Court upholds San Francisco’s real estate transfer tax

San Francisco’s tax also applies to the value of liens held on a property, personal property and other assets connected to the real estate holding. In addition, the city defines transactions broadly to include changes in ownership of corporations and other entities that possess the property.

The tax was challenged by the owner of a 17-story office building at 211 Main St., a few blocks from The Embarcadero, and an 11-story office building at 260 Townsend St., south of Market Street. San Francisco levied nearly $12 million in taxes, interest and penalties on the owner, CIM Urban REIT, after a merger in 2014 changed the ownership of CIM’s parent company.

In a ruling Thursday, the First District Court of Appeal rejected the owner’s argument that San Francisco was bound to follow the state’s tax rates. The court said it agreed with Superior Court Judge Ethan Schulman’s conclusion in a 2020 ruling in the case that “a local transfer tax is a municipal affair that does not implicate significant state interests.”

CIM also contended that San Francisco was assessing transfer taxes on properties that had not actually changed ownership. But the court said a 2008 San Francisco ballot measure, Proposition N, approved by more than 68% of the voters, had validly defined a change in corporate ownership of a possessor of real estate as a taxable transaction, even if the title to the building does not change hands.

Sponsors of Prop. N said in ballot arguments that multinational companies were costing San Francisco millions of dollars by using shell companies to hide ownership transfers, Justice Henry Needham said in the 3-0 ruling. He noted that the measure, which also increased transfer tax rates, applied only to property worth more than $5 million.

Prop. N was “intended to avoid evasion of transfer taxes by entities transferring ownership interests in lieu of transferring real property,” Needham said.

Bradley Marsh, a lawyer for CIM, said the company was disappointed by the ruling. It could appeal to the state Supreme Court.

Bob Egelko is a San Francisco Chronicle staff writer. Email: Twitter: @BobEgelko

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