Saturday, September 22, 2007

To Answer that Supplemental Tax Question

New San Francisco TIC owners should be aware of how supplemental tax works. Whenever a property is sold, whether it is 100% of the TIC shares or one partner's percentage, state law allows the City to reassess the property. The City property tax charged to your TIC group is based on this assessment.

The problem is the City Assessor's office is about 2 years behind on re-assessments. Let's consider the scenario described by the woman at last week's Plan C meeeting. Owner A purchases his shares in your building in 2001 for $300,00. In 2006, he sells those shares to a new partner, owner B, for $500,000. One year later Owner B sells those same shares to next new owner C for the same price - $500,000. Because the assessor's office hasn't yet re-assessed the property owner C and all the other building partners who haven't done a thing are going to end up being responsible for paying the Supplemental bill when it arrives, triggered by that first sale from Owner A to Owner B. In theory Owner B is responsible for this charge, but if no one collected it and he or she has moved to Nebraska, good luck.

The Supplemental bill is, in essence, a catch up bill that dates back to when a sale was made and the City reassessment should have taken place. Depending on the degree of reassessment it can be just a few bucks or tens of thousands. Once the bill gets issued, the City wants it paid in full by the date due. They don't care too much about who was zooming who in your building two or three years prior.

One way to avoid this kind of confusion is to have the person who manages the accounts in your TIC do a calculated estimate of the supplemental tax whenever a sale takes place, and make the new buyer put that money in your house account. When the actual bill comes, your group can do a reckoning to make sure the owner has paid the correct amount. The new buyer, and any realtors involved in the transaction, should be notified about this requirement of your TIC before the sale is closed.

Read more about the Supplemental Property Tax on sfgov.


Blogger John said...

thanks for the info. appreciate your report.

10:59 AM  

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