ADEN v. LYNCH (1990)

Defendants John J. Lynch, Los Angeles County Assessor (Assessor), Richard B. Dixon, Los Angeles County Treasurer (Treasurer), County of Los Angeles (County), and City of Los Angeles (City) appeal from the judgment entered against them in this action for refund of property taxes, declaratory relief, and money had and received.¹  We conclude the trial court properly determined the step transaction doctrine does not apply to the property transfers in the present case, and we affirm.

FACTS

From May 11, 1967, to March 14, 1985, plaintiff, Marian C. Aden, owned 50 percent of all issued and outstanding shares of Matador Apts., Inc., and Winfield MacDonald owned the remaining shares.   The corporation's sole asset was an apartment building in Northridge.

On March 14, 1985, pursuant to a voluntary plan of dissolution, the corporation conveyed an undivided one-half interest in the building to plaintiff and conveyed the other undivided one-half interest to Mr. MacDonald.   Later that day Mr. MacDonald conveyed his interest in the property to plaintiff for approximately $900,000.

On March 15, 1985, a certificate of dissolution of Matador Apts., Inc., was filed with the Secretary of State.

After plaintiff acquired Mr. MacDonald's interest, County reassessed 100 percent of the property.   In May 1987 plaintiff learned of the reassessment when she received a supplemental tax bill for the 1985–1986 fiscal year.   She paid the taxes and applied for a reduction based on reassessment of 50 percent of the property.

The Los Angeles County Assessment Appeals Board (Board) stated that plaintiff testified the sale of Mr. MacDonald's interest in the property and the dissolution of the corporation were previously planned and each had independent economic significance.   The record does not disclose plaintiff's explanation for this statement, the Board did not describe any evidence to the contrary, and the Board made no factual finding as to why the property was first conveyed to plaintiff and Mr. MacDonald and Mr. MacDonald later conveyed his interest in the property to plaintiff.²

The Board concluded County correctly determined 100 percent of the property should be reassessed under the step transaction doctrine because the transfer from the corporation to plaintiff and Mr. MacDonald and the subsequent transfer from Mr. MacDonald to plaintiff were previously planned and occurred on the same day.   The Board opined it was intended from the outset that title be transferred to plaintiff only.

Following the Board's denial of her application for reduction of taxes, plaintiff filed this action.   In her declaratory relief cause of action, plaintiff alleged Assessor inequitably applied Revenue and Taxation Code section 61, subdivision (i).

At trial none of the parties introduced the transcript of the hearing before the Board, and thus that transcript is not part of the record on this appeal.   County objected to introduction of any testimony that would contravene the Board's factual findings.   The parties stipulated to the facts described above.

Plaintiff testified she purchased Mr. MacDonald's interest in the real property rather than his interest in the corporation because she did not want to assume full liability for the corporation, the shares were “not that valuable,” and “it would be practical to set a new [basis] for the building.”

Stewart Bavnick, an ownership analyst employed by Assessor, opined that the conveyance of the apartment building to plaintiff and Mr. MacDonald was not a taxable transaction, but Mr. MacDonald's transfer of the property to plaintiff required a 100 percent reassessment under the step transaction doctrine.   Mr. Bavnick stated Assessor's office had an unwritten policy that, if in a similar situation the second transfer occurred about six months after the first, only 50 percent of the property would be reassessed.   Mr. Bavnick was unaware of any directives from the State Board of Equalization requiring Assessor to apply the step transaction doctrine in a situation similar to the present case.

In its statement of decision, the trial court relied on Revenue and Taxation Code sections 65.1 and 62, subdivision (a)(2) and determined there was a change of ownership as to only 50 percent of the real property and thus only 50 percent should have been reassessed.   The court found there was an independent economic or business purpose for plaintiff to acquire Mr. MacDonald's interest in the real property rather than acquiring his stock and concluded the step transaction doctrine does not apply.   The court noted the purchase price was paid to Mr. MacDonald, not to the corporation, and determined that conveyance of the real property to plaintiff and Mr. MacDonald and plaintiff's subsequent acquisition of Mr. MacDonald's interest in the property were necessary and independently significant transactions.   The court noted Assessor had not published any opinions, guidelines, or directives or otherwise notified taxpayers when and how he would apply the step transaction doctrine to transfers of real property.³

The court stated that, absent notification to the contrary, a taxpayer has the right to rely on the wording of applicable statutes;  a taxpayer is not required to take the most expensive route to an intended result;  and a taxpayer's intent to minimize taxes does not itself invalidate a transaction for tax purposes.

