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Possessory Interests

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What is a Possessory Interest?

Possessory interests are taxable interests held by persons, based upon their occupancy of publicly owned land.

Section 107 of the California Revenue and Taxation Code and California Code of Regulations Rule 20 et. seq. provide the legal definition of possessory interests. A synopsis of the Section and the Rule states that Possessory Interests in real property exist as a result of the following:

  • a possession of real property that is independent, durable, and exclusive of the rights held by others in the real property, and that provides a private benefit to the possessor, except when coupled with the ownership of a fee simple or life estate in the real property in the same person."
  • A right to the possession of real property, or a claim to a right to the possession of real property that is independent, durable, and exclusive of the rights held by others and that provides a private benefit to the possessor...' or
  • Taxable improvements on tax-exempt land."

What determines the legal existence of Possessory Interests?

By law, a possessory interest is created when a person or entity, for private benefit, rents or otherwise possesses certain kinds of public land owned by an agency of the federal, state or local government.

What are some examples of Possessory Interests?

Examples of Possessory Interests include the following:


  • Christmas tree lot operators at fairgrounds or other public lands
  • Radio/microwave transmission towers on public lands
  • Grazing permit rights on US Forest Service land
  • Cabins on US Forest Service land
  • Farming on airport, sewer farm, cemetery expansion or river bottom land
  • T-hangars at airports
  • Entertainment promoters at fairgrounds
  • Hangar buildings at airports
  • Rafting companies operating at rivers
  • Watchman occupying a mobile home on public or school lands
  • Pack companies or backpackers operating on public lands
  • Hunting rights granted on public lands
  • Mining operations on public land
  • Cable television systems buried in public roads
  • Retail/wholesