last year until Hurley’s comments this week.

During recent Ventura City Council hearings on the city’s future, several environmental groups cited the family’s opposition to a Cal State campus, but the actual owners of Taylor Ranch did not speak for themselves.

The tax and land acquisition specialists interviewed this week were careful not to speculate about possible motives behind the owners’ public opposition to the sale, but they did say that such opposition is virtually required as a legal posture in other cases to assure landowners the best possible tax advantages.

“You don’t have to fight it all the way to court,” said Los Angeles attorney Hodge Dolle Sr., a specialist in eminent domain proceedings. “But to qualify with the Internal Revenue Service and the State Franchise Board for capital gains deferral, the sale has to have been in lieu of condemnation.

‘Smart Property Owner’

“In this case, there’s obviously a big piece of change involved,” he added. “I would say that’s a smart property owner to oppose the sale.”

Both Dolle and Loyola University Law School Professor Gideon Kanner, a leading expert on eminent domain who publishes a monthly periodical titled Just Compensation, agreed that barring some unforeseen environmental issue there is little chance that the owners of Taylor Ranch could prevail in any court battle against Cal State to block condemnation.

“The taking must be for a public use and a university campus is clearly a public use,” Kanner said. “The bottom line is sure, they can get it. It’s a fairly common argument for the owner to say, ‘Why me? Take somebody else’s land.’ But that doesn’t go over very often. In a case like this, there’s not much to talk about.”

Kanner stressed that he sees nothing conspiratorial in the objections voiced by the owners of Taylor Ranch to selling their land, saying that it is normal for landowners to oppose such acquisition until the time when they realize that it is inevitable.

“You have the Taylor Ranch sitting up there and one day the government comes knocking at the door and says we want your ranch,” Kanner said. “They say no. That’s a perfectly normal response. Then, maybe later, they come to understand that there’s really not much they can do to stop it. Any agreement at this point is in lieu of condemnation, and the owners are entitled to the tax deferments that come with such involuntary sales.”

While state officials stopped short this week of saying that they believe the action of the Public Works Board should satisfy any legal concerns the owners may have about the certainty of receiving full tax breaks at this stage of the acquisition process, they called it proof of the state’s determination to acquire the land.

Still Hoping

“I’d say we continue to be hopeful,” said Jack Smart, Cal State’s vice chancellor for university affairs. “We are in constructive discussions with the owners of the property. Assuming successful negotiations, I hope we can complete discussions by the end of the summer and avoid any further eminent domain proceedings.”

Smart had no comment on the lawsuit filed against the Cal State Board of Trustees in an effort to block further acquisition activities by the state pending submission of a revamped environmental impact report.

That suit, filed by the Environmental Coalition on grounds that the initial environmental impact report is incomplete, charges that Cal State only studied the potential impact of a two-year campus with 2,000 students, although the university could ultimately grow to a four-year school with 12,000 students.

The suit, prepared by attorney Philip A. Seymour of the Environmental Defense Center of Santa Barbara, also charges that state officials did not give critics adequate time to provide input on key environmental issues, including possible damage to archeological sites and possible paleontological deposits in the hillside area.