Cim Urban Reit 211 Main St. (SF) LP v. City of San Francisco

• Decision Date: 03 March 2022
• Docket Number: A161244
• Court: California Court of Appeals Court of Appeals
• Parties: CIM URBAN REIT 211 MAIN STREET (SF) LP, et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Respondents

CIM URBAN REIT 211 MAIN STREET (SF) LP, et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Respondents

A161244

California Court of Appeals, First District, Fifth Division

March 3, 2022

CERTIFIED FOR PARTIAL PUBLICATION^[*]

Trial Court: San Francisco County Superior Court No. CGC18569640 Trial Judge: Hon. Ethan P. Schulman.

Counsel: Greenberg Traurig; Bradley Randolph Marsh, Ruben Sislyan, and Colin W. Fraser for Plaintiffs and Appellants.

Howard Jarvis Taxpayers Foundation; Jonathan M. Coupal, Timothy A Bittle, and Laura E. Dougherty as Amicus Curiae on behalf of Plaintiffs and Appellants.

Scott Michael Reiber, Chief Tax Attorney; Dennis J. Herrera, City Attorney; James Moxon Emery and Carole F. Ruwart, Deputy City Attorneys; for Defendants and Respondents.

NEEDHAM, J.

Appellants CIM Urban REIT 211 Main Street (SF) L.P. and CIM Urban REIT Properties II, L.P., paid nearly $12 million in tax penalties, and interest after respondents claimed that a 2014 merger triggered a transfer tax as to their San Francisco properties under San Francisco Business and Tax Regulations Code (SFBTRC), article 12-C, sections 1101 et seq. (Ordinance). Appellants thereafter filed a refund action, which the trial court dismissed after granting respondents' motions for judgment on the pleadings and summary judgment. From that dismissal, this appeal arises.

Appellants contend the court erred because, in appellants' view, the Ordinance conflicts with state law, respondents failed to comply with administrative procedures, and the Ordinance did not apply to the merger.

More specifically, appellants argue (1) the tax imposed under the Ordinance exceeds the authority of respondent City and County of San Francisco (San Francisco) under Revenue and Taxation Code section 11911, because it uses a higher tax rate and an expanded tax base; (2) San Francisco failed to comply with the Ordinance's notice and hearing requirements (SFBTRC 1115, 1115.1); (3) appellants were not liable for transfer tax under SFBTRC 1102, because they did not have any "realty sold" within the meaning of the Ordinance; (4) appellants were not liable for transfer tax under SFBTRC 1108, because they did not experience a partnership termination; and (5) San Francisco assessed the wrong entities.

We will affirm the judgment. In the published portion of our opinion, we conclude (1) San Francisco, as a charter city and a "city and county," is not bound by the limitations set forth in Revenue and Taxation Code section 11911; (2) the purported failure to comply with SFBTRC 1115 and 1115.1 does not entitle appellants to a refund of the tax they paid; and (3) in light of SFBTRC 1114 at the time of the merger, SFBTRC 1102 was triggered as to appellants' real property by the transfer of ownership interests in appellants' parent entity, consistent with Revenue and Taxation Code section 64, subdivision (c)(1); in the unpublished portion of our opinion, we conclude (4) SFBTRC 1108 applied due to the termination of appellants' parent, a partnership; and (5) appellants are not entitled to a refund based on their argument that San Francisco assessed the wrong entities.

I. FACTS AND PROCEDURAL HISTORY

For context, we begin with an overview of the relevant law. We then discuss the Ordinance, the merger, and the litigation in the trial court.

A. Legal Background

As a general rule, a city cannot impose taxes on the transfer of real property. (See Cal. Const., art. XIII A, § 3, subd. (a); art. XIII A, § 4; Govt. Code, § 53725, subd. (a).) There are, however, two means of imposing transfer taxes potentially available to local jurisdictions: (1) a state statute (Rev. & Tax. Code, § 11911) that authorizes any county or "city and county" to impose transfer taxes as set forth in that statute; and (2) a constitutional provision (Cal. Const., art. XI, § 5(a)) that authorizes a "charter city" to enact ordinances governing municipal affairs under the home rule doctrine. We look at both of these laws, since San Francisco is the only "city and county" in California (Trans World Airlines, Inc. v. City & Cty. of S.F. (9th Cir. 1955) 228 F.2d 473, 475; Green v. Superior Court (1889) 78 Cal. 556, 560) and is a charter city as well (San Francisco Fire Fighters v. City and County of San Francisco (1977) 68 Cal.App.3d 896, 898-899).