The court found Assessor's interpretation of California Constitution, article XIII A and Revenue and Taxation Code sections 60 through 69 has or will result in denial of an exemption, in whole or in part, to five or more assessees in Los Angeles County and Assessor knew or reasonably should have known of this effect.   The court determined plaintiff should be awarded attorney fees pursuant to Revenue and Taxation Code section 5152 because the reassessment of 100 percent of the property was in error and Assessor's office should have brought an action for declaratory relief pursuant to Revenue and Taxation Code section 538.

In the judgment the court ordered that plaintiff recover all taxes erroneously paid as a result of the reassessment and that Assessor recalculate property taxes based on a reassessment of only 50 percent of the real property.   The trial court also awarded attorney fees to plaintiff.   This appeal ensued.

We have granted motions for consideration of the following additional evidence.   In a December 27, 1988, letter to the Office of Los Angeles County Counsel, Mr. J. Kenneth McManigal, Jr., of the State Board of Equalization opined that in an October 29, 1979, report regarding legislation implementing California Constitution, article XIII A, the Assembly Revenue and Taxation Committee recognized an intent to include step transactions as changes in ownership, stating:  “ ‘To tax transactions among entities and individuals was considered to be quite important in order to head off two-step transactions of property from one person to another via a corporation, (i.e., A incorporates his home or business, then sells 100% of stock in corporation to B, who may then dissolve the corporation and own the home or business), which would otherwise escape reappraisal.’ ”  (Internal quotation from 1 Assem.Rev. & Tax Com.Rep. on Implementation of Prop. 13, Property Tax Assessment (Oct. 29, 1979) p. 27.)   Mr. McManigal stated that the State Board of Equalization has applied the step transaction doctrine in situations similar to the present case.

In a letter dated February 27, 1989, from the State Board of Equalization to the Los Angeles County Counsel's office, Mr. McManigal noted the State Board of Equalization routinely receives inquiries regarding the possible property tax consequences of proposed transactions.   He requested the county counsel's office to comment on the following language as a proposed response to inquiries about the step transaction doctrine:  “As to application of the step transaction doctrine, where a taxpayer utilizes a series of transfers or steps to effect a transfer which might otherwise have been accomplished by fewer transfers or steps, we recommend that any steps in the transaction be disregarded if the assessor concludes that they are not supported by an independent business purpose and were entered into solely for the purpose of avoiding higher property taxes.”

In a memorandum dated April 21, 1989, the State Board of Equalization instructed its property tax attorneys to include similar language in responding to a request for a change in ownership opinion in a situation involving a series of transfers of real property and the possible application of the step transaction doctrine.   The attorneys were also instructed to include a caveat that “whether the doctrine applies in a given situation is a question of fact to be determined by the county assessor.”

In a letter dated May 19, 1989, the county counsel's office recommended the State Board of Equalization change the language “not supported by an independent business purpose and were entered into solely for the purpose of avoiding higher property taxes” to “not supported by a business purpose other than avoiding higher property taxes.”

In a memorandum dated May 30, 1989, the State Board of Equalization informed its property tax attorneys of the county counsel's recommendation.⁴

ISSUES

Appellants contend:  (I) the court erred in conducting a trial de novo;  (II) the trial court should have applied the step transaction doctrine and determined the 100 percent reassessment was proper;  and (III) the trial court erred in awarding attorney fees to plaintiff.⁵

DISCUSSION

I

Under article XIII A, section 1 of the California Constitution, the maximum amount of any ad valorem tax on real property is one percent of the property's full cash value.  Article XIII A, section 2, subdivision (a) provides that the term “full cash value” includes “the appraised value of real property when ․ a change in ownership has occurred after the 1975 assessment.” ⁶

Revenue and Taxation Code section 1605.5 provides in pertinent part:  “The county board shall hear applications for a reduction in an assessment in cases in which the issue is whether or not property has been subject to a change in ownership, as defined in Chapter 2 (commencing with Section 60) of Part 0.5․  [¶] In any county which has established an assessment appeals board, the board of supervisors may, by ordinance, provide that it shall act as the county board of equalization for the purpose of hearing applications pursuant to this section.  [¶] This section shall not be construed to alter, modify, or eliminate the right of an applicant under existing law to have a trial de novo in superior court with regard to the legal issue of whether or not that property has undergone a change in ownership ․ so as to require reassessment.”  (Emphasis added.)

 If the taxpayer claims only that the board erroneously applied a valid method of determining full cash value, the trial court is limited to a determination whether substantial evidence supports the board's decision.   (Bret Harte Inn, Inc. v. City and County of San Francisco (1976) 16 Cal.3d 14, 23, 127 Cal.Rptr. 154, 544 P.2d 1354;  County of Los Angeles v. McDonnell Douglas Corp. (1990) 219 Cal.App.3d 715, 721–722, 268 Cal.Rptr. 294 (S015254, petn. for review filed Apr. 25, 1990);  Norby Lumber Co. v. County of Madera (1988) 202 Cal.App.3d 1352, 1362, 249 Cal.Rptr. 646;  May Department Stores Co. v. County of Los Angeles (1987) 196 Cal.App.3d 755, 761–762, 242 Cal.Rptr. 162.)

 However, if the taxpayer challenges the validity of the method used to determine full cash value, the court may conduct a trial de novo to determine whether the challenged method of valuation is arbitrary, in excess of discretion, or in violation of standards prescribed by law.  (Norby Lumber Co. v. County of Madera, supra, 202 Cal.App.3d at pp. 1362–1363, 249 Cal.Rptr. 646;  May Department Stores Co. v. County of Los Angeles, supra, 196 Cal.App.3d at pp. 762, 772, 242 Cal.Rptr. 162;  see Bret Harte Inn, Inc. v. City and County of San Francisco, supra, 16 Cal.3d at pp. 18–19, 23, 127 Cal.Rptr. 154, 544 P.2d 1354.)   Division Three of this court has held that if the trial court resolves a mixed question of law and fact as a question of fact, the trial court must give the same deference to the board's finding that a Court of Appeal gives to factual determinations of the trial court.  (May Department Stores Co. v. County of Los Angeles, supra, 196 Cal.App.3d at p. 772, 242 Cal.Rptr. 162.)   Division Three has recently stated:  “Issues relating to the propriety of the valuation method ‘are reviewable for “arbitrariness, abuse of discretion, or failure to follow the standards prescribed by the Legislature” [citations].’  [Citation.]”  (County of Los Angeles v. McDonnell Douglas Corp., supra, 219 Cal.App.3d at p. 722, 268 Cal.Rptr. 294.)

In the present case, the parties stipulated to most of the pertinent facts, and the trial court's determinations did not conflict with the Board's factual findings.   Since plaintiff challenged the method of valuation used, the court properly conducted a trial de novo.  (See Rev. & Tax.Code, § 1605.5;  Bret Harte Inn, Inc. v. City and County of San Francisco, supra, 16 Cal.3d at pp. 18–19, 23, 127 Cal.Rptr. 154, 544 P.2d 1354;  Norby Lumber Co. v. County of Madera, supra, 202 Cal.App.3d at pp. 1362–1363, 249 Cal.Rptr. 646;  May Department Stores Co. v. County of Los Angeles, supra, 196 Cal.App.3d at pp. 762, 772, 242 Cal.Rptr. 162.)

II

The pertinent statutory provisions implementing the “change in ownership” language of Proposition 13 are Revenue and Taxation Code sections 60, 61, 62, and 65.1.

Revenue and Taxation Code section 60 defines change in ownership as follows:  “A ‘change in ownership’ means a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest.”

Revenue and Taxation Code section 61 provides in pertinent part:  “Except as otherwise provided in Section 62, change in ownership, as defined in Section 60, includes, but is not limited to:  ․ [¶] (i) The transfer of any interest in real property between a corporation, partnership, or other legal entity and a shareholder, partner, or any other person.”  (Emphasis added.)

