THE ROMAN CATHOLIC ARCHBISHOP OF SAN FRANCISCO, A CORPORATION SOLE, a California corporation sole; THE ARCHDIOCESE OF SAN FRANCISCO PARISH AND SCHOOL JURIDIC PERSONS REAL PROPERTY SUPPORT CORPORATION, a California religious corporation, Plaintiffs and Petitioners, v. CITY AND COUNTY OF SAN FRANCISCO, a municipal corporation; CITY AND COUNTY OF SAN FRANCISCO REAL PROPERTY TRANSFER TAX REVIEW BOARD; and PHIL TING, ASSESSOR - RECORDER OF CITY AND COUNTY OF SAN FRANCISCO, Defendants, Respondents and Real Party in Interest.
Docket/Court: CGC-10-498795, California Superior Court City and County of San Francisco
Date Issued: 11/17/2011
Tax Type(s): Recordation Taxes, Realty
Hon. Richard A. Kramer, Dept. 304
UNLIMITED CIVIL JURISDICTION
TENTATIVE STATEMENT OF DECISION ON THE SECOND CAUSE OF ACTION
This Action arises from a decision by the San Francisco Real Property Transfer Tax Review Board (“the Review Board”), which upheld the determination by the San Francisco Assessor-Recorder (“the Recorder”) to impose transfer taxes on two transfers of real properties located in the City and County of San Francisco. The transfers are of parish properties (“Parish Properties”) and Archdiocesan school properties (“School Properties,” collectively, the “Parish and School Properties”). The first transfer was made by grant deed dated April 25, 2008 from the Roman Catholic Welfare Corporation of San Francisco (“Welfare Corporation”) to the Roman Catholic Archbishop of San Francisco, a Corporation Sole (“the Corporation Sole”), conveying 111 properties. The second transfer was made by grant deed dated April 25, 2008 from the Corporation Sole to the Archdiocese of San Francisco Parish and School Juridic Persons' Real Property Support Corporation (“Support Corporation”) conveying 232 properties.
On December 4, 2008, the Recorder issued a verbal determination that the transfers were subject to San Francisco real property transfer tax of a then unspecified amount. On December 10, 2008, Petitioners timely filed a petition (the “Petition”) with the Review Board challenging the determination that the transfers were subject to the property transfer tax. On June 16, October 6 and October 8, 2009, the Review Board held hearings. On November 30, 2009, the Review Board verbally announced its tentative decision upholding the Recorder's determination. On January 26, 2010, the Review Board issued its Findings of Fact and Conclusions of Law (“Findings and Conclusions”), which included its written decision upholding the Recorder's determination.
On April 16, 2010, Petitioners filed this lawsuit, the Second Cause of Action of which seeks a writ of mandate under Code of Civil Procedure Section 1094.5 (“Section 1094.5”) setting aside the Review Board's determinations.
By stipulation filed on August 2, 2010, the parties agreed that the Second Cause of Action be resolved in a bifurcated court trial upon the administrative record of the Review Board.
For the reasons set forth below, this court concludes that neither the administrative record nor applicable law supports the imposition of transfer taxes on Petitioners' transfers under the two deeds. Therefore, the Review Board erred in upholding the imposition of the transfer taxes by the Recorder, and the requested writ of mandate shall issue.
II. THE SCOPE OF JUDICIAL REVIEW AND BURDEN OF PROOF
In a writ of mandate proceeding under Section 1094.5, it is the role of the court to review the administrative record and to determine whether the agency's findings are supported by substantial evidence and whether the agency committed a mistake of law. Auerbach v. Los Angeles County Assessment Appeals Board No. 2 (2008) 167 Cal.App.4th 1414, 1420 . “Substantial evidence” means evidence which is reasonable in nature, credible, and of solid value. Dimartino v. City of Orinda (2000 80 Cal.App.4th 329, 336 . Under Section 1094.5, questions of law are reviewed de novo. State Water Resources Control Board Cases (2006) 136 Cal.App.4th 674, 722 .
The Petitioners have the burden of demonstrating that the Review Board's findings are not supported by substantial evidence in light of the whole record. Id., supra, 136 Cal. App. 4th at 764 . The reviewing court must resolve reasonable doubts in favor of the findings and decision. Topanga Ass'n for a Scenic Cmty. (1974) 11 Cal.3d 506, 514 . Likewise, the Petitioners have the burden to demonstrate that there was an error of law. Id. at 513-14.
A. The Entitites
The Archdiocese is the ecclesiastical name given to the local manifestation of the Roman Catholic Church (“the Church”)and is also a common phrase used to describe the specific family of corporations with operations in San Francisco, Marin, and San Mateo Counties under the auspices of the Roman Catholic Archbishop of San Francisco (the “Archbishop”). I AR 5; II AR 351; VII AR 2548:1-19. 1 The Church is a hierarchical church, and the Archbishop is required under the laws, rules, regulations, codes, canons, and discipline of the Roman Catholic Church (collectively, “Church law”) to govern the Archdiocese in accordance with Church law. II AR 490 (Canon 391); VII AR 2629:20-2630:21.
In order to accommodate the existence of the Church in a civil law society, California law provides for the formation of a “corporation sole,” which is by law the corporate identity of the incumbent “bishop, chief priest, presiding elder, or other presiding officer of any religious denomination ... for the purpose of administering and managing the affairs, property and temporalities thereof.” Cal. Corp. Code § 10002 ; I AR 5. By statutory definition, a corporation sole consists of only the incumbent church office holder, which in this case is the incumbent Archbishop. Cal. Corp. Code § 10000 et seq.; II AR 354. There is no board of directors of a corporation sole. Id.
The Corporation Sole was incorporated in 1854. I AR 290-297. The Articles of the Corporation Sole provided that “all property held by me as such corporation, is held by me in trust for the sole use, purpose and behoof of the said Roman Catholic Church in the said Diocese of San Francisco.” I AR 290-291. The Archbishop as the Corporation Sole operates the parishes and schools within the Archdiocese. I AR 81-82, 245 (Sec. V), 250 (Art. 3.1); VII AR 2520:3-15.
The California Nonprofit Religious Corporation Law provides for the creation of “religious corporations” which are subordinate corporations “instituted or created under the authority of ahead corporation.” Corp. Code § 9132(a)(2) . The Welfare Corporation was such a subordinate corporation of the Corporation Sole within the meaning of Corporations Code § 9132 . The purpose of the Welfare Corporation was to hold and operate Church-related facilities within the Archdiocese, including Catholic parochial and high schools, for religious educational and other religious purposes. I AR 308-10, 336-42. Pursuant to its Articles and Bylaws, the Welfare Corporation was permitted to engage in religious activities authorized by the Church and was not permitted to engage in any activities that were not in furtherance of the corporation's religious purposes. I AR 308-9 (Art. Second(b)), 336 (Art. I).
The Welfare Corporation was incorporated on February 18,1953, and title to the School Properties was placed in the Welfare Corporation by the Archbishop, as Corporation Sole, without imposition of a transfer tax. I AR 5, 304, 330; II AR 357 (Question #13), 617-619; VII AR 2511:7-2512:2. Title to the School Properties was thereafter held by the Welfare Corporation, while title to the Parish Properties remained held by the Corporation Sole. VII AR 2510:25-2512:2.
At the time of the subject transfers, the Archdiocese administered its affairs through the Corporation Sole and five religious corporations: (1) the Support Corporation, (2) the Welfare Corporation, (3) The Roman Catholic Seminary Corporation of San Francisco, (4) Catholic Charities CYO of the Archdiocese of San Francisco, and (5) The Archdiocese of San Francisco Parish, School and Cemetery Juridic Persons 2 Capital Assets Support Corporation (the “Capital Assets Support Corporation”), all of which are subject to Church law under the direct oversight of the Archbishop. II AR 472; VI AR 2164; VII AR 2509:2-23, 2516:12-18, 2520:6-24, 2523:1- 2524:23, 2582:14-19, 2608:4-11. The Corporation Sole and the other five corporations are connected as “spokes in a wheel,” the “hub” of which is the Archbishop. II AR 35 (Question #8); VI AR 2164; VII AR 2520:19-24, 2607:21-2608:13; IX AR 3616:2-4.
Pursuant to their respective Articles and/or Bylaws, the Corporation Sole, the Welfare Corporation (prior to its dissolution) and the Support Corporation are all regulated by Church law. I AR 290-291 (Corporation Sole); I AR 337 (Welfare Corporation); I AR 239 (Support Corporation). The actions of these corporations would be ultra vires if conducted in a manner inconsistent with Church law. VII AR 2598:18-2599:16, 2602:20-25.
The Corporation Sole, the Welfare Corporation and the Support Corporation are all Internal Revenue Code (Title 26, United States Code (“IRC”)) Section 501(c)(3) organizations, which means they are charitable and/or religious organizations that are exempt from federal income tax. II AR 580-586.
The Parish and School Properties are subject to the direct supervision of the Archbishop. VI AR 2184-2190, 2192-2253; VII AR 2613:6-2615:6. The Parish and School Properties are used directly by or, in the case of income producing properties, for the benefit of, the parishes and schools, II AR 412-423; VI 2184-2190, 2192-2253; VII AR 2613:13-2614:7.
B. The Restructuring of the Archdiocese
In late 2007, the Archbishop decided that the corporate structure of the Archdiocese should be revised. I AR 81-82; II AR 377; VII AR 2516:2-18. The corporate restructuring was to include forming the Support Corporation and entrusting the Parish and School Properties to it. The Support Corporation would hold title to and administer the properties on behalf of the Archdiocese under the continued direct oversight of the Archbishop. I AR 5-6, 81-82, 250; II AR 372-374; VII AR 2523:2-10. Similarly, under the restructuring, the capital assets belonging to the parishes and schools under Church law would be entrusted to a new corporation, the Capital Assets Support Corporation. I AR 81-82. The sole and exclusive purpose of the Support Corporation would be to benefit the parish and school juridic persons operated civilly by the Corporation Sole. I AR 239-240, 250.
The Archbishop set forth his plan of corporate restructuring and its purpose in his letter dated December 4, 2007 to Principals, Presidents, Agency Heads and Chancery Staff. I AR 81-82. In his letter, the Archbishop stated:
Today, along with my advisors, I met with the clergy of the Archdiocese as well as members of the parish finance councils at St. Mary's Cathedral to review recent corporate restructuring within the Archdiocese. At that meeting I stated that the issues raised by the civil courts over the past several years have caused dioceses throughout the country to consider whether their existing civil law corporate structures adequately recognize and reflect the unique status of parishes and schools under church law. I added that the courts have made it clear that if a diocese maintains that under Church law parish and school properties cannot be used at the discretion of the bishop then this concept must be unequivocally enshrined in the civil law structures of the Church. As a consequence, our goal here in San Francisco has been to allow the day-to-day operations of our parishes and schools to continue in a cohesive, efficient manner while at the same time establishing simple ownership models that clearly distinguish the canonical assets of the parishes and schools from those of the Archdiocese in general.
I AR 81.
In his December 4, 2007 letter, the Archbishop further stated:
Under the revised corporate system, the parishes and schools and the central administrative offices of the Archdiocese will continue to be operated through The Roman Catholic Archbishop of San Francisco, A Corporation Sole — often referred to as 'the Archdiocese'. However, the real property and capital assets belonging to the parishes and schools under Church law have been segregated from the real property and capital assets of the Archdiocese and are now entrusted to two distinct non-profit religious corporations, each governed by a board of clergy and laity, established expressly for the purpose of owning and managing those respective properties and assets in accordance with the laws of the Church.” I AR 81-82. Although civil law title to the parish and school properties may change under the corporate restructuring, such properties continue to be owned by the Roman Catholic Church for the benefit of its parishes and schools, and the discretion of the Archbishop and the limitations thereon with respect to those properties also remain the same.
II AR 351-352; VII AR 2523:2-10, 2582:2-13, 2584:12-20, 2617:19-2618:8.
In order to accomplish this restructuring, the Welfare Corporation was dissolved on April 1, 2008, and as required by law ( Cal. Corp. Code §§ 9132(a)(2)(i) & (ii)) and by its constitutive documents (I AR 309 (Articles, Art. Eighth)), all of its assets, including the School Properties, were distributed to the Archbishop as Corporation Sole. I AR 6; VI AR 2165; II AR 364-365, 381-385, 388. The California Attorney General approved this distribution. II AR385.
The liabilities assumed by the Corporation Sole upon the Welfare Corporation's dissolution totaled $33,905,893, which consisted of accounts payable (employee payroll, insurance and incidental costs), deferred revenue (prepaid tuition and fees) and “loans payable” (internal canonical loans). II AR 386. These liabilities were either internal to the Archdiocese or voluntarily assumed as part of the Corporation Sole's decision to continue operations of the schools, not in exchange or consideration for the distribution of the real property. VII AR 2645:22-2646:6. There were no liabilities owed to outside organizations. VII AR 2645:1-2.
The new Support Corporation was formed on September 10, 2007 as an IRC Section 501(c)(3) supporting organization. 3 AR 239 (Articles), 250 (Bylaws); VII AR 2543:4-7. As required by the corporate Bylaws, the board of directors of the Support Corporation is comprised of persons serving as members of either the Archdiocesan Finance Council or the Archdiocesan College of Consultors. I AR 255; VII AR 2517:17-19. The Archbishop appoints the members of the Finance Council and the College of Consultors. I AR 196; II AR 351, 355; VII AR 2517:18-20. The Archbishop has sole discretion to confirm that members of the College of Consultors and the Finance Council satisfy canonical standards for membership on those bodies. I AR 253.
The sole purpose of the Support Corporation is to support, benefit and carry out the purposes of the Corporation Sole, and specifically to advance the mission of those parish and school juridic persons which are governed by the Archbishop and operated civilly by the Corporation Sole, all in accordance with Church law, which, inter alia, respects the special rights to the use of property by such juridic persons. I AR 245 (Articles); I AR 250-251 (Bylaws).
Pursuant to its Articles and Bylaws, all of the activities of the Support Corporation must be conducted in accordance with Church law. I AR 238-239 (Articles); I AR 250, 254 (Bylaws). The Support Corporation pursuant to Article 3.1.3 of its Bylaws must maintain and upgrade the properties and may collect and pay over rents to the Corporation Sole as it deems prudent and necessary for the support of the Corporation Sole's operation of the parishes and schools. I AR 250; II AR 375, 547. Section 3.1.2 of the Support Corporation's Bylaws states:
As provided in the Articles of Incorporation of This Corporation, This Corporation has been organized and shall be operated to support, benefit, and carry out the purposes of (within the meaning of IRC Section 509(a)(3)(B)(ii) ) the Corporation Sole - specifically, for the purpose of advancing the mission of those Parish and School Juridic persons, duly established under the laws of The Church, that are, pursuant to the laws of The Church, governed by the Archbishop, and operated civilly by the Corporation Sole, within the meaning of IRC Section 509(a)(3) .
I AR 250.
Section 3.1.3 of the Support Corporation's Bylaws states:
This Corporation shall engage solely and exclusively in activities that shall support or benefit the Corporation Sole, for the purposes stated in This Corporation's Articles of Incorporation, such activities to include, but not be limited to, collecting rents from This Corporation's properties and making payments to or for the use of, or restoring or upgrading the facilities used by, the aforementioned Juridic persons affiliated with the Corporation Sole, all in accordance with the laws of The Church, which, inter alia, respects the special rights to use of property by Juridic persons and the concomitant obligation to provide the financial means to maintain and enhance that property.
I AR 250-251.
Under its Bylaws, the alienation of any property by the Support Corporation must be made in accordance with Church law and with the approval of the Archbishop. I AR 250-251, 254; VII AR 2517:5-2518:20. In order for the Support Corporation to sell or alienate real property, it also must obtain a written certification from the Chancellor of the Diocese that the requirements of applicable Church law concerning the alienation of the Church's property have been met. I AR 251; VII AR 2518:6-15. The directors of the Support Corporation must get permission from the Archbishop and the Chancellor's certification that in fact Church law has been followed in attempts to alienate any property. The Archbishop has to get the advice and consent of the College of Consultors and the Finance Council before property can be alienated. VIII AR 2940 (Canon 1290 et seq., and specifically Canon 1292); VII AR 2598:18-2599:13.
C. The Transfers of the Parish and School Properties
There was no purchase and sale agreement in connection with the distribution of the School Properties by the Welfare Corporation to the Corporation Sole (VII AR 2644:14-17), VI AR 2322:4-5, 2387:8-11). The Corporation Sole did not pay any money to the Welfare Corporation for the School Properties which the Welfare Corporation distributed to the Corporation Sole upon dissolution. VII AR 2644:14-2645:8, 2649:4-14. Such distribution was not conditioned upon the Corporation Sole's assumption of any liabilities. Corp. §§ 9132(a)(2)(i) & (ii); I AR 309 (Articles, Art. Eighth); VII AR 2644:14-2645:8, 2649:11-14.
The Support Corporation has not paid any money to the Corporation Sole for the School and Parish properties transferred to it. VII AR 2573:24-2574:1. The Support Corporation's obligation to collect rents and upgrade or restore properties is stated in its bylaws, which were in place long before the deeds were prepared and signed. VI AR 2394:10-16; I AR 249-250.
On April 25, 2008, the Deeds were executed. Both Deed A and Deed B state:
Transfer Tax: None
Per Rev & TC § 62(k)
(No consideration or sale — transfer of property within The Roman Catholic Church only)
I AR 6, 15-31.
In a letter to the Corporation Sole dated June 16, 2008, the Support Corporation stated that the acceptance of delivery of the Deed B has always been conditioned on the transfer being free and clear of all costs and charges, including exemption of the transfer from transfer tax. II AR 601; VII AR 2527:21-2528:1. The letter specified that the Support Corporation would not accept delivery of the deed to the San Francisco real property unless it could be recorded without imposition of a transfer tax. II AR 601. The transfer of the properties has not been completed because the Support Corporation was not willing to accept the properties. II AR 601; VII AR 2527:21-2528:1.
The Archdiocese's corporate restructuring also involved parish and school properties located in San Mateo and Marin Counties. I AR IL Various deeds dated April 25, 2008 by the Welfare Corporation and by the Corporation Sole, reflecting intra-denominational transfers involved in the restructuring, were accepted for recordation in San Mateo and Marin Counties without payment of transfer tax. II AR 603-615. Following contact by the San Francisco Recorder, the recorders for both San Mateo and Marin Counties responded in writing that the deeds were accepted at face value upon the indication that the transfers were only intra-denominational. VIII AR 3106-3120, 3122-3132; VI AR 2357:7-2359:24.
By e-mail dated May 16, 2008, the Recorder informed the Corporation Sole representative of a tentative opinion, which the Recorder's office confirmed was not yet a final determination (I AR 50-61), that the deeds could not be recorded without payment of a transfer tax or additional information or documentation to support an exemption from the tax. I AR 6, 55-61; VI AR 2333:1-10.
On July 16, 2008, a representative of the Corporation Sole presented Deed A, Deed B, the completed Transfer Tax Affidavits, and Preliminary Change of Ownership Reports (“PCORs”) to the Recorder's office for recordation on the condition that no transfer tax would be due. The transfer tax affidavits claimed exemption from the tax for the following reasons: 1) the transfers are being made pursuant to an intra-denominational restructuring whereby a mere change in identity, form or place of organization is effected; 2) the transfers result solely in a change in the method of holding title to realty but no change in beneficial ownership; and 3) no consideration has been paid in connection with the transfers. I AR 7, 199-214, 216-235; VII AR 2595:24-2596:6.
The Recorder's office did not record the deeds (VII AR 2505:6-13) and, by letter dated July 28, 2008, presented 14 detailed questions requesting additional documents and information. II AR 344-345. After Petitioners responded to that request and expressed surprise that the deeds had not been recorded in accordance with the above-referenced understandings (II AR 347-586), the Recorder's office sent a letter dated August 25,2008 asking for further information (II AR 588), to which the Corporation Sole's representative promptly responded. II AR 590-592.