1. The State Act and Section 11911

In 1967, the California Legislature enacted the Documentary Stamp Tax Act, which was later given its current title of Documentary Transfer Tax Act (State Act). (Stats 1967, ch. 1332.) The impetus for the State Act was to replace the expiring federal documentary stamp tax. (926 North Ardmore Ave., LLC v. County of Los Angeles (2017) 3 Cal.5th 319, 329, 334 (926 N. Ardmore); Thrifty Corp. v. County of Los Angeles (1989) 210 Cal.App.3d 881, 884.) The legislation, identified as "[a]n act to add Part 6.7" of the Revenue and Taxation Code, contains four sections.

Section 1 of the State Act sets forth the provisions codified as "Part 6.7" (Rev. & Tax. Code, § 11901 et seq.), which authorize local jurisdictions to adopt ordinances taxing the transfer of real property. Specifically, Revenue and Taxation Code section 11911 (Section 11911), subdivision (a) provides:

"The board of supervisors of any county or city and county, by an ordinance adopted pursuant to this part, may impose, on each deed, instrument, or writing by which any lands, tenements, or other realty sold within the county shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his or their direction, when the consideration or value of the interest or property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale) exceeds one hundred dollars ($100) a tax at the rate of fifty-five cents ($0.55) for each five hundred dollars ($500) or fractional part thereof." (Italics added.) Subdivision (b) of Section 11911 allows a city within a county that imposed a tax pursuant to subdivision (a) to impose a tax at a lower rate, with the taxpayer receiving a credit against the county tax (§ 11911, subd (c)).

Sections 2, 3 and 4 of the State Act were not codified. As relevant here, Section 2 provides: "No city or county shall directly or indirectly impose a tax on transfers of real property which is not in conformity with this part. As used in this section, 'city' does not include a chartered city and 'county' does not include a city and county." (Italics added.) Based on Section 2, respondents contend charter cities (like San Francisco) and a "city and county" (meaning San Francisco) are not precluded from imposing a transfer tax that does not conform to Section 11911.

2. The Home Rule Doctrine

Article XI, section 5, subdivision (a) of the California Constitution essentially gives charter cities "home rule" power to legislate their own municipal affairs. The constitutional provision reads: "It shall be competent in any city charter to provide that the city governed thereunder may make and enforce all ordinances and regulations in respect to municipal affairs, subject only to restrictions and limitations provided in their several charters and in respect to other matters they shall be subject to general laws. City charters adopted pursuant to this Constitution shall supersede any existing charter, and with respect to municipal affairs shall supersede all laws inconsistent therewith."

Under the home rule doctrine, "[c]harter cities are specifically authorized by our state Constitution to govern themselves, free of state legislative intrusion, as to those matters deemed municipal affairs." (State Building & Construction Trades Council of California v. City of Vista (2012) 54 Cal.4th 547, 555 (City of Vista).) Generally, local tax ordinances are deemed to address municipal affairs. (Ex Parte Braun (1903) 141 Cal. 204, 209 ["That the power of taxation is a power appropriate for a municipality to possess is too obvious to merit discussion."]; California Federal Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1, 13 (CalFed) ["levying taxes to support local expenditures qualifies as a 'municipal affair' within the meaning of the home rule provision of our Constitution"].)

Nonetheless, if a local measure is in actual conflict with a state law, and the subject of the state law is a matter of statewide concern and the state statute is not overbroad, the conflicting local law must cede to the state law. (CalFed, supra, 54 Cal.3d at p. 17.) Transfer taxes have been held to reflect municipal affairs, not subject to state law. (Fielder v. City of Los Angeles (1993) 14 Cal.App.4th 137, 146 [upholding Los Angeles real property transfer tax notwithstanding conflict with Govt. Code, § 53725, subd. (a), because transfer tax was purely local in its effects and thus reflected a municipal affair beyond the reach of legislative enactment]; Fisher v. County of Alameda (1993) 20 Cal.App.4th 120, 130 [upholding Berkeley transfer tax notwithstanding conflict with Govt. Code, § 53725, subd. (a)].)

B. San Francisco's Real Property Transfer Tax Ordinance

San Francisco adopted its Ordinance in December 1967 "pursuant to the authority contained in Part 6.7 (commencing with Section 11901) of Division 2 of the Revenue and Taxation Code of the State of California." (SFBTRC 1108.) Over time, however, San Francisco has amended the Ordinance and purportedly relies on its charter city powers, rather than the State Act, as its authority for its local transfer tax.

Under the version of the Ordinance in effect on March 11, 2014-the date of the merger that generated the disputed tax liability in this case-SFBTRC 1101 and 1102 imposed a tax on...