PROP. 13 LOOPHOLE GIVES EDGE TO BIG PLAYERS

The Los Angeles Times ^ | May 4, 2013 | Jason Felch and Jack Dolan

[WayneLusvardi]

Change of ownership, key to reassessment, is cut-and-dried for homeowners but not businesses. It means a loss of tens of millions of dollars a year in tax revenue.

The original deal

Dell, one of the world’s richest men, agrees to pay $200 million for the Fairmont Hotel in Santa Monica in 2006.

A few months later

The deal is reshuffled to avoid a legal change in ownership by buying the company that owns the hotel, rather than the Miramar itself. Dell brings in his wife, Susan, and a third party entity controlled by investment managers Glenn Fuhrman and John Phelan.

Fairmont Miramar Hotel Ownership

Susan Dell 49% Susan Lieberman Dell Separate Property Trust, a legal entity controlled by Susan Dell

Michael Dell 42.5% MSD Portfolio LP Investments, an investment portfolio 99% controlled by Michael Dell

Miramar Hotel LLC 8.5% Miramar Hotel LLC, a holding company created and controlled by Dell’s investment managers Glenn Fuhrman and John Phelan

The result: With no single entity owning more than 50%, the value of the hotel for tax purposes remains the same as the last time it sold, in 1999.

Purchase Price $200 million

Assessed Value $86 million

Estimated property tax under original deal: $2 million

Estimated property tax under reshuffled deal $860,000

Estimated tax benefit for Dell: $1,140,000

[WayneLusvardi]

Did the LA Times confuse business value with real estate value?

[Venturer]

Gee: I wonder if it was planned that way. Bwahahahahha.

[txrefugee]

That’s why businessmen get rich. They hire lawyers to get them out of confiscatory taxes levied by lesser men in politics. The alternative is to have the lesser men, who are in the political elite, running business, as in Russia and other socialist economies. It doesn’t seem to be an improvement.

[Uncle Chip]

With no single entity owning more than 50%, the value of the hotel for tax purposes remains the same as the last time it sold, in 1999.

Where the hell did that rule come from???

[AEMILIUS PAULUS]

Even with Prop 13 we spend approximately $400 per month for the privilege of living in our own home. Then those who misgovern us wonder why “the folks” are becoming restless and buying guns.

[Lancey Howard]

Dell didn’t get rich by flushing money down the government toilet.
Good for him.

There might be an idea for everybody here. Establish an LLC for purposes of home ownership. Then, when you want to sell, sell the LLC and its assets (the house), rather than the house itself.

[Parley Baer]

I like how the la times calls Proposition 13 a loop hole. So in their view anything that is not being taxed is a loop hole.

[Axenolith]

Stories like this that show the lunatic morons that run California being denied money to waste thinking up stupid crap always warms my heart...

[WayneLusvardi]

All the commenters below missed the L.A. Times big goof.

The Times did not distinguish that the Dells bought a 49% interest in the hotel business, not the real estate. That is why the assessed value for tax purposes remain unchanged.

Let me explain this oversimplistically. Let’s say you run a day care business out of your home that is licensed. Then a family relative loans you 49% of the money to run the day care business in return for a 49% of the business value. Nor does the relative own any part of the real property. This does not affect the property value because there is no sale of the property. Capish?