Revenue and Taxation Code section 62 provides in pertinent part:  “Change in ownership shall not include:  [¶] (a)․  [¶] (2) Any transfer between an individual or individuals and a legal entity ․ which results solely in a change in the method of holding title to the real property and in which proportional ownership interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, in each and every piece of real property transferred, remain the same after the transfer․”  (Emphasis added.)

Revenue and Taxation Code section 65.1, subdivision (a) provides in pertinent part:  “[W]hen an interest in a portion of real property is purchased or changes ownership, only the interest or portion transferred shall be reappraised․”  (Emphasis added.)

Pursuant to Government Code section 15606,⁷ the State Board of Equalization adopted California Code of Regulations, title 18, section 462 (hereafter section 462) to clarify the term “change in ownership.”   Section 462, subdivision (j)(1) provides:  “Transfers of property to and by legal entities.   Except as is otherwise provided in subdivision [ (j) ](2), the transfer of any interest in real property to a corporation, partnership, or other legal entity is a change in ownership of such real property transferred.”  (Emphasis added.)  Section 462, subdivision (j)(2)(B) provides in pertinent part:  “(2) Exclusions:  ․ [¶] (B) Transfers of real property ․ by an individual(s) to a legal entity (or vice versa), which result solely in a change in the method of holding title and in which the proportional ownership interests in the property remain the same after the transfer․”  The State Board of Equalization lists the following examples to explain section 462, subdivision (j)(2)(B):  “(i) A transfer of real property from A and B, as equal co-tenants, to Corporation X where A and B each take back 50 percent of the stock.   No change in ownership.  [¶] (ii) Same as (i) above, except A and B take back 49 percent of the stock and C receives 2 percent of the stock.   Change in ownership of the entire property.  [¶] (iii) A transfers Whiteacre to [Corporation] X and B transfers Blackacre (equal in value to Whiteacre) to Corporation X.   A and B each take back 50 percent of the stock.   Change in ownership of 100 percent of both Whiteacre and Blackacre.  [¶] (iv) Corporation X owns Blackacre and Whiteacre (both are of equal value).   A & B each own 50% of Corporation X's shares.   X transfers Whiteacre to A and Blackacre to B.   Change in ownership of 100% of both Blackacre and Whiteacre.  [¶] (v) A transfer of real property from Corporation X to its sole shareholder A.   No change in ownership.”  (Emphasis added.)   Examples (i) and (v) are indistinguishable from the transfer of the real property by the corporation to plaintiff and Mr. MacDonald and thus indicate that transfer did not involve a change in ownership.

Section 462, subdivision (m)(5) provides in pertinent part:  “(m) The following transfers do not constitute a change of ownership:  ․ [¶] (5) Any transfer of title between an individual and a legal entity or between legal entities, such as from a cotenancy to a partnership, a partnership to a corporation, a trust to a cotenancy, or an individual to a legal entity, which results solely in a change in the method of holding title and in which the proportional interests of the transferors and transferees, whether represented by stock, partnership interest, or otherwise, remain the same after the transfer․”

 Under Revenue and Taxation Code section 62, subdivision (a)(2) and California Code of Regulations, title 18, section 462, the conveyance of the real property from the corporation to plaintiff and Mr. MacDonald was not a change in ownership since there was solely a change in the method of holding title and, as in examples (i) and (v) to section 462, subdivision (j)(2)(B), proportional ownership interests remained the same.   Under Revenue and Taxation Code section 65.1, the conveyance of Mr. MacDonald's interest in the real property to plaintiff was a change in ownership of only the portion transferred by Mr. MacDonald.

