For more than 30 years, some of the most prestigious California golf clubs have avoided major property tax increases because they were not deemed to have changed hands.
That might have been a mistake, according to Los Angeles County Assessor Rick Auerbach, who has requested guidance from the state Board of Equalization.
A recent article in the Los Angeles Garment & Citizen, a weekly publication serving downtown L.A. and adjacent neighborhoods, pointed out that institutions such as the Los Angeles Country Club, the Bel-Air Country Club and the Brentwood Country Club allow members to buy and sell stakes, so their owners change regularly. When a freelance journalist writing for the paper asked Auerbach why these clubs were not reappraised under Proposition 13, the assessor said: "I didn't have a good answer for him."
On most issues, "we have heard at least the question asked before," said Auerbach, who has worked in the assessor's office for 39 years. "But this was a new one."
Auerbach raised the issue at a meeting of the California Assessors' Assn. in December, but no one could offer advice on how to appraise so-called equity clubs that are effectively owned by their members. The other assessors are trying to determine if they have any such clubs in their counties and what the practice has been, said Alameda County Assessor Ron Thomsen, who heads the association.
The Board of Equalization's legal department is also reviewing the matter, said spokeswoman Anita Gore. She said she could not say how long the review would take.
If the board advises that a membership change amounts to an assessable change in ownership, it could be a boon for cash-strapped local governments. Since voters approved Proposition 13 in 1978, property tax has been capped at 1% of assessed value, and assessment increases have been limited to 2% a year. Properties are usually reappraised at market value only when they change hands.
The policy has produced wide discrepancies in how properties are taxed. At least two homeowners within a half mile of the Brentwood Country Club, for example, pay more property tax than the 128-acre club, according to records from the Los Angeles County assessor’s office.
A six-bedroom house in the 12000 block of Marlboro Street had an assessed value last year of $14.35 million, or $737.79 a square foot of house and land. Another six-bedroom house in the 12000 block of Hanover Street was assessed at nearly $11.1 million, or $565.92 a square foot. But the country club, with its 18-hole golf course, tennis courts and pool, was valued at $9,526,453 -- $1.71 per square foot of land and facilities.
Brentwood club officials declined to comment on the Board of Equalization's review. But even if the club were to be reassessed, it would not be at the same rate as other developments in the area.
The California Constitution was amended in 1960 to include a provision that land used exclusively for a nonprofit golf course of 10 acres or more can be assessed only for that purpose and not for what assessors call the "highest and best" possible use of the land.
When Marukin Corp. sold the Riviera Country Club in Pacific Palisades to Riviera Golf & Tennic Inc. in 2002, it was appraised at $83.8 million, or $11.45 per square foot. Members of that club did not hold equity in the facility.
Bob Bouchier, a director of the , said equity clubs are typically set up as nonprofit, mutual-benefit corporations. Under state law, corporations are generally not subject to reassessment unless a single owner acquires a more than 50% stake, taking control of the entity and its property. That would not happen in these clubs, Bouchier said, because each member gets only one vote.
"Without looking at any arguments which may or may not be made . . . I have a hard time understanding why our corporations should be treated differently from other corporations," said Bouchier, whose group represents more than 100 private nonprofit clubs.
Proposition 13 critics contend that the ability of some golf clubs to avoid reassessment is an example of the law's failure to address complicated forms of ownership in business and commercial real estate.
"Proposition 13 is almost more loophole than tax," said Lenny Goldberg, executive director of the California Tax Reform Assn. "Tens of thousands of properties have changed hands and not been reassessed because you have to take more than 50% to be reappraised. . . . It's totally legal, it just completely ignores reality."
One exception is housing cooperatives, in which the residents become shareholders in the corporation or other entity that owns the property. In this case, even minority shareholders acquire the right to use and sell a portion of the real estate, said Gore, of the Board of Equalization. When residents sell their interest, the portion that changes hands is reassessed and the new value applied to the new owner.
In 2002, the Shasta County assessor asked the Board of Equalization whether membership changes at a nonprofit fishing club should also give rise to a reappraisal of the interests that had changed hands. The board's legal staff advised that it should.
In a letter dated April 3, 2002, the legal staff said that unlike corporate stockholders, club members were given the right to "occupy, use and enjoy the club's real property and to transfer those rights." Thus membership transfers "constituted transfers of real property interests."
Whether the same holds true for golf clubs will depend in part on the kind of stake that members have in a club's facilities and land, Auerbach said. As each club has its own bylaws, the answer could be different for different clubs.
Under the law, any errors on the property assessment role would have to be corrected going back at least four years, Auerbach said. If clubs disagree that a reassessment is warranted, they can challenge it before the Assessment Appeals Board and the California Superior Court.