Under the rules of California’s Proposition 13, real property is re-assessed at fair market value for property tax purposes when there is a change of ownership or substantial improvements are made to the property. Where real property is owned by a legal entity (i.e., corporation, partnership, limited liability company), the property is re-assessed whenever someone acquires control of the entity (more than 50% ownership). Real property owned by an entity is also re-assessed if the entity received the property in an exempt transfer from its prior co-owners and thereafter more than 50% of the ownership interests in the entity change hands.

These entity changes of ownership were supposed to be reported to the State Board of Equalization but a penalty was imposed only if the change was not reported within 45 days after a written request was made by the Board of Equalization. This changes beginning on January 1, 2010. Under the provisions of S.B. 816, signed by the Governor on October 11, 2009, entity changes of ownership must be reported to the State Board of Equalization within 45 days of their occurrence or a penalty is imposed. The penalty is 10% of the annual property tax based on the new assessed value, so it is a significant penalty. The change of ownership is reported using Form BOE 100-B.