 Appellants contend that the step transaction doctrine should apply because the transfer of the real property from the corporation to plaintiff and Mr. MacDonald and the subsequent transfer of Mr. MacDonald's interest in the property to plaintiff were in essence a single transaction between the corporation and plaintiff.   The step transaction doctrine was developed in federal income tax law to prevent sham transactions from precluding taxation that would otherwise occur.  (See Gregory v. Helvering (1935) 293 U.S. 465, 469–470, 55 S.Ct. 266, 267–68, 79 L.Ed. 596.)   The doctrine has also been recognized as having potential application to ad valorem taxation under Proposition 13.  (Stats.1987, ch. 48, § 2, No. 2 Deering's Adv.Legis.Service, pp. 153–154;  Title Ins. & Trust Co. v. County of Riverside (1989) 48 Cal.3d 84, 96, 255 Cal.Rptr. 670, 767 P.2d 1148;  Pueblos Del Rio South v. City of San Diego (1989) 209 Cal.App.3d 893, 900, 903, 905, 257 Cal.Rptr. 578;  Sav-on Drugs, Inc. v. County of Orange (1987) 190 Cal.App.3d 1611, 1622, 236 Cal.Rptr. 100.) ⁸  For the step transaction doctrine to apply, however, there must be no valid economic or business purpose for the step sought to be disregarded.  (See U.S. v. Cumberland Pub. Serv. Co. (1950) 338 U.S. 451, 454–456, 70 S.Ct. 280, 281–282, 94 L.Ed. 251.)   As long as there is a valid economic or business purpose, it is unimportant that one motive is the reduction of tax liability.  (See ibid. [distribution of corporate assets to shareholders rather than to third party purchaser had valid business purpose despite intent to avoid taxation, since distribution was part of genuine liquidation and dissolution of corporation].)

In view of the stipulation that the real property was transferred to plaintiff and Mr. MacDonald as part of a plan to dissolve the corporation and in view of plaintiff's testimony that she purchased Mr. MacDonald's interest in the real property rather than purchasing his shares in the corporation because the shares were less valuable than a one-half interest in the real property, the trial court reasonably determined there were independent economic reasons for both transfers and the step transaction doctrine should not apply.  (See U.S. v. Cumberland Pub. Serv. Co., supra, 338 U.S. at pp. 454–456, 70 S.Ct. at pp. 281–283.)

 The trial court properly concluded the Board's unwritten guideline that the step transaction doctrine should apply to transfers similar to those in the present case if both conveyances occurred less than six months apart was arbitrary and was unfairly used in the present case since the guideline has not been published by the State Board of Equalization.  (See Gov.Code, § 11347.5 [state agency may not issue, use, enforce, or attempt to enforce a rule or guideline that is a regulation as defined by Gov.Code, § 11342, subd. (b) and has not been adopted as a regulation under procedures outlined in Gov.Code, § 11340 et seq.];  Industrial Indemnity Co. v. City and County of San Francisco (1990) 218 Cal.App.3d 999, 1006, 267 Cal.Rptr. 445 (S015218, petn. for review filed Apr. 23, 1990) [local assessors must follow regulations promulgated by State Board of Equalization interpreting Rev. & Tax.Code, §§ 60–69];  Prudential Ins. Co. v. City and County of San Francisco (1987) 191 Cal.App.3d 1142, 1151–1152, 236 Cal.Rptr. 869 [rules promulgated by State Board of Equalization are mandatory and binding on local assessors and assessment appeals boards].) ⁹

III

 Revenue and Taxation Code section 5152 provides in pertinent part:  “In an action in which the recovery of taxes is allowed by the court, if the court finds that the void assessment or void portion of the assessment was made in violation of a specific provision of the Constitution of the State of California, of this division, or of a rule or regulation of the [State Board of Equalization], and the assessor should have followed the procedures set forth in [Revenue and Taxation Code] Section 538 in lieu of making the assessment, the plaintiff shall be entitled to reasonable attorneys' fees as costs in addition to the other allowable costs․”

Revenue and Taxation Code section 538, subdivision (a) provides in pertinent part:  “If the assessor believes that a specific provision of the Constitution of the State of California, of this division, or of a rule or regulation of the [State Board of Equalization] is unconstitutional or invalid, and as a result thereof concludes that property should be assessed in a manner contrary to such provision, or the assessor proposes to adopt general interpretation of a specific provision of the Constitution of the State of California, or this division, or of a rule or regulation of the [State Board of Equalization], that would result in a denial to five or more assesses in that county of an exemption, in whole or in part, of their property from property taxation, the assessor shall, in lieu of making such an assessment, bring an action for declaratory relief against the [State Board of Equalization] under Section 1060 of the Code of Civil Procedure․”  (Emphasis added.)

Sections 60, 61, 62, and 65.1 are part of the same division of the Revenue and Taxation Code as sections 538 and 5152.

