County Says Catholic Church Owes $1.34MM in Taxes
San Mateo follows San Francisco’s lead
Submitted April 29, 2010, 10:50 PM
A January ruling by the San Francisco Transfer Tax Board determining that the Catholic Archbishop owes the city millions of dollars in real estate transfer taxes has set in motion a follow-on claim.
Based on the tax board’s decision, San Mateo County has sent a demand letter to the Catholic Archdiocese of San Francisco seeking more than $640,000 in payments related to the transfer of more than $580 million in church-owned property. The county also is seeking nearly $709,000 on behalf of the city of San Mateo.
The church denies San Mateo County’s claim just as it has denied a claim for more than $21.7 million in transfer taxes, penalties and interest from San Francisco County. “The Archdiocese maintains that to impose transfer taxes, penalties and interest on a religious organization in connection with an internal restructuring involving no exchange or receipt of money from which to pay any tax is inequitable and threatens to confiscate substantial Church assets that are devoted to religious purposes,” the church said in Catholic San Francisco Online edition on April 21.
The San Francisco claim is based on the church’s transfer of 232 San Francisco County properties among three church-related corporations. The church has sued San Francisco County, Assessor-Recorder Phil Ting and the transfer tax board in state Superior Court to contest the claims. A county answer is due in the middle of May.
Historically, California county recorders have accepted at face value any claimed exemptions to transfer stated on property deeds when they are filed, executives in both San Francisco and San Mateo counties said. Going forward there is every indication that such forbearance will not continue, at least in these two Bay Area counties.
“It is incumbent on us that all parties are treated equally,” said San Mateo Deputy County Counsel Rebecca Archer. “Clearly this indicates that we need to be looking at things more carefully.”
Under its ordinance, San Mateo County is expressly granted the right to verify exemption claims, she said.
“We are scrutinizing transfer tax documents more for legal accuracy,” said Ting, citing his office’s successful efforts to collect $18 million in transfer taxes from the Blackstone Group LP after Blackstone acquired multiple San Francisco buildings from Equity Office Properties Trust in 2007 then sold to Morgan Stanley. It was the largest transfer tax collected in San Francisco County history.
Officials in Marin County say they are tracking events in San Francisco too but have not yet decided whether to take action. The Archdiocese of San Francisco includes Marin County.
The archdiocese recorded the deeds at issue in San Francisco and San Mateo counties on the same day: April 25, 2008.
Unlike property taxes, for-profit and nonprofit corporations alike pay transfer taxes on real estate. However, the taxes are not formulated uniformly across jurisdictions. In San Mateo County, for instance, the transfer tax is $1.10 for every $1,000 of property value. In the city of San Mateo, they are calculated as 0.5 percent of property value. In San Francisco, the tax is progressive, with the rate rising as the value of the underlying property goes up. In the case of the Catholic Church, the tax was applied at a rate of $7.50 for every $1,000 of value. Today, the rate is twice that, at $7.50 for every $500 in value.
In San Mateo County, the church claimed an exemption from the transfer tax based on a provision in state law. The exemption allows real property to escape the transfer tax if the transfer is no more than a change in the method of holding title and the proportional ownership interests in the property don’t change after the transfer is completed.
Basing its argument on the San Francisco board’s findings, San Mateo County says that membership in the two corporations affiliated with the church and between which the properties were transferred is not the same. Without that, the exemption does not apply, county officials say.
The church is claiming exemption from the transfer tax in San Francisco County based on the same allowance as well as several others. Among them is a claim that the transfers did not constitute “realty sold” because no money changed hands. The San Francisco recorder argued, and the Transfer Tax Board accepted, that cash does not have to trade hands for value to have been exchanged. Among other examples, the board cited the assumption of $33.9 million in debt by one church corporation for another as an exchange of value.
The church is being represented in San Francisco and San Mateo by Pillsbury Winthrop Shaw Pittman LLP from its San Francisco office. Assessor Ting was represented by San Francisco’s Holme Roberts & Owen before the tax board, which hears cases only rarely.
Also at issue are the property values assigned to church holdings by each county. Based on county values, the church holds property worth more than $2.5 billion in San Francisco and San Mateo County alone.
In San Mateo County, 68 of the properties are churches, 35 are schools, 10 are nursing homes and the rest are miscellaneous. Nearly all of the value is in the land, which totals 8.2 million square feet. The county valued the land from a maximum of $100 a square foot down to as little as $3 a square foot.
The most valuable San Mateo County church property, at $32 million, is Menlo Park’s St. Anthony’s Church. According to the county, the location includes more than 315,000 square feet of land worth more than $31.5 million.
But San Mateo’s Rabe said the value of church assets is not clear-cut. “The valuation of a church is difficult to determine, especially an historic building,” she said. “The churches and the schools are going to be tough to value.”
With the church’s refusal to pay the transfer tax, Rabe says the county is looking at its options. “Our ordinance does not have a provision to lien delinquent transfer tax,” she said in an email. More answers should emerge in the next several weeks, she said.