The Corporation Sole's representatives met with the Recorder on November 6, 2008 and December 4, 2008. At the December 4, 2008 meeting, the Recorder informed the Corporation Sole's representatives of his determination that the above-described transfers were subject to a transfer tax in an unspecified amount. In response to a request for a written determination, the Recorder indicated that a written determination would not be forthcoming and that his verbal determination should be construed as a determination for purposes of San Francisco Real Property Transfer Tax Ordinance (“SF Transfer Tax Ordinance” or “SF Tr. Tax Ord.”) § 1115.2. I AR 7.
The Recorder's determination that the above-described transfers of real property were not excluded from the transfer tax was based on the following:
a. there were two transfers of real property located in San Francisco, a transfer of school property from the Welfare Corporation to the Corporation Sole followed by a transfer of parish properties and the same school property from the Corporation Sole to the Support Corporation (VI AR 2332:8-11);
b. the two deeds by which interest in real property were granted effected a change in legal title between separate and distinct legal entities (VI AR 2347:21-24, 2349:9);
c. consideration was given for each transfer consisting of the assumption of liabilities of the Welfare Corporation by the Corporation Sole of over $54 million (later clarified to be $33.9 million (II AR 386; VII AR 2644:3-10)) and the Support Corporation's obligation under its Articles and Bylaws to maintain and upgrade the properties and collect and remit rents from the properties (VI AR 2352-2353); and
d. the transfers were not mere changes in form but a change in control over the entities holding the properties, different makeup of the boards of directors, that the liabilities did not follow the assets and other unspecified factors relating to continuity of interest, and therefore no exemption applied (VI AR 2340:22-2343:11, 2397:2-7).
No other specific reasons were identified. VI AR 2397:25-2398:11.
On November 30, 2009, immediately after the Review Board verbally issued its tentative decision (discussed below), the Recorder recorded Deed A and Deed B and issued and recorded notices of delinquent tax on Deed A and Deed B in the amount of $7,637,214.58 and $14,133,717.78, respectively, of tax, interest and penalties. Petitioners' Verified Complaint and Verified Petition ¶¶ 75-76; Respondent's Answer to Petitioners' Verified Complaint and Verified Petition ¶¶ 75-76.
D. The Review Board
On December 10, 2008, the Corporation Sole timely filed with the Controller of San Francisco a Petition to Review Transfer Tax Determination pursuant to SF Transfer Tax Ordinance § 1115.2. I AR 1 through II AR 619. After hearings on the Petition, the Review Board verbally issued its tentative decision on November 30, 2009.
On January 26, 2010, the Review Board issued its written Findings and Conclusions. IX AR 3607-3637. The Review Board determined that Deed A and Deed B constitute “realty sold” as sufficient consideration existed with respect to both deeds. IX AR 3612. With respect to Deed A, the Review Board concluded that consideration existed in the form of (1) the Corporation Sole's assumption of $33,905,893 of the Welfare Corporation's debt and (2) the Corporation Sole's retention of the operations of the parishes and schools as well as the obligations of the Welfare Corporation. IX AR 3612-3613.
With respect to Deed B, the Review Board concluded that consideration existed in the form of (1) the Support Corporation's “agreement” to collect rents and maintain the properties, (2) the Support Corporation's “agreement” to return the collected rents and profits from the properties to the Corporation Sole, (3) the Support Corporation's “agreement” to allow Juridic Persons affiliated with the Archdiocese to use the properties, and (4) the Support Corporation's “agreement” to restore or upgrade the properties. IX AR 3613. The Review Board also noted that an underlying benefit to both transfers was the attempted avoidance of civil liability for alleged tort claims. IX AR 3613.
The Review Board concluded that Deed A and Deed B were not exempt from the transfer tax under SF Transfer Tax Ordinance § 1106(d), as they did not involve a “mere change in identity, form or place or organization.” IX AR 3613, 3616. The Review Board looked to the purpose, control, and powers of the subject corporate entities and found them to be different from one another. IX AR 3613-3618.
The Review Board also concluded that Deed A and Deed B were not exempt from transfer tax pursuant to RTC § 62(k) or RTC § 11925(d) on the basis that both of these sections do not apply to the City and County of San Francisco, a charter city. IX AR 3618. The Review Board concluded that Deed B was not a conditional grant (IX AR 3619) and that the Recorder was not estopped from imposing the transfer tax on Deed A or Deed B (IX AR 3620). The Review Board concluded that the Recorder did not err or abuse his discretion in determining that transfer tax was due on Deed A and Deed B. IX AR 3620.
IV. ISSUES PRESENTED AND SHORT ANSWERS THERETO
The Petitioners present the following seven issues:
Issue 1 - Do the transfers of the Parish and School Properties pursuant to a restructuring of the Archdiocese constitute “realty sold” upon which the transfer tax can be imposed?
Answer to Issue 1 — No. The administrative record establishes that the transfers under the restructuring of the Archdiocese were not “realty sold” in either form or substance under applicable law.
Issue 2 - Are the transfers of the Parish and the School properties exempt from the transfer tax as a “mere change in form” under Tax Ordinance § 1106(d)?
Answer to Issue 2 — Yes. The administrative record demonstrates that the transfers were a mere change in form of the ownership of Church properties so as to make them not subject to transfer tax under applicable law.
Issue 3 - Does California Revenue and Taxation Code § 62(k) , which provides that intra-denominational transfers of realty are not “changes of ownership,” preempt the imposition of transfer tax on such transfers?
Answer to Issue 3 — No. There is no statewide policy embodied in Revenue & Taxation Code § 62(k) that would preempt the power of San Francisco to impose the subject transfer tax.
Issue 4 — Are the transfers of the Parish and the School Properties exempt from the transfer tax under Revenue and Taxation Code § 11925 (d) as transfers where the direct or indirect ownership interests in the realty remain unchanged?
Answer to Issue 4 — Yes. In enacting its Transfer Tax Ordinance, San Francisco adopted the exemption set forth in Revenue and Taxation Code § 11925(d) .
Issue 5 - Is the Recorder estopped from imposing a transfer tax on the transfers of the Parish and School Properties?
Answer to Issue 5 — No. The administrative record does not support an estoppel against the Recorder from imposing the transfer taxes.
Issue 6 — Was the delivery of Deed B from the Corporation Sole to the Support Corporation sufficient to trigger the transfer tax?
Answer to Issue 6 — No. The administrative record establishes that neither the grantor nor the grantee under Deed B intended a transfer of the properties if a transfer tax were to be imposed.
Issue 7 — Does the imposition of the transfer tax on the transfers of the Parish and School properties violate the United States and California Constitutions?
Answer to Issue 7 — In light of the foregoing answers which resolve this matter, this court refrains from deciding the Constitutional questions.
Prior to January 1, 1968, the United States federal government imposed a documentary stamp tax on sales of real property (the “federal documentary stamp tax”). Former IRC § 4361 . In 1965, Congress repealed the federal documentary stamp tax, but made the repeal effective on January 1, 1968 to give States a chance to enact a replacement tax. See Public Law 89-44, 79 Stat. 136 (1965). In 1967, the California Legislature enacted legislation ( RTC § 11901 et seq.) that authorized counties and cities to impose a transfer tax on sales of realty and also set forth various exemptions from the tax (the “California Transfer Tax Act”).
In December 1967, pursuant to RTC § 11901 et seq., San Francisco adopted the SF Transfer Tax Ordinance (SF Tr. Tax Ord. § 1101 et seq.), imposing a transfer tax on sales of realty in San Francisco. SF Tr. Tax Ord. § 1102. The SF Transfer Tax Ordinance was patterned after the federal documentary stamp tax. 4
Issue 1 - Do the transfers of the Parish and School Properties pursuant to a restructuring of the Archdiocese constitute “realty sold” upon which the transfer tax can be imposed under San Francisco Transfer Tax Ordinance § 1102?
The Review Board concluded that the transfers under Deed A and Deed B constitute “realty sold” because valuable consideration existed for both transactions. IX AR 3612:4-5. Petitioners maintain that the subject properties were not “sold” but rather were simply the product of the restructuring of the Archdiocese and as such are not subject to any transfer tax. Petitioners also contend that the Review Board relied on an incorrect legal definition of “consideration” for transfer tax purposes and that under the proper definition of that term, no consideration was given in exchange for such properties.
A. Were the transferred properties “sold” for the purposes of the transfer tax?
San Francisco Transfer Tax Ordinance § 1102 (“Section 1102”) provides
There is hereby imposed on each deed, instrument or writing by which any lands, tenements, or other realty sold within the City and County of San Francisco ... to the purchaser or purchas ers ....
Section 1102 does not apply to all transfers of realty; it only applies to “realty sold.” While the SF Transfer Tax Ordinance does not define the term “sold,” Section 1102 is identical to the language in IRC § 4361 and RTC § 11911 . Under SF Transfer Tax Ordinance § 1114, quoted above, and under other applicable law, authorities interpreting the federal statutes are directly applicable for interpreting their California counterparts. 5
In United States v. Seattle-First National Bank (1944) 321 U.S. 583 , the Court interpreted the terms “sold” and “purchaser” for purposes of the federal documentary stamp tax. In Seattle-First, two banks were consolidated under the National Banking Act, and pursuant to that Act the two banks transferred title to certain real estate to the consolidated association. Id. at 585. The consolidation agreement provided that “All assets of each association at the date of consolidation shall pass to and vest in the consolidated association, and the consolidated association shall be responsible for all of the liabilities of every kind and description of each of the consolidating associations.” Id. The Court rejected the government's attempt to assess the federal documentary stamp tax and held that courts must consider the “realities” of the transaction and, in particular, whether the transferee can “be said to have 'bought' or 'purchased' the real property.” Id. at 590. The Court ascribed to the words “sold” and “purchaser or purchasers” their ordinary meaning and held:
Nor can the realty be said to have been “sold” or vested in a “purchaser or purchasers” within the ordinary meaning of those terms. Only by straining the realities of the statutory consolidation process can respondent be said to have “bought” or “purchased” the real property. That we are unable to do.
In Berry v. Kavanagh (6th Cir. 1943) 137 F.2d 574 , another federal documentary stamp tax case, the Court held that “[w]hether a taxable sale occurs depends upon the intention of the parties gathered from their whole writing when giving to the words and phrases used, their ordinary signification.... If Congress had intended to levy a tax on every transfer of title it could have expressed its purpose in a sentence, but it is clear from the language of the section [“realty sold”] that it intended to confine the tax to actual sales.” Id. at 576. Berry held the subject transfer was not subject to tax, because the conveyance of “naked legal title” was not a sale. Id.
Likewise, in United States v. Niagara Hudson Power Corporation (S.D.N.Y. 1944) 53 F. Supp. 796 , the Court looked to whether the “elements characteristic of a 'sale'” were present in interpreting the terms “realty sold” and “purchaser.” In concluding that the federal documentary stamp tax did not apply, the Court held:
In the transaction now under consideration the elements characteristic of a “sale” are lacking; there is no agreement to sell; there is no deed containing the description of the realty. The usual bargaining leading up to and culminating in a sale and fixing the value of the property are absent. The change of title results from the filing of the Certificate of Consolidation; it was a form of transfer, but not a sale.
Id. at 801.
In the instant case, the realities of the restructuring of the Archdiocese as contained in the administrative record do not permit the conclusion that the Parish and School Properties were “purchased” or “sold” for the purpose of the transfer tax.
In form, the Diocesan restructuring was not structured as a sale. The administrative record establishes that the restructuring involved no bargaining, competitive bidding, or other indicia of a purchase or sale. No purchase or sale agreements were executed in connection with the restructuring. No sales proceeds were generated.
In substance, the transfer of the properties pursuant to the restructuring of the Archdiocese was not a sale. The Welfare Corporation was originally formed to operate the Archdiocesan schools and hold the School Properties. I AR 330 (Articles, Art. Second). In 1953, the Corporation Sole placed title to the School Properties in the Welfare Corporation without imposition of any federal documentary stamp or other transfer tax, to hold such properties in accordance with the latter's stated mission of operating church-related facilities of the Church within the Archdiocese, including Catholic parochial and high schools, for religious educational and other religious purposes. 6 Article 8 of the Welfare Corporation's Articles of Incorporation provided that the assets of the Welfare Corporation were “irrevocably dedicated to religious purposes” and upon the “liquidation, dissolution or abandonment” of the corporation, the “remaining assets of the corporation shall be distributed for such religious purposes to The Roman Catholic Archbishop of San Francisco, a (California) corporation sole.” I AR 181.
In addition, the Welfare Corporation was a subordinate corporation of the Corporation Sole under California's Nonprofit Religious Corporation Law. I AR 336-337. Corp. Code § 9132(a) . Upon the dissolution of a subordinate corporation, its assets “shall be distributed to the head organization.” Corp. Code § 9132(a) . When the Welfare Corporation dissolved, it did not sell, but rather returned all of the School Properties to the Corporation Sole, as it was required to do by law.
The transfer under Deed B was also not a sale of real properties. The evidence before the Review Board demonstrated without conflict that Petitioners' intention was that the real property and capital assets belonging to the parishes and schools under Church law be segregated from the real property and capital assets of the Archdiocese and are now entrusted to two distinct non-profit religious corporations... established expressly for the purpose of owning and managing those respective properties and assets in accordance with the laws of the Church. I AR 81-82 (emphasis added).
The use of the word “entrust” cannot be interpreted to mean a sale or purchase in the context of this case. Indeed, when all Church property of the Archdiocese of San Francisco was transferred to the newly formed Corporation Sole in 1854, it was expressly done “in trust for the sole use purpose and behoof of the said Roman Catholic Church in the said Diocese of San Francisco.” I AR 290-291.
The entrustment of Church property to the Corporation Sole comports with one of the fundamental purposes of a religious corporation, which, as the Courts consistently have held, is “to stand in the capacity of an agent holding title to the property, with the power to manage and control the same in accordance with the interest of the spiritual ends of the church.” Berry v. Society of Saint Pius X (1999) 69 Cal.App.4th 354, 371 .
Furthermore, the parties' intention that the restructuring would continue to provide that the properties be held in trust under the laws of the Church was clearly demonstrated by the Archbishop's December 4, 2007 letter as quoted above. There was no evidence presented to the Review Board to contradict this conclusion.
The lack of an intention that the properties be sold is also evidenced from the face of the Deeds and related documents. Both Deed A and Deed B state: “No consideration or sale—Transfer of property within The Roman Catholic Church only.” I AR 15, 22. The Transfer Tax Affidavits submitted with said Deeds state: “No Transfer Tax Due—No Change in Beneficial Ownership.” I AR 206, 227. Similarly, the Preliminary Change of Ownership Reports that were filed in connection with the Deeds state: “Transfer within Roman Catholic Church. No change in beneficial interest.” I AR 213,234.
The administrative record establishes that the Parish and School Properties were not sold or purchased as a part of the restructuring of the Archdiocese. To conclude otherwise would be to ignore the Supreme Court's admonition in Seattle-First that the terms “realty sold” and “purchaser or purchasers” are to be interpreted in accordance with their ordinary meaning. As such, no sale occurred and the transfer tax cannot be imposed on either Deed A or Deed B.
In addition, transfers of the Parish and School Properties are not subject to any transfer tax because intra-denominational transfers are not “sales” under California law. For transfer tax purposes, California Courts have interpreted the term “realty sold” as meaning a “change in ownership” of the realty. McDonald's Corp. v. Board of Supervisors (1998) 63 Cal.App.4th 612, 615-16 ; Thrifty Corp. v. County of Los Angeles (1989) 210 Cal. App. 3d 881, 886 ; see also California Attorney General Opinion No. 98-1203, 82 Ops. Cal. Arty. Gen. 56, 57-58 (Mar. 26, 1999). 7
California courts have long held that transfers of real property between religious corporations of the same denomination are not changes in ownership of such property. In Wheelock v. First Presbyterian Church of Los Angeles (1897) 119 Cal. 477, 483 , the Court explained:
The Civil Code of this state ... expressly permits religious bodies to incorporate, but such incorporation is only permitted as a convenience to assist in the conduct of the temporalities of the church. Notwithstanding incorporation the ecclesiastical body is still all important. The corporation is a subordinate factor in the life and purposes of the church proper. A religious corporation like the one at bar, under the laws of this state, is something peculiar to itself. Its function and object is to stand in the capacity of an agent holding the title to the property, with power to manage and control the same in accordance with the interest of the spiritual ends of the church.... “The legislature never means by granting or allowing such charters to change the ecclesiastical status of the congregation, but only to afford them a more advantageous civil status.”
In Frohliger v. Richardson (1923) 63 Cal.App. 209 , the Court recognized that, even though civil law title to church property may be held by a religious corporation, the true owner of the church property is the Church itself. The issue in Frohliger was whether State funds could be used for the restoration of the San Diego Mission. Id. at 210. Under applicable State law, the California Legislature was barred from using public funds in the aid of any religious sect or church. Id. at 212. In Frohliger, the Court held:
As a matter of common knowledge, we take judicial notice of these facts: The San Diego Mission is owned by the Roman Catholic Church. The title to the property is in the Archbishop of San Francisco, a corporation sole.
Id. at 214.
Based on the foregoing, the intra-denominational transfers of the Parish and School Properties in Deed A and Deed B between religious corporations of the Church are not changes in ownership and thus are not sales under California law. Because no realty has been “sold,” no transfer tax can apply.
B. Was there consideration for the transfers?
The Review Board's concluded that “valuable consideration” existed with respect to each of the Deeds. IX AR 3612:4-5, 24-25. As for Deed A, the Review Board found that the consideration consisted of the Corporation Sole's assumption of the Welfare Corporation's debt amounting to $33,905,893 and (2) the Corporation Sole's retention of the operations of the parishes and schools as well as the obligations of the Welfare Corporation (such as the collective bargaining agreement previously held by the Welfare Corporation). IX AR 3612:26-3613:4.
As for Deed B, the Review Board found that the consideration consisted of the Support Corporation's “agreement” to undertake to: (1) collect rents and maintain the properties, (2) return the collected rents and profits to the Corporation Sole, (3) allow juridic persons affiliated with the Archdiocese to use the properties, and (4) make payments to restore or upgrade facilities. IX AR 3613:5-14.
The most glaring error in the Review Board's conclusion as to these supposed items of consideration is that there is no evidence in the administrative record that the parties transferred the real properties in exchange for the assumption of obligations found by the Review Board to have existed. True, the obligations described by the Review Board existed upon the transfers, but there is no evidence that these existed as the result of a bargained for exchange.
To the contrary, as described above, the Corporation Sole is a unique entity under California law, whose various religious responsibilities can be conducted through subordinate entities for its convenience. The reallocation of these responsibilities cannot be viewed as having created fresh consideration traded among the pre-existing and new subordinate entities. Simply put, the restructuring did not change the religious activities of the Corporation Sole, it simply changed the structure by which these activities were conducted. All of the “consideration” found by the Review Board existed within the wheel that is the Corporation Sole and its subordinate entities both before and after the transfers.
What the Review Board did was to look at the bundle of church related activities and conclude that consideration for the transfers must be found because the transferees were assigned responsibilities regarding the properties they received. Were these properties and responsibilities exchanged among independent entities with no common, ongoing association, then perhaps the Review Board's finding of consideration could be justified. Such was not the case, however. Instead, the obligations attendant to the transfers were all part of what the Archdiocese had done before the restructuring and intended to continue to do thereafter. The restructure was not an exchange of anything for transfer tax purposes.
Similarly, the Corporation Sole's assumption of $33,905,893 of the Welfare Corporation's debt cannot be viewed as the exchange of consideration to render the transfer of Deed A subject to the transfer tax. The evidence before the Review Board was that this amount consisted of $11,669,493 of “Accounts Payable” and $22,236,399 in “Deferred Revenue” and “School Deposits and Loan Fund.” II AR 386. Petitioner's witness testified that the deferred revenue and school deposits/loan fund were monies received either from parents who paid their tuition in advance or from internal Church loans. VII AR 2645:9-21. Similarly, the accounts payable amount was the anticipated payroll for the teachers. VII AR 2645:3-8. There were no liabilities owed to any one or anything outside of the Archdiocese' operations. VII AR 2645:1-2. The above amounts were booked as “liabilities” against the $76,382,068 of “Cash and Equivalents” (II AR 386) to explain that a portion of such cash assets was being held in reserve as pre-paid tuition or school deposits—not as any debt that was owing. These amounts would be expended in the normal course of parish school operations and would not be paid in the sense of a debt owed to an outsider.
Likewise, the collective bargaining agreement is not a new obligation assumed by the Corporation Sole, but rather relates to the anticipated payroll for the teachers. See II AR 591. The Corporation Sole's retention of the operation of the parishes and schools is something that the Corporation Sole is obligated to do as part of its core mission of “administering and managing the affairs, property and temporalities of the Roman Catholic Church in said Archdiocese of San Francisco” (I AR 121) and thus does not constitute consideration for the Parish and School Properties. See Beatrice v. State Board of Equalization (1993) 6 Cal. 4th 767 , 783 n.9 (a “promise to do what one is already obligated to do is not consideration”).
Also, the obligations regarding the continuing operation of the schools cannot be seen as consideration. The bylaws of both the Corporatation Sole and of the Support Corporation each require that the respective entity administer and manage the affairs, property and temporalities of the Roman Catholic Church Archdiocese of San Francisco. I AR 121. 8 Each entity was thus obligated to manage the schools and other Church property prior to the transfers.
Further, as is set forth above, the Review Board's finding of consideration cannot be supported because the transfer of assets by the Welfare Corporation upon its dissolution to the Corporation Sole was required by law. Corporate Code § 9132(a)(ii). In Rochelle Inv. Corp. v. Fontenot (E.D. La. 1940) 34 F. Supp. 118 , a federal documentary stamp tax case, the Court held that transfers of realty by operation of law are not subject to transfer tax. In Rochelle, two corporations merged pursuant to which the real property of one corporation was transferred to the surviving corporation. 34 F. Supp. at 118 . The Court held that such transfer was not subject to transfer tax, agreeing with the plaintiffs contention that the tax “does not apply to all transfers of real estate, but that it applies only to deeds executed to transfer property sold to a purchaser or nominee. That the property herein involved was not sold to a purchaser, but was transferred by virtue of the merger agreement through operation of law, the operating laws being the corporation laws of Delaware and Louisiana.” Id. at 119 (emphasis added)..
In Socony-Vacuum Oil Co. v. Sheehan (E.D. Mo. 1943) 50 F. Supp. 1010 , a subsidiary corporation transferred all of its assets and liabilities to its parent corporation upon dissolution. The court held that for transfer tax purposes, the assumption or discharge of the subsidiary's liabilities by the parent corporation did not constitute consideration for the assets that were distributed as a consequence of the dissolution. Id. at 1012. Thus, transfers required by law are not subject to the transfer tax.
Finally, the Review Board concluded that “an underlying benefit to both transfers was the attempted avoidance of civil liability for alleged molestation claims.” IX AR 3613:15-16. The Review Board's conclusion finds no support in the administrative record. The record is devoid of any evidence that civil liability for such claims could be avoided by transferring the Parish and School Properties. VII AR 2515:1-6. Moreover, the Review Board's finding is clearly erroneous. The transfer of assets would have no impact on a finding of liability. Liability would be based upon the proof of actionable facts. The transfer of assets might only impact the ability of a judgment creditor to collect against the transferred assets.
In sum, there was no “sale” upon which the transfer tax can be imposed. There was no actual sale of properties and, as a matter of California law, intra-denominational transfers are not sales. Nor was there “consideration” paid by the Corporation Sole or the Support Corporation in exchange for the subject properties. This Court concludes that the Review Board erred in its conclusion that the subject transfers constitute “realty sold” for purposes of the transfer tax.
Issue 2 - Are the transfers of the Parish and the School properties exempt from the transfer tax as a “mere change in form” under San Francisco Tax Ordinance § 1106(d)?
Petitioners contend that the Diocesan restructuring is exempt from the transfer tax as a “change in form” under San Francisco Transfer Tax Ordinance § 1106(d) (Section 1106(d)). The Review Board concluded that Deed A and Deed B involved more than a “mere change in identity, form or place of organization” and therefore were not exempt under such provision. IX AR 3613-3618.
Section 1106(d) provides:
Any tax imposed pursuant to this ordinance shall not apply to the making, delivering or filing of conveyances to make effective any plan of reorganization or adjustment... [w]hereby a mere change in identity, form or place of organization is effected.
Thus, transfers involving a mere change in form or organization are expressly exempted from the transfer tax. Applicable law has interpreted the language, “mere change in identity, form or place of organization” as meaning that no change in the beneficial ownership of the property has occurred.
In Columbia Gas of Pennsylvania, Inc. v. United States (3d Cir. 1971) 446 F.2d 320 one subsidiary corporation (“Corporation A”) transferred its assets to another subsidiary corporation (“Corporation B”) pursuant to an internal business reorganization. The purpose of the reorganization was to segregate the Pennsylvania assets of Corporation A and move them to a new corporation, Corporation B, so that Corporation A would no longer be subject to certain Pennsylvania state regulatory agencies. In construing the language “mere change in identity, form or place of organization,” the Court held that a reorganization “involving no shift in ownership interests, qualifies as an exempt transaction [under IRC § 4382(b)(1)(D) ].” Id. at 324.
In a formal published opinion, the California Attorney General reached the same conclusion in interpreting the language “mere change in identity, form or place of organization,” for California transfer tax purposes under RTC § 11923(d) . Opinion No. 98-1203 (1999) 82 Ops. Cal. Atty. Gen. 56, 59-60. The issue in that opinion was whether the transfer tax applied to the transfer of real property from a parent corporation to a wholly-owned subsidiary corporation. The Attorney General concluded that such transfer was not subject to the transfer tax “when the beneficial ownership of the property remains the same.” In reaching this conclusion, the Attorney General relied on the Columbia Gas decision and reasoned as follows
In Columbia Gas, the court concluded that a transfer of real property from one wholly-owned subsidiary corporation to another wholly-owned subsidiary corporation was not subject to the federal tax upon which section 11911 [the California transfer tax] was patterned. The court found the transfer to be part of a “plan of reorganization or adjustment” “whereby a mere change in identity, form, or place of organization is effected” which was exempt from the federal tax, and which is similarly expressly exempt parent corporation was the beneficial owner of the property both before and after the transfer and thus the tax was inapplicable. This is the same basis upon which we have construed the provisions of section 11911.
Id. at 59 (emphasis added).
As is set forth above, the administrative record unequivocally establishes that the Archdiocese's restructuring effected a “mere change in form” because the ultimate responsibility to own and manage the assets of the Archdiocese rests in the Corporation Sole. Both the Welfare Corporation and the Support Corporation were formed to support the Corporation Sole's religious activities. Under Section 9132(a)(2), Internal Revenue Code Sections 501(c)(3) (which allows one § 501(c)(3) organization to support another § 501(c)(3) organization), and under the corporation's articles and bylaws which embody the Canon Law of the Roman Catholic Church, these corporations solely existed to support the operations of the Corporation Sole, whose articles render it responsible for the activities carried on in connection with the transferred properties. I AR 290-291.
At the request of the Recorder, Transfer Tax Affidavits and the PCORs were prepared for each of the hundreds of individual parcels referenced in the Deeds, and presented to the Recorder at the same time the Deeds were presented for recordation. VII AR 2560:9-2562:8, 2563:13-2565:4. The Transfer Tax Affidavits and attachments thereto submitted to the Recorder with the Deeds stated, “No Transfer Tax Due—No Change in Beneficial Ownership.” I AR 206. Similarly, the PCORs that were filed with respect to the Deeds state on their face, “Transfer within Roman Catholic Church. No change in beneficial interest.” I AR 234.
City of Manhattan Beach v. Superior Court (1996) 13 Cal. 4th 232 sets forth the rules governing deed interpretation:
With deeds as any other contracts, “[t]he primary object of all interpretation is to ascertain and carry out the intention of the parties. [Citations.] All the rules of interpretation must be considered and each given its proper weight, where necessary, in order to arrive at the true effect of the instrument. [Citation.]” (Burnett v. Piercy (1906) 149 Cal. 178, 189 ... Civ. Code, § 1066 ; see Civ. Code, § 1635 et seq. ; Code Civ. Proc, § 1856 et seq.)
Id. at 238 (emphasis added).
Under this standard, the documents presented to the Recorder in connection with the Deeds confirmed the language expressed on the face of the Deeds that the parties intended that the deeds accomplish a “mere change in identity, form or place of organization.”
Under Church law, a juridic person is a “personhood” within the Church that has rights and obligations that are recognized by the Church. Canon 113, § 2 (VIII AR 2925). 9 A parish and school juridic person includes both the parish and its related school, if any. VII AR 2511:2-2512:10, 2547:5-6. The property of a parish and its related school belongs to the parish and school juridic person under Church law. VII AR 2618:1-4. All of the property belonging to a parish and school juridic person under Church law are “ecclesiastical goods“—that is, property of the Church—and are governed by Church law. Canons 1256 and 1257, § 1 (VIII AR 2938; VII AR 2618:5-2619:9). 10
Canon law is relevant because the Corporation Sole, the Welfare Corporation and the Support Corporation are all governed by Church law, and accordingly, when each of the corporations through which the Church operates holds title to Parish and School Properties it does so for the benefit of the Roman Catholic Church and, in particular, the parish and school juridic persons entitled thereto under Church law.
The administrative record also contains the testimony of Jack Hammel, general counsel for the Petitioners, which confirms the intention underlying the restructure:
The beneficial interest, as we constantly maintain remains, with the -under the laws of the Catholic Church, that property remains with the juridic person, and that's the way it is.
VII AR 2552:17-20.
Mr. Hammel further testified:
We intended to make sure that the property owned by the Roman Catholic Church was used for the purpose in which it was required to use it for under church law, and which is why we ad nauseum put compliance with church law, the requirement to do what church law says, and that's why we even put in the name of this new corporation that it's the Archdiocese of San Francisco Parish and School, juridic persons, Real Property Support Corporation.
We wanted to enshrine that concept that these properties under church law are for the use and benefit of these parishes and schools, they always were, and the intention is that they always will be, and there were all kinds of protections inserted in there to make sure that that would continue to be the case.
VII AR 2544:1-15.
Mr. Hammel confirmed:
The Catholic Church owns the 232 properties that are the subject of this hearing, as I have said already two or three times.
VII AR 2525:22-24.
Mr. Hammel also testified that the internal Diocesan restructuring did not strip the Church of its ownership of the Parish and School Properties under Church law:
Q: Under church law, who owns the parish and school properties?
A: The Roman Catholic Church and specifically the juridic persons that were established and erected to hold the property under church law, the parishes and the schools.
Q: And when the school properties were transferred from the Welfare Corporation to the Corporation Sole upon the Welfare Corporation's dissolution, did the ownership under church law, as you just described, change?
Q: So let's suppose that even if—even if we were to suppose that civil law title has passed from the Corporation Sole to the Support Corporation, under church law does the ownership of that property change from what you previously described?
A: No, it does not change at all.
VII AR 2586:7-12, 2587:13-18, 2588:4-9.
There was no contrary evidence presented to the Review Board. Thus, the administrative record does not support the factual conclusion by the Review Board that SF Transfer Tax Ordinance § 1106(d) does not apply to the subject transfers.
In addition, the Review Board erred as a matter of law in that it applied the wrong standard in evaluating the “change in form” exemption under SF Transfer Tax Ordinance § 1106(d). IX AR 3613-16. The Review Board concluded that the change in form exemption under SF Transfer Tax Ordinance § 1106(d) did not apply because the purpose, control and powers of the Corporation Sole, the Welfare Corporation and the Support Corporation differed from each other. IX AR 3614:16-20, 3616:12-17. The Review Board does not cite any legal authority to support its conclusion that the factors it relied upon (i.e., purpose, control and powers) are relevant for purposes of the change in form exemption.
Relying upon Home Construction Corp. v. United States (5th Cir. 1971) 439 F.2d 1165 , Davant v. Commissioner (5th Cir. 1966) 366 F.2d 874 , and Security Industrial Ins. Co. v. United States (5th Cir. 1983) 702 F.2d 1234 (collectively “the Home Construction cases”), Respondent argues that to qualify as a change in form under SF Transfer Tax Ordinance § 1106(d), the “continuity of interest” test must be satisfied—that is, one corporation must “replace” or be the “alter ego” of the other, or there must be “an identity of shareholders and their proprietary interests.” Respondent's reliance on the Home Construction cases is misplaced as those cases involved federal income taxes and not the federal documentary stamp tax upon which San Francisco's transfer tax is based.
In the Home Construction cases, the issue was whether a corporate reorganization satisfied the requirements of a tax-free reorganization for federal income tax purposes. For federal income tax purposes, a reorganization is tax-free if it is described in one of the subsections under IRC section 368(a)(1) . For example, a so-called “A” reorganization is exempt under IRC section 368(a)(1)(A) , a “B” reorganization is exempt under IRC section 368(a)(1)(B) , and so forth. An “F” reorganization is exempt under IRC section 368(a)(1)(F) as a “mere change in identity, form, or place of organization of one corporation, however effected.” At issue in the Home Construction cases was whether the subject reorganization was exempt from federal income tax as an “F” reorganization under IRC § 368(a)(1)(F) . In making the determination whether the reorganization at issue therein satisfied the requirements of an “F” reorganization, the Court in each case applied the “continuity of interest” test.
Unlike the Home Construction cases, the issue in this case is not whether the restructuring of the Archdiocese at issue here qualifies as an “F” reorganization for federal income tax purposes. Indeed, as charitable religious corporations under IRC § 501(c)(3) , the Corporation Sole, the Welfare Corporation (prior to its dissolution) and the Support Corporation are not subject to federal income taxes. II AR 580-586. Rather, the proper legal test for determining whether the “change in form” exemption applies for transfer tax purposes is set forth in Columbia Gas, wherein the Court rejected the “F” reorganization continuity of interest test upon which the Review Board and Respondent has relied and instead looked to whether there has been any change in the beneficial ownership of the real property that was transferred:
We hold that in using the language “a mere change in identity, form, or place of organization” in § 4382(b)(1)(D) [of the federal Documentary Stamp Tax Act] Congress intended to exempt a generic class of formalistic transactions involving no change in ownership and no new dedication of capital. It did not intend to import into the excise tax field a specific definition of whatever type of reorganization is covered by § 368(a)(1)(F) [i.e., an “F” reorganization]. We agree with the district court that the simple divisive reorganization here in issue, involving no shift in ownership interests, qualifies as an exempt transaction.
Columbis Gas, supra, 446 F.2d at 324 .
Thus, the Columbia Gas Court concluded that the reorganization was not subject to the documentary stamp tax because, even though the property was transferred from one corporate affiliate to another, the property ultimately remained owned by both affiliates' common parent corporation.
Even if the Review Board's findings that the purpose, control and powers of the above corporations are “different” from each other (see IX AR 3614:17-18, 3616:14-15) were the proper standard here, there is no support in the administrative record for concluding that such is the case. Instead, the evidence presented to the Review Board established just the opposite. As is discussed above, the purpose, control and powers of the Corporation Sole, the Welfare Corporation and the Support Corporation were the same, in that the Archbishop is the “hub of the wheel” around which the Archdiocesan family of corporations is connected.
In sum, SF Transfer Tax Ordinance § 1106(d) expressly exempts transfers “whereby a mere change in identity, form, or place of organization is effected.” Under Columbia Gas and Attorney General Opinion No. 98-1203, this includes transfers whereby no change in the ultimate or beneficial ownership of the property has occurred. The Review Board failed to follow Columbia Gas and Attorney General Opinion No. 98-1203 and erroneously applied the continuity of interest test under federal income tax law. In so doing, the Review Board erroneously considered factors that are irrelevant for transfer tax purposes—namely, the purpose, control and power of the subject corporations. As such, the Review Board erred as a matter of law. The Review Board also made findings under this erroneous standard that are not supported by the administrative record.
Because it is uncontroverted that the beneficial ownership of the Parish and School Properties did not change as a result of the restructuring of the Archdiocese, the restructuring qualifies as a mere change in form and is thus exempt from the transfer tax under SF Transfer Tax Ordinance § 1106(d).
Issue 3 - Does California Revenue and Taxation Code § 62(k), which provides that intra-denominational transfers of realty are not “changes of ownership,” preempt the imposition of transfer tax on such transfers?
Petitioners contend that Revenue and Taxation Code Section 62(k) (“Section 62(k)”) of the State property tax statute (excluding intra-denominational transfers from property taxation) exempts the subject transfers from any transfer tax.
Section 62(k) is a portion of the statutory implementation of Proposition 13, a ballot measure that governs certain aspects of property taxes in California (California Constitution, Article XIII A). The statutory implementation governs property taxes throughout the state. Section 62(k) defines the term “change in ownership” so as to exclude:
Any transfer of property or an interest therein between a corporation sole, a religious corporation, a public benefit corporation and a holding corporation as defined in Section 23701h holding title for the benefit of any of these corporations, or any combination thereof (including any transfer from one entity to the same type of entity), provided that both the transferee and transferor are regulated by laws, rules, regulations, or canons of the same religious denomination.
Thus, Section 62(k) would exempt the transfers at issue in this case here as a “change in ownership” for the purpose of property tax in California The issue is whether this exemption extends to the concept of a change of ownership for the purpose of San Francisco's Transfer Tax Ordinance.
Petitioners concede that Section 62(k) contains no such express exemption, but rather argue that this section should be so interpreted because it advances a statewide policy to encourage the transfer of properties between and among religious affiliates of the same denomination, and that policy transcends San Francisco's interests as embodied in the transfer tax. In other words, Petitioners' position is that even if San Francisco's Transfer Tax Ordinance were to be interpreted as not exempting the transfers here, the asserted state policy embodied in Section 62(k) should have the same effect.
The Review Board rejected this contention and concluded that Section 62(k) did not involve a statewide concern as claimed by Petitioners. The administrative record and applicable law support this conclusion.
The administrative record does not contain evidence to establish that Section 62(k) was intended to create a statewide policy in favor of readily easy transfers of properties such as was accomplished here. Indeed, tax exemptions are to be construed strictly and against the taxpayer, who has the burden of establishing that an exemption allowed in one area should be applied in another. Batt v. City and County of San Francisco (2010) 184 Cal. App. 4th 163, 175 ; Alpha Therapeutic Corp. v. Franchise Tax Bd. (2000) 84 Cal. App. 4th 1, 5 .
In addition to this general rule which precludes the recognition of an expansive policy as advocated by Petitioners, there is logic to the conclusion that an exemption for property tax purposes does not indicate a legislative intent to create a broader exemption for transfer taxes as well. As was analyzed in Fisher v. County of Alameda (1993) 20 Cal. App.4th 120 :
[T]he [transfer] tax cannot have the effect of imposing an increasing burden on property ownership, as do escalating ad valorem property tax rates and inflationary increases in assessed valuation.
[T]he imposition of a citywide transfer tax does not upset the delicate balance of a vulnerable group of citizens in the manner that local variations in the ad valorem property tax rate or assessment practices would. Thus, it has no impact on the remediation of the recognized evils which undergird the state's interest in controlling ad valorem real property taxation.
Id. at 130.
Thus, this court rejects Petitioners' assertion that Section 62(k) can be viewed as creating a policy that extends beyond the impact of ad valorem property taxes to also cover the impact of local transfer taxes.
Accordingly, there is neither factual support in the administrative record nor legal authority for Petitioners' assertion that Section 62(k) exempts the imposition of the transfer tax here. 11
Issue 4 - Are the transfers of the Parish and the School Properties exempt from the transfer tax under Revenue and Taxation Code § 11925(d) as transfers where the direct or indirect ownership interests in the realty remain unchanged?
Petitioners contend that RTC § 11925(d) exempts the subject transfers from San Francisco's transfer tax because it is incorporated into San Francisco's Transfer Tax Ordinance..
The California Transfer Tax Act ( Revenue and Taxation Code § 11901 et seq.), provides enabling legislation that allows California localities to impose a tax upon real property transfers:
The board of supervisors of any county or city and county, by an ordinance adopted pursuant to this part, may impose, on each deed...by which any lands...sold within the county shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchasers or purchasers, or any other person or persons...a tax...
RTC § 1191 l(a). 12
The San Francisco Transfer Tax Ordinance was adopted pursuant to this enabling act. As stated in San Francisco Transfer Tax Ordinance § 1101:
This Article shall be known as the “Real Property Transfer Tax Ordinance.” It is adopted pursuant to the authority contained in Part 6.7 (commencing with Section 11901) of Division 2 of the Revenue and Taxation Code of the State of California.”
RTC § 11925 (d), contains an exemption from transfer taxes imposed under the California Transfer Tax Act:
No levy shall be imposed pursuant to this part by reason of any transfer... between legal entities that results solely in a change in the method of holding title to the realty and in which proportional ownership interests in the realty, whether represented by stock, membership interest, partnership interest, cotenancy interest, or otherwise, directly or indirectly, remain the same immediately after the transfer. 13
The issue is thus raised as to whether the exemption-in RTO § 11925(d) applies to the San Francisco Transfer Tax Ordinance. The Review Board concluded that it does not because the “home rule” powers of San Francisco, as a charter city, “takes precedence over conflicting provisions of state law.” IX AR 3618.
The Review Board's conclusion was not correct as a matter of law. The Review Board's conclusion is based on article XI, section V of the California Constitution, the so called “home rule” provision that grants charter cities a large degree of sovereignty over “municipal affairs.” In a nutshell, this constitutional grant of power allows charter cities to pass laws that are properly within the province of local governance of local affairs, so long as such laws do not conflict with a state law that embodies a statewide concern. If such occurs, the conflict is resolved more or less on a traditional conflicts of law analysis. This process is clearly set forth in California Fed. Savings & Loan Assn. v. City of Los Angeles, supra, 54 Cal.3d at 16-18 .
While the application of California Fed. would provide for fascinating analysis in this case 14, it does not apply to the San Francisco Transfer Tax Ordinance vis-à-vis the California Transfer Act because the former was enacted pursuant to the latter. In other words, San Francisco did not enact its transfer tax law that is now potentially in conflict with a statewide policy. It enacted the transfer tax pursuant to a statewide transfer tax law that specifically authorizes local iterations thereof.
Thus, rather than a conflicts analysis, the true question presented is whether San Francisco's enactment of its transfer tax law pursuant to the authority in RTC § 11911 (a) resulted in San Francisco adopting the exemption under RTC § 11925(d) . This court finds that it did.
The issue presented requires an analysis of both RTC 11911 (a) and RTC § 11925(d) as well as the San Francisco Transfer Tax Ordinance. In interpreting these enactments, well established rules apply. The object of statutory interpretation is to ascertain the intent of the legislature, with the language used being the most reliable indicator of legislative intent. Mejia v. Reed (2003) 31 Cal. 4th 657, 663 . Statutory language should be given its usual and ordinary meaning. Id. Significance must be given to every word, phrase, sentence or part of a statute, and a construction making some words surplusage is to be avoided. Moyer v. Workmen's Comp. Appeals Bd. 10 Cal. 3d 222, 230 (1973) . It is generally presumed that when a word is used in a particular sense in one part of a statute, it was intended to have the same meaning if it appears in another part of the same statute. Delaney v. Baker (1999) 20 Cal.4 th 2341 . If the language used is plain and unambiguous, then there is no need for construction, nor is it necessary to resort to other indicia of legislative intent. Katz v. Los Gatos-Saratoga Joint High School District (2004) 117 Cal.App.4th 47, 54 .
Applying these rules first to RTC § 11925(d) , that section exempts transfers where the tax levied is “pursuant to this part.” “This part” is also found RTC § 11911 (a), which authorizes a local entity to adopt a transfer tax by an ordinance “pursuant to this part.” “This part” cannot be reasonably interpreted to-refer only to RTC § 11911 (i.e., so as to authorize adoption of an ordinance without the exemption) because both RTC § 1191 l(a) and RTC § 11925(d) use the identical language to describe both the extent of the enablement and the extent of the exemption from the tax. Indeed, the term “Part 6.7” is the heading to the entire Documentary Tax Act, which includes both RTC § 11911 and RTC § 11925 . Stats. 1967, ch 1332 § 1, operative January 1, 1968, which heading was amended by Stats 1968 ch 17 § 1, effective April 9, 1968, operative July 1, 1968. There is no other use of the term “Part” in the Documentary Tax Act.
There are divisions of the Documentary Tax Act. They are “Chapters” and “Sections.” “Part” only appears as the reference for the entire Documentary Tax Act. If the legislature intended that RTC § 11911 (a) allow for the adoption of an Ordinance without the incorporation of the exemption, then RTC § 11911 (a) would have refereed to one of the more restrictive terms used in the Documentary Tax Act, either “pursuant to this Section” or “pursuant to this Chapter.” It did not do so. Thus the only reasonable interpretation is that the California legislature intended that by adopting an Ordinance under RTC § 11911 (a), the ordinance would include the exemption in RTC § 11925 .
The same analysis applies to the San Francisco Transfer Tax Ordinance, and the same result ensues. It recites that “it is adopted pursuant to the authority contained in Part 6.7 (commencing with Section 11901) of Division 2 of the Revenue and Taxation Code of the State of California.” It does not state it is adopted pursuant to “ Section 11911 of the Revenue and Taxation Code ” or pursuant to “Chapter 2 of Division 2 of the Revenue and Taxation Code,” which is the Chapter of Part 6.7 in which RTC § 11911 is found.-Instead, as is set forth above, the Ordinance refers to the entire Documentary Tax Act, including RTC § 11925(d) , the exemption section.
It is true that the administrative record demonstrates that in February 2009 San Francisco eventually added the wording of RTC § 11925(d) to the San Francisco Transfer Tax Ordinance:
The tax imposed under this Article shall not apply where the deed, instrument, or other writing transferring title to real property between an individual or individuals and a legal entity or between legal entities that results solely in a change in the method of holding title and in which the proportional ownership interests in the real property, whether represented by stock, membership interest, partnership interest, cotenancy interest, or otherwise, directly or indirectly, remains exactly the same before and after the transfer.
SF Transfer Tax Ordinance § 1108(d) (as added by SF Ord. No. 20-09, Feb. 5, 2009).
The adoption of this Ordinance has no effect on the above plain language analysis of SF Transfer Tax Ordinance Section 1101. As is set forth above, the plain language interpretation obviates the need to speculate as to why San Francisco added this express exemption.
In addition, the administrative record reveals numerous examples of deeds claiming exemption from the transfer tax under RTC 11925(d) , which the Recorder recorded without payment of any transfer tax. VII AR 2665-2723. Such deeds were recorded in 2007-2008, the same time period when Deed A and Deed B were presented to the Recorder's office for recordation and before the adoption of SF Transfer Tax § 1108(d) .While this extrinsic evidence does not impact the plain language analysis set forth above, it is noted that the Recorder's behavior relative to these additional deeds is consistent with this court's analysis of the meaning of RTC § 11911 (a), RTC § 11925 (d), and the SF Transfer Tax Ordinance Section 1101.
In sum, by virtue of its enactment of the SF Transfer Tax Ordinance “pursuant to Part 6.7,” San Francisco adopted the exemption in RTC § 11925(d) . Thus, the Review-Board erred in determining that RTC § 11925(d) doe's not exempt the subject transfers from the SF Transfer Tax Ordinance.
Issue 5 - Is the Recorder estopped from imposing a transfer tax on the transfers of the Parish and School Properties?
Petitioners contend that the City should be estopped imposing a transfer tax in this case. The Review Board concluded that the City was not estopped from taking such action on the basis that Petitioners' evidence was insufficient to establish the required elements for estoppel.
Estoppel requires a representation made by a party, justifiable reliance by another on the representation, and a change in position from such reliance resulting in injury. Preis v. American Indemnity Co. (1990) 220 Cal.App.3d 752, 761 . Similarly, in Long Beach v. Mansell (1970) 3 Cal.3d 462, 488-89 , the Court held that equitable estoppel requires that: (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury. Further, a party seeking to establish an estoppel against the government from imposing a tax must demonstrate that “the case [is] clear and the injustice great.” United States Fidelity and Guaranty Co. v. State Board of Equalization (1956) 47 Cal. 2d 384, 389 .
Under these standards, it is clear that the Review Board did not err in concluding that the administrative record failed to establish an estoppel in this case. There was no evidence that the Petitioners relied on anything represented to them by the Recorder before determining to make the subject transfers and to execute Deeds A and B. While the Petitioners may have believed that no tax would be imposed, there is no basis in the administrative record for concluding that the Recorder intended to create such a belief through its conduct. Simply put, the facts before the Review Board were not sufficient to establish an estoppel, let alone to find error in the Review Board's rejection of the Petitioners' estoppel argument.
Issue 6 - Was the delivery of Deed B from the Corporation Sole to the Support Corporation sufficient to trigger the transfer tax?
Petitioners contend that even if the transfers in the Deeds are subject to transfer tax, no transfer tax can be imposed with respect to Deed B from the Corporation Sole to the Support Corporation because any grant of property was conditioned on no imposition of transfer tax and, as such, delivery of that deed has not been completed. The Review Board concluded that Deed B was not a conditional grant because the deed contained no language that indicated that the transfer was conditioned on no transfer tax. IX AR 3619.
Civil Code § 1054 provides:
Delivery Necessary. A grant takes effect, so as to vest the interest intended to be transferred, only upon its delivery by the grantor.
Civil Code § 1056 provides:
§ 1056. Delivery to grantee is necessarily absolute. A grant cannot be delivered to the grantee conditionally. Delivery to him, or to his agent as such, is necessarily absolute. And the instrument takes effect thereupon, discharged of any condition on which the delivery was made.
In Luna v. Brownell (2010) 185 Cal.App.4th 668, 673 , the Court set forth the rules applicable to an effective delivery:
A deed does not transfer title until it has been legally delivered ... [citations omitted]. A valid delivery of a deed depends on whether the grantor intended that it should be presently operative, and a manual transfer is not conclusive evidence of such intention... [citations omitted]. Although physical delivery of a deed raises an inference that the grantor intended to transfer title, that inference may be overcome by evidence showing a contrary intent... [citations omitted]. The trier of fact must determine intent by reviewing all of the surrounding circumstances of the transaction...
In addition, acceptance by the grantee is necessary to make a delivery effective and the deed operative. Whether the deed was accepted by the grantee so as to complete the transfer of title to him is likewise a question of fact for the trial court.
In Henneberry v. Henneberry (1958) 164 Cal. App. 2d 125 , the Court voided a deed that had been executed, acknowledged, delivered and recorded because extrinsic evidence established that there was no mutual intent to pass title at the time of delivery. The Court stated: “[i]n addition to physical delivery, and an acceptance by the grantee, to constitute a valid delivery there must exist a mutual intention on the part of the parties, and particularly on the part of the grantor, to pass title to the property immediately.” Id. at 129
The evidence in the administrative record does not support the existence of a mutual intent between the Corporate Sole [grantor] and the Welfare Corporation [grantee] that the transfers embodied in Deed B were intended to occur upon the delivery of that deed. To the contrary, in a letter dated June 16, 2008 to the Corporate Sole, the President of the Support Corporation stated that Deed B would not be accepted unless and until the Deed could be recorded without imposition of a transfer tax. II AR 601. This evidence is consistent with the notation put on the face of Deed B by the grantor that there would be no transfer tax on its recordation. I AR 22. This extrinsic evidence overcomes the inference that the delivery of Deed B was intended to accomplish a transfer. Instead, this evidence established that neither the grantor nor the grantee intended that transfer occur unless no transfer tax were to be imposed on the recordation of Deed B. There is no contrary evidence in the administrative record to indicate an intent to transfer if the transfer tax was imposed. Thus, the Review Board erred in rejecting Petitioners' argument that no transfer tax was due because delivery and acceptance had not occurred as to Deed B.
Issue 7 - Does the imposition of the transfer tax on the transfers of the Parish and School properties violate the United States and California Constitutions?
Petitioners contend that the City's imposition of a transfer tax on internal Church transfers of real property violates the First Amendment to the United States Constitution (“First Amendment”) as well as the affirmative guarantee of the free exercise and enjoyment of religion under the California Constitution. Respondent argues that constitutional issues are not properly before this court because the Review Board made no decision on such issues and, in any event, no constitutional violation arises.
This court declines to decide the parties' constitutional issues because it is able to resolve this matter as set forth above and thus need not reach the constitutional issues presented. Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal. 4th 220, 212-13 .
For the reasons set forth above, this Court concludes that a peremptory writ of mandate shall be issued and directed to Respondent Review Board to set aside its ruling issued on January 26, 2010, and to issue a ruling rejecting the determination by the Recorder that transfer taxes are due on the transfers.
This matter is set for a Case Management Conference on January 9, 2012 at 2:30 p.m. On or before January 4, 2012, each party may file, serve, and deliver a courtesy copy to this court any proposed revisions to this Tentative Statement of Decision. Such proposed revisions shall not reargue the substance of the matters decided but rather shall be limited to drafting, factual, or other similar matters. The parties should pay particular attention to citations to the administrative record to assure the accuracy thereof.
The parties shall also meet and confer before the Conference and submit three courts days before the Conference a Joint Case Management Conference Statement setting forth how this case should proceed. The parties shall also submit a proposal or proposals for the form of the writ to be issued.
Dated: November 17, 2011
HONORABLE RICHARD A. KRAMER
Judge of the Superior Court
CERTIFICATE OF MAILING
(COP 1013a (4))
I, Felicia Green, Deputy Clerk of the Superior Court of the City and County of San Francisco, certify that I am not a party to the above-entitled action.
On November 17, 2011,1 served the attached TENTATIVE STATEMENT OF DECISION ON SECOND CAUSE OF ACTION, by placing a copy thereof in a sealed envelope, addressed as follows:
Jeffrey Vesely Robert L. Stolebarger
PILLSBURY WINTHROP SHAW PITTMAN LLP HOLME ROBERTS & OWEN LLP
50 Fremont Street 560 Mission Street, 25th Floor
P.O. Box 7880 San Francisco, CA 94105-2994
San Francisco, CA 94120-7880
I then placed the sealed envelopes in the outgoing mail at 400 McAllister Street, San Francisco, CA. 94102 on the date indicated above for collection, attachment of required prepaid postage, and mailing on that date following standard court practices.
Dated: November 17, 2011
T. MICHAEL YUEN, Executive Officer
Felicia Green, Deputy Clerk III
References to the administrative record (“AR”) of the Review Board in this matter, as certified by the Clerk of the Review Board on July 12, 2010, are preceded by the volume number, followed by the page number.
A juridic person is a person under Church canon law (“Canon Law”) that has rights and obligations that are recognized by the Church. VIII AR 2925 (Canon 113, § 2); VII AR 2515:24-2516:1,2547:17-25.
IRC Section 509(a)(3) allows one Section 501(c)(3) organization to support another Section 501(c)(3) organization of the Corporation Sole, to be supervised or controlled in connection with the Corporation Sole and in accordance with the Canon Law of the Roman Catholic Church.
San Francisco Transfer Tax Ordinance § 1114, as relevant to the transfers at issue, provides:
In the administration of this ordinance the recorder shall interpret its provisions consistently with those Documentary Stamp Tax Regulations adopted by the Internal Revenue Service of the United States Treasury Department which relate to the Tax on Conveyances and identified as Section 47.4361-1, 47.4361-2 and 47.4362-1 of Part 47 of Title 26 of the Code of Federal Regulations, as the same existed on November 8, 1967, except that for the purposes of this ordinance, the determination of what constitutes “realty” shall be determined by the definition or scope of that term under state law.
See, e.g., Holmes v. McColgan (1941) 17 Cal. 2d 426, 430 ; Innes v. McColgan (1941) 47 Cal. App. 2d 781, 784 ; Meanley v. McColgan (1942) 49 Cal. App. 2d 313, 317 ; see also Opinion of the Attorney General, No. 98-1203 56 (March 26, 1999), 82 Ops. Cal. Atty. Gen. (applying federal authorities regarding the federal documentary stamp tax for purposes of interpreting California's transfer tax).
I AR 308 (Articles, Art. Second); see also I AR 336 (Bylaws, Preamble); II AR 617-619 (1953 deed from the Corporation Sole to the Welfare Corporation indicating no consideration for the transfer).
With respect to religious corporations in particular, the administrative record includes an opinion in a letter from Glenn L. Rigby, Assistant Chief Counsel of the State Board of Equalization dated March 24, 1981 that states: “[T]he fundamental truth recognized by the judicial notice taken in Frohliger [v. Richardson], supra; namely, that the real owner of property, title to which is vested in the Roman Catholic Bishop, a corporation, is the Roman Catholic Church, and since it is recognized that a transfer to an agent is only a transfer of bare legal title, it is now our opinion that the subject transfer from one Roman Catholic Bishop, a corporation sole to another should not be considered a change in ownership” [emphasis added]. V AR 1933.
Section 3.1.3 of the Support Corporation's Bylaws provides:
This Corporation shall engage solely and exclusively in activities that shall support, or benefit the Corporation Sole, for the purposes stated in This Corporation's Articles of Incorporation, such activities to include, but not be limited to, collecting rents from This Corporation's properties and making payments to or for the use of, or restoring or upgrading the facilities used by, the aforementioned Juridic persons affiliated with the Corporation Sole; all in accordance with the laws of The Church, which, inter alia, respects the special rights to use of property by Juridic persons and the concomitant obligation to provide the financial means to maintain and enhance that property. I AR 250-251 (emphasis added).
Canon 113, § 2 states: “In the Church, besides physical persons, there are also juridic persons, that is, subjects in canon law of obligations and rights which correspond to their nature.”
Canon 1256 states: “Under the supreme authority of the Roman Pontiff, ownership of goods belongs to that juridic person which has acquired them legitimately.” Canon 1257, § 1 states: “All temporal goods which belong to the universal Church, the Apostolic See, or other public juridic persons in the Church are ecclesiastical goods and are governed by the following canons and their own statutes.” Parish and school juridic person are “public juridic persons.” VII AR 2619:1-3.
In light of this court's determination that Section 62(k) does not embody a statewide concern to facilitate the transfer of properties within a religious organization, it is not necessary to conduct the analysis set forth in California Fed. Savings & Loan Assn. v. City of Los Angeles (1991) 54 Cal. 3d 1 , which was extensively briefed by the parties.
The enabling legislation only authorizes the transfer tax on “lands...sold within the county.” Since the properties at issue here were not “sold,” it appears that the San Francisco Transfer Tax Ordinance would not apply because its enabling legislation is limited, like the Ordinance itself, to properties “sold.”
The heading on Section 11925 is “Partnerships,” but the quoted provisions of subsection (d) are not limited to partnerships. The headings in the Revenue and Taxation Code do not in any manner affect the scope, meaning or intent of the Revenue and Taxation Code. Revenue and Taxation Code § 6 .
In large part, the task in such analysis is to interpret “municipal affairs,” which the Supreme Court has termed “that cryptic phrase” and “wild words.” California Fed. Savings & Loan Assn. v. City of Los Angeles, supra, 54 Cal.3d at 5 .