Thrifty Corp. v. County of Los Angeles, B033602

Decision Date19 May 1989
Docket NumberNo. B033602,B033602
Citation210 Cal.App.3d 881,258 Cal.Rptr. 585
PartiesTHRIFTY CORPORATION, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES, et al., Defendants and Appellants.
CourtCalifornia Court of Appeals Court of Appeals

De Witt W. Clinton, County Counsel, Philip H. Hickok, Principal Deputy County Counsel, Los Angeles, for defendants and appellants.

Sheppard, Mullin, Richter & Hampton, Robert Joe Hull and James J. Carroll II, Los Angeles, for plaintiff and respondent.

McCLOSKY, Associate Justice.

Defendants County of Los Angeles (County) and City of Torrance (City) appeal from the summary judgment entered against them and in favor of plaintiff Thrifty Corporation.

Thrifty filed this action for refund of documentary transfer tax and for declaratory relief due to defendants' insistence that it pay $2,621.85 as a documentary transfer tax growing out of Thrifty having leased a parcel of real property for 20 years with an option to renew for an additional 10 years. In granting Thrifty's motion for summary judgment, the trial court ruled that "a documentary transfer tax under Section 11911 of the California Revenue and Taxation Code may not validly be applied to the recordation of leases or leasehold interests." This appeal follows.

The sole issue presented by this appeal is when, if ever, can a leasehold interest in real property constitute "realty sold" for purposes of triggering taxation under Revenue and Taxation Code section 11911 (section 11911). Section 11911 provides in pertinent part:

"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."

In 1984, the County amended its regulations enacted pursuant to section 11911 and began taxing leases. The City of Torrance did likewise.

As we now explain, while leases are generally not taxable under section 11911 a lease which is of sufficient longevity to approximate a transfer in fee does warrant taxation. The conclusion that a lease generally does not constitute "realty sold" as that term is used in section 11911 follows from an examination of the legislative history of that section. An early incarnation of the bill that was eventually enacted as section 11911, expressly made taxable "transfers of lands and other realty...." While this phrase was broad enough to encompass all leaseholds, the bill specifically limited its application to "lease[s] ... under which possession is given to the purchaser ... while title is retained by the vendor as security for payment of the purchase price." Thus, in this early version of the bill, the Legislature expressly dealt with which leases were taxable and which were not.

In the version of the bill that ultimately was enacted as section 11911, however, the Legislature employed the more restrictive phrase "realty sold" rather than "transfers of land" and deleted any express reference to which leases were taxable. We conclude that the Legislature, by enacting this more restrictive terminology intended to generally place leases outside of the scope of section 11911. (See Madrid v. Justice Court (1975) 52 Cal.App.3d 819, 825, 125 Cal.Rptr. 348 [" 'The rejection of the Legislature of a specific provision contained in an act as originally introduced is most persuasive to the conclusion that the act should not be construed to include the omitted provision.' "] quoting Rich v. State Board of Optometry (1965) 235 Cal.App.2d 591, 607, 45 Cal.Rptr. 512.)

This does not mean, however, that no leases are taxable under section 11911. Section 11911 was enacted effective January 1, 1968, to replace and was patterned after the Federal Stamp Act on conveyances which expired on that same date. (Former 26 U.S.C. §§ 4361, 4363; see Taxes Replace Taxes (1968) 43 L.A. Bar Bull. 121.) Because section 11911 was patterned after the former federal act and employs virtually identical language as that act, we must infer that the Legislature intended to perpetuate the federal administrative interpretations of that federal act. (See Estate of Morse (1970) 9 Cal.App.3d 411, 415, 88 Cal.Rptr. 52; 51 Ops.Cal.Atty.Gen. 50, 57 (1968) ["it is reasonable to assume that the Legislature intended that the established federal construction of the language used [in the federal stamp act] be continued."]; 62 Ops.Cal.Atty.Gen. 87, 90 [by reference to former federal regulations the Attorney General by written opinion concluded that the transfer of an easement is taxable under section 11911].)

Pursuant to the regulations interpreting the former federal act "[o]rdinary leases of real property for a definite term of years" were generally not subject to a transfer tax. (Former 26 C.F.R. § 43.4361-2(b)(8).) Excepted from this general rule, however, were leases "enduring for a fixed period of years but which, either by reason of the length of the term or the grant of a right to extend the term by renewal or otherwise, consist of a bundle of rights approximating" ["interests in real property which endure for a period of time, the termination of which is not fixed or ascertained by a specific number of years, ... [Former § 43.4361-1(a)(4)(i)(a).].]" ( § 43.4361-1(a)(4)(i)(b).) Accordingly, under former federal law a lease was subject to a transfer tax when it was of sufficient duration to approximate an interest such as an estate in fee simple or a life estate. As explained in a former treasury regulation " 'for example, a lease of real estate for 999 years, or a lease for 99 years renewable forever or for several succeeding terms is taxable. On the other hand, a lease for five years is not taxable even if the right is granted to renew it for several successive terms.' " (Chevron Oil Company v. United States (1973) 471 F.2d 1373, 1379, 200 Ct.Cl. 449; accord 62 Ops.Cal.Atty.Gen. 87, 90 [Under the former federal act "interests for a term of years [was classified] as 'realty' when such interests...

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