http://www.sacbee.com/content/sports/basketball/kings/story/14293878p-15136281c.html
By Dan Walters -- Bee Columnist
Published 12:01 am PDT Friday, August 11, 2006
Story appeared on Page A3 of The Bee
The San Jose Sharks, a professional hockey team that plays its home games in the city-owned HP Pavilion, pays several hundred thousand dollars in a year in what's called "possessory interest tax" to local governments.
And what, one might ask, is a "possessory interest"? State law defines it this way: "Possession of, claim to, or right to the possession of land or improvements that is independent, durable, and exclusive of rights held by others in the property, except when coupled with ownership of the land or improvements in the same person."
In layman's language, that means that when someone holds a long-term right to use publicly owned property, which is exempt from direct property taxes, the state assumes that the tenant is, in effect, the owner and must pay property taxes accordingly.
The Sharks have a long-term lease to use HP Pavilion and therefore must pay the possessory interest tax. And they are not alone. Throughout the state, local tax authorities collect possessory interest taxes on tens of billions of dollars in leaseholder valuations.
Part of the Staples Arena complex in downtown Los Angeles is on city property, so its owners pay possessory interest taxes. Families that own cabins on lots leased from the Forest Service pay possessory interest taxes, as do ranchers who graze cattle on public lands, boaters with docks on rivers and lakes, aerospace companies that use military equipment, airlines that occupy space at airports, and shipping lines at ports -- even concessionaires at the State Fair that opens today.
The principle behind the possessory interest tax is perfectly simple, rational and fair: Just because property is publicly owned and off the tax rolls, someone who uses it -- especially someone who uses it to earn a profit -- shouldn't escape paying a fair share of the property taxes that support local governments and schools.
And that brings us, inevitably, to the deal that Sacramento city and county politicians have cooked up with the Kings basketball team to build a new downtown arena.
As envisioned, the arena project would cost about a half-billion dollars and be financed with a quarter-cent increase in the local sales tax, if voters give their approval in November. The arena would be leased to the Kings for a nominal $4 million a year, less than 1 percent of the facility's cost, and the Kings would be entitled to all revenues, even for nonsporting events, that it generates.
By those terms, it amounts to a hugely lucrative deal for the Kings and their owners, the Maloof family, since an arms-length commercial lease would cost at least seven or eight times as much.
But there's still more. A brief clause in the agreement that the local politicos made with the Kings says that the joint powers authority to be created by the city of Sacramento and the county of Sacramento would assume payment of possessory interest taxes, and the negotiators say they don't know how much it would be.
As with many other aspects of the deal, however, its boosters are being less than forthright because if they know how much the arena would cost, at least in round numbers, they know fairly well how much the possessory interest tax would be. It doesn't take a rocket scientist, or a CPA, to figure it out -- especially in a situation as clear-cut as this one, wherein the Kings would have sole possession of the arena for decades.
Tax authorities say that in such cases, the local assessor would assume, for tax purposes, that the Maloofs own the arena and apply the statewide property tax rate of 1 percent, plus whatever must be set aside for local bonds and other obligations, to its full value. So if the arena were valued at $500 million, the possessory interest tax would be about 1.25 percent of that amount, or a little over $6 million a year.
It is, in effect, another $6 million-plus annual subsidy to the Kings, amounting, in fact, to about 10 percent of the estimated $60 million a year that the sales tax would generate.
And it would go on for the entire length of the 30-year lease, even though the sales tax would expire after 15 years. Thirty years times $6 million equals $180 million being transferred from taxpayers' pockets into the Maloofs' bank account.
Such a deal.
By Dan Walters -- Bee Columnist
Published 12:01 am PDT Friday, August 11, 2006
Story appeared on Page A3 of The Bee
The San Jose Sharks, a professional hockey team that plays its home games in the city-owned HP Pavilion, pays several hundred thousand dollars in a year in what's called "possessory interest tax" to local governments.
And what, one might ask, is a "possessory interest"? State law defines it this way: "Possession of, claim to, or right to the possession of land or improvements that is independent, durable, and exclusive of rights held by others in the property, except when coupled with ownership of the land or improvements in the same person."
In layman's language, that means that when someone holds a long-term right to use publicly owned property, which is exempt from direct property taxes, the state assumes that the tenant is, in effect, the owner and must pay property taxes accordingly.
The Sharks have a long-term lease to use HP Pavilion and therefore must pay the possessory interest tax. And they are not alone. Throughout the state, local tax authorities collect possessory interest taxes on tens of billions of dollars in leaseholder valuations.
Part of the Staples Arena complex in downtown Los Angeles is on city property, so its owners pay possessory interest taxes. Families that own cabins on lots leased from the Forest Service pay possessory interest taxes, as do ranchers who graze cattle on public lands, boaters with docks on rivers and lakes, aerospace companies that use military equipment, airlines that occupy space at airports, and shipping lines at ports -- even concessionaires at the State Fair that opens today.
The principle behind the possessory interest tax is perfectly simple, rational and fair: Just because property is publicly owned and off the tax rolls, someone who uses it -- especially someone who uses it to earn a profit -- shouldn't escape paying a fair share of the property taxes that support local governments and schools.
And that brings us, inevitably, to the deal that Sacramento city and county politicians have cooked up with the Kings basketball team to build a new downtown arena.
As envisioned, the arena project would cost about a half-billion dollars and be financed with a quarter-cent increase in the local sales tax, if voters give their approval in November. The arena would be leased to the Kings for a nominal $4 million a year, less than 1 percent of the facility's cost, and the Kings would be entitled to all revenues, even for nonsporting events, that it generates.
By those terms, it amounts to a hugely lucrative deal for the Kings and their owners, the Maloof family, since an arms-length commercial lease would cost at least seven or eight times as much.
But there's still more. A brief clause in the agreement that the local politicos made with the Kings says that the joint powers authority to be created by the city of Sacramento and the county of Sacramento would assume payment of possessory interest taxes, and the negotiators say they don't know how much it would be.
As with many other aspects of the deal, however, its boosters are being less than forthright because if they know how much the arena would cost, at least in round numbers, they know fairly well how much the possessory interest tax would be. It doesn't take a rocket scientist, or a CPA, to figure it out -- especially in a situation as clear-cut as this one, wherein the Kings would have sole possession of the arena for decades.
Tax authorities say that in such cases, the local assessor would assume, for tax purposes, that the Maloofs own the arena and apply the statewide property tax rate of 1 percent, plus whatever must be set aside for local bonds and other obligations, to its full value. So if the arena were valued at $500 million, the possessory interest tax would be about 1.25 percent of that amount, or a little over $6 million a year.
It is, in effect, another $6 million-plus annual subsidy to the Kings, amounting, in fact, to about 10 percent of the estimated $60 million a year that the sales tax would generate.
And it would go on for the entire length of the 30-year lease, even though the sales tax would expire after 15 years. Thirty years times $6 million equals $180 million being transferred from taxpayers' pockets into the Maloofs' bank account.
Such a deal.
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