Today I want to talk about the addition of the city and county documentary transfer tax as a cost in change of control acquisitions of a target company’s equity interest, when the target owns California real property. Before last year it was thought that the ½ percent tax did not apply unless you were purchasing California real estate directly and recording a deed. In M&A deals that meant the tax applied to asset acquisitions but not equity acquisition or to mergers.
In other words, you only paid the tax if you were recording a deed with a California county recorder. Last year the California Supreme Court extended the tax to all change of control M&A deals involving a target owning California real estate. That means that cities and counties can now tax the target owned California real estate in all M&A change of control deals, even when there is no deed to record.
The ½ percent tax is not a big transaction cost. But it may result in some negotiation if the real estate value is large enough.
The California Supreme Court decision is 926 North Ardmore Avenue, LLC v. County of Los Angeles (2017) 3 Cal.5th 319, and can be found at: https://scholar.google.com/scholar_case?case=14405932315555762229&q=926+North+Ardmore+Avenue,+LLC+v.+County+of+Los+Angeles&hl=en&as_sdt=4,104
Comment. Expect California city and counties to expand this tax to all M&A change of control deals involving target owned California real estate.
By John McCauley: By John McCauley: I help people manage their tax risk when buying or selling a business.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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