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Riverside County Assessor-County Clerk-Recorder logo

Taxable Possessory Interest

A taxable possessory interest is created when a private party is granted the exclusive use of real property owned by a non-taxable entity. The possession must be independent, durable, and provide a private benefit to the possessor. Common examples of possessory interests on non-taxable entities are campgrounds, airplane terminals, hangars, government employee housing, forest cabins, ski resorts, cable television rights-of-way, restaurants, etc. Property Tax Law covering possessory interest can be found in Revenue and Taxation Code (R&T) Sections 61, 107-107.9, 480.6.

How is Taxable Possessory Interest discovered?
The Assessor annually requests every governmental agency in the county to provide leases and other agreements that are related to the real property they own. (R&T 480.6) It is important that the lessees keep this information current with their government landlords and that the agencies cooperate fully with the Assessor so that accurate assessments and billing can be made by the county. The value established on the property is updated when there is a change of ownership or there is a completion of new construction. A change of ownership occurs when a Taxable Possessory Interest is created.
What part of the property is valued?
We only value the usage of the property that you have agreed to do and do not include the value of the lessor’s retained rights in the property. For example: if you have agreed to use the land for a campground, we only take the value of the usage into consideration.
When is the original value determined?
Base year values are established for taxable possessory interests upon change in ownership or completion of new construction. A change in ownership occurs when a possessory interest is created, assigned, or upon expiration of the reasonably anticipated term of possession used by the Assessor. (R&T 61)                                                     
How is Taxable Possessory Interest valued?
The methods used for valuing possessory interest include Comparative Sales Approach, Income Approach, and Cost Approach:
  • Comparative Sales Approach. In this approach, we take into consideration the cost at which the property was sold and the cost of other, similar properties.
  • Income Approach The most common income method is to value the possessory interest directly by capitalizing the net economic income stream to the public entity (rent paid) for the reasonably anticipated term of possession.
  • OR, we capitalize the net income to estimate the fee value and then deduct the present worth of the government’s rights subsequent to the anticipated term of possession.
  • Cost Approach In this approach, we first use the Income or Comparative Sales approach to estimate the value of the land.
Then, we take into consideration the estimated value of depreciation for the end of your term of possession, which we add or subtract to arrive at a total value. The lien date for property taxes is January 1 of each year. If you are in possession of a Possessory Interest, you are responsible for the entire previous year’s taxes. California law does not allow for any proration of the taxes even if you end your contract shortly after the lien date. If you are delinquent on the taxes, it can impede your future real estate transactions and is a hindrance on the lessee, not the property.