An erroneous portion of an assessment is a “void portion of the assessment” under Revenue and Taxation Code section 5152.  (Prudential Ins. Co. v. City and County of San Francisco, supra, 191 Cal.App.3d at pp. 1157–1158, 236 Cal.Rptr. 869.)

In view of Mr. Bavnick's testimony regarding the six-month guideline used by Assessor's office and in view of the size of Los Angeles County, the trial court reasonably determined Assessor adopted an interpretation of California Constitution, article XIII A and Revenue and Taxation Code sections 60, 61, 62, and 65.1 that has or will result in denial of an exemption from property taxation, in whole or in part, to five or more assessees in Los Angeles County.¹⁰  The court therefore properly concluded Assessor should have brought a declaratory relief action as required by Revenue and Taxation Code section 538 in lieu of making the assessment.   Thus, the court properly awarded attorney fees to plaintiff pursuant to Revenue and Taxation Code section 5152.

DISPOSITION

The judgment is affirmed.

Respondent, Marian C. Aden, shall recover her costs on appeal, including reasonable attorney fees as costs pursuant to Revenue and Taxation Code section 5152.

FOOTNOTES

1.   Pursuant to California Rules of Court, rule 12(a), we have obtained the superior court file in this matter.   We note plaintiff's action was dismissed as to defendant State Board of Equalization and that defendant is thus not a party to this appeal.The notice of appeal states the appeal is by County.   However, in the notice of appeal, the county counsel indicated he is the attorney for “Defendants.”   Although the county counsel indicated in the opening and reply briefs that both briefs were filed on behalf of County, the reply brief was signed on behalf of “Appellants.”   The county counsel filed a request for judicial notice on behalf of “Appellants,” a request for consideration of additional evidence on behalf of “Defendants” and “John J. Lynch,” an opposition on behalf of “Defendants” and “John J. Lynch,” and another opposition on behalf of “Appellants John J. Lynch, Los Angeles County Assessor, et al.”In view of the above, we have determined the appellants are Assessor, Treasurer, County, and City, and the county counsel represents all appellants in this matter.

2.   As noted post, the transcript of the hearing before the Board was not part of the record before the trial court.

3.   At trial, following the presentation of evidence and arguments of counsel, the court stated:  “[T]he court is persuaded that if there is to be any certainty in the law, it should be found in the letter of the law and if there are to be special interpretations of the law placed upon it by governmental agencies who have the duty of enforcing the law then those separate interpretations should be published in some fashion so as to alert the general public.  [¶] For the County Assessor's office to have an internal policy such as has been described by Mr. Bavnick, namely that six months is somehow magic or ․ the closer to the six-month date the transaction takes place, the less likelihood that there will be 100 percent reassessment is to impose upon the public a guessing game which the court feels is unrealistic.   If that information were found somewhere in a [matter] of public record, if it were published by the County Assessor's office as taxation guidelines, if it were available to the general public or distributed to CPA's or other people involved in taxation, ․ and making deals based upon the knowledge of the tax laws, then everybody is on notice in this situation ․ as I understand it, [sections] ‘62(a)(2)’ and 65.1 ․ [permit] a transaction and but for the fact of a six minute as opposed to a six month difference between events two and three in the set of stipulated facts [the corporation's conveyance of the real property to plaintiff and Mr. MacDonald and the subsequent conveyance of Mr. MacDonald's interest in the property to plaintiff], there would not have been a tax assessment.  [¶] The court feels therefore that the tax assessment imposed by the County Assessor's office on 100 percent of the property was erroneous․”

4.   Appellants request that this court take judicial notice of the plaintiff's trial brief and the superior court's December 18, 1989, minute order in Arnold v. County of Los Angeles (Super.Ct.L.A.County, 1989, No. C 712557) and the superior court file in Shuwa v. County of Los Angeles (Super.Ct.L.A.County, No. C 726006).   Appellants' request is denied.

5.   After briefing was completed and the parties were notified this court had scheduled oral argument, County filed a request for dismissal of the portion of its appeal that relates to the reassessment of plaintiff's property, but stated it does not request dismissal of the portion relating to the order awarding attorney fees.   We conclude the issues raised have public significance and resolution of the contention regarding attorney fees requires resolution of County's contention that the reassessment was proper.   County's eleventh hour request for partial dismissal of its appeal is denied.  (See Garfinkle v. Wells Fargo Bank (1982) 135 Cal.App.3d 514, 520–521, fn. 6, 185 Cal.Rptr. 401;  9 Witkin, Cal.Procedure (3d ed. 1985) Appeal, §§ 525–526, pp. 507–513;  9 Witkin, Cal.Procedure (1989 Supp.) pp. 53–55.)

6.   Article XIII A was added to the California Constitution by passage of the initiative measure Proposition 13 in June 1978.

7.   Government Code section 15606 provides in pertinent part:  “The State Board of Equalization shall do all of the following:  ․ [¶] (c) Prescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing, including uniform procedures for the consideration and adoption of written findings of fact by local boards of equalization․  [¶] (e) Prepare and issue instructions to assessors designed to promote uniformity throughout the state and its local taxing jurisdictions in the assessment of property for the purposes of taxation.   It may adapt the instructions to varying local circumstances and to differences in the character and conditions of property subject to taxation as in its judgment is necessary to attain this uniformity.  [¶] (f) Subdivisions (c) ․ and (e) shall include, but are not limited to, rules, regulations, [and] instructions ․ relating to classifications of kinds of property and evaluation procedures․”

8.   In 1987 the Legislature enacted Revenue and Taxation Code section 63.1 to exclude certain property transfers between parents and children from the change in ownership provisions of Proposition 13.   In Statutes 1987, chapter 48, section 2 (No. 2 Deering's Adv.Legis.Service, pp. 153–154), the Legislature explained its intent in enacting section 63.1 and stated:  “Except as provided herein, nothing in this section shall be construed as an expression of intent on the part of the Legislature disapproving in principle the appropriate application of the substance-over-form or step-transaction doctrine.”  (Id. at p. 154.)In Title Ins. & Trust Co. v. County of Riverside, supra, 48 Cal.3d 84, 255 Cal.Rptr. 670, 767 P.2d 1148, the court held the word “control” in Revenue and Taxation Code section 64, subdivision (c) includes indirect control and noted that under a contrary interpretation “a corporation could avoid reassessment ‘by a simple step transaction involving the creation of a wholly owned subsidiary for the purpose of holding title to corporate realty.’ ”  (Title Ins., supra, 48 Cal.3d at p. 96, 255 Cal.Rptr. 670, 767 P.2d 1148, quoting Sav-on Drugs, Inc. v. County of Orange, supra, 190 Cal.App.3d at p. 1622, 236 Cal.Rptr. 100.)  Revenue and Taxation Code section 64, subdivision (c) provides in pertinent part:  “When a corporation ․ obtains control, as defined in Section 25105, in any corporation ․ through the purchase or transfer of corporate stock ․ or ownership interests ․ such purchase or transfer ․ shall be a change of ownership of property owned by the corporation ․ in which the controlling interest is obtained.”

9.   Government Code section 11342, subdivision (b) provides:  “ ‘Regulation’ means every rule, regulation, order, or standard of general application or the amendment, supplement or revision of any such rule, regulation, order or standard adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it, or to govern its procedure, except one which relates only to the internal management of the state agency.  ‘Regulation’ does not mean or include legal rulings of counsel issued by the Franchise Tax Board or State Board of Equalization, or any form prescribed by a state agency or any instructions relating to the use of the form, but this provision is not a limitation upon any requirement that a regulation be adopted pursuant to this part when one is needed to implement the law under which the form is issued.”  (Emphasis added.)   Mr. Bavnick's testimony indicates the Board's six-month unwritten guideline was a standard of general application.

10.   In view of the language “denial ․ of an exemption, in whole or in part ” (emphasis added) in Revenue and Taxation Code section 538, subdivision (a), it is apparent the Legislature did not use the term “exemption” in section 538, subdivision (a) to mean solely an exemption within the meaning of California Constitution, article XIII, section 3, but rather used the word in the broader sense of its ordinary dictionary meaning.

ORTEGA, Associate Justice.

SPENCER, P.J., and DEVICH, J., concur.