Do I Have to Pay Possessory Interest Tax on a Slip I No Longer Occupy?
I have a question about the assessment of “possessory interest” taxes on my marina slip. I keep my boat in a city-owned marina that is in the early stages of a renovation project. I was instructed by the marina to move my boat to another slip in March of this year, and several months later they started the demolition of the marina. In the middle of this renovation project, I was shocked to receive a tax bill from the county for my old slip. The bill indicated that it was for the period from July 1 of this year through June 30 next year. When I contacted the assessor’s office to question this, they advised that they are unable to pro-rate or refund taxes when a tenant leaves a slip in the middle of the year. This seems ridiculous in light of the fact that I left before July 1, and in light of the fact that the slip no longer exists. This is important to me because my temporary new slip is in a less-desirable location, and as such I assume the taxes will be lower. Regardless of the amount of the assessment on the new slip, I am concerned that I will end up being taxed on both slips. Do I have any recourse at all with all of this?
Our reader is referring to the annual Possessory Interest Tax paid by marina tenants to the county in which a publicly owned marina is located. When a person or entity leases, rents or uses real estate owned by a government agency, that person or entity has a taxable possessory interest in the property. In this case, “real estate” includes tidelands adjacent to government-owned property, which in turn includes city-owned marinas.
The Possessory Interest Tax that is paid by marina tenants is actually a part of the property tax system. Ordinarily, the owner of the marina would be responsible for paying property tax on the assessed value of the entire marina. However, in the case of a municipal marina, the property owner is a tax-exempt government entity, and under California law the obligation to pay property tax is passed on to the individual tenants of the marina in the form of the Possessory Interest Tax.
The justification for this treatment is that a commercial marina would pass its property tax burden on to its tenants in the form of higher rents, and that the rent in a municipal marina, is therefore, artificially low. Well, that’s the theory anyway.
In any case, regardless of the name of the tax or the justification for the tax, it is part of the property tax system. This is important because property tax is not rent. It is not assessed on a monthly basis or for any particular period of time. Instead, the owner of the property (or in this case the possessor of the property) on Jan. 1 of each year is liable for the tax each year.
Property tax should not be viewed as a tax for a particular time period (such as a year). Instead, it is a tax assessed on the person who owned or had possession of the property on Jan. 1 each year. The other 364 days each year are essentially tax-free. It makes no difference if you sell or move away on Jan. 2. You still owe the entire amount of the tax. Likewise, if you move into a slip on Feb. 1 and move out on Dec. 1, you owe no tax for the year because you were not a tenant on Jan. 1.
In our reader’s case, he was the possessor of record on Jan. 1, so he owes tax for this year. Period. The fact that the slip no longer exists is totally irrelevant, because he is only being taxed for his possession of the slip on Jan. 1. And, he won’t receive a tax bill this year for his temporary new slip because he was not the possessor of that slip on Jan. 1.
The most confusing aspect of the property tax system is probably the reference on the tax bill to the July 1 to June 30 time period. This reference is actually to the fiscal year during which the county will be spending the tax money. It has nothing to do with the taxpayer’s obligation to pay the tax, and as such it really does add a lot of confusion to the process. In my opinion, that reference should be removed from the tax bill. The only date that matters to a boat owner is Jan. 1.
We should also point out that the fact that one slip has a more desirable location or is otherwise perceived to have a higher value has no bearing on the assessed value of the slip — and, as such, it has no bearing on the amount of the tax unless the marina charges a different rate for the more desirable slip. The assessed value of a possessory interest in commercial property is based upon the estimated net income generated by the property for the year, rather than the estimated market value of the real estate.
In our reader’s case, since the rent at his temporary new slip is the same as the rent at his old slip, the estimated net income to the marina for the slip will be the same, and his tax bill will, therefore, be the same
David Weil is licensed to practice law in the state of California and, as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.