KJM Law Wins Landmark Property Tax Appeal for CalSTRS

Last May, Kevin J. Moore & Associates won a major legal victory for their client, the California State Teachers Retirement System (CalStrs), which is one of the largest pension funds in the world.  The historic ruling by the California Court of Appeals for the Second District found that a 20-year possessory interest tax imposed on CalSTRS’ real estate investment properties was unconstitutional. While the impact of this ruling is still unknown, what is clear is that it will impact all state teachers and public employees who contribute to the CalSTRS and CalPERS system in California.

Attorney Kevin Moore called the ruling a victory for both CalSTRS and CalPERS. He noted that when the Legislature gave CalSTRS and CalPERS the authority to invest in real property, they anticipated that there would be a resultant loss of property tax revenues due to the exempt status of these entities. To compensate for these losses, the Legislature enacted a statute which imposed a possessory interest tax on the tenants of CalSTRS and CalPERS investment properties which was higher than the possessory interest taxes of other similarly-situated tenants. Now that the court declared that statute unconstitutional, the question is, will there be a rebate to CalSTRS and CalPERS, and if so, how much will the local counties be required to return?

The case filed before the Appellate Court has ramifications to many of CalSTRS and CalPERS real estate investments in California. With this landmark ruling, it is likely that Los Angeles and other counties will now have to refund CalSTRS and CalPERS for property taxes paid on behalf of their tenants.

In his winning oral argument to the justices of the CA Appellate Court, Attorney Kevin Moore gave four reasons why the statute, Government Code §7510(b)(1), was unconstitutional:

1.  It values taxable possessory interests at values higher than their fair market values,

2. It taxes property exempt from taxation,

3. It violates the equal protection clause of the California Constitution, and

4. It is not uniform in its application to all similarly-situated taxpayers.

The court, having agreed with the first two arguments, struck down Government Code §7510(b)(1) as unconstitutional. The court found it unnecessary to rule on the other two constitutional arguments.

After five long years of presenting these arguments before the various administrative agencies and the courts, Attorney Moore pointed out that there is now a conclusive decision that can protect these taxpayers from illegal taxation and provide CalSTRS and CalPERS with higher investment returns for the benefit of all of California’s teachers and public employees.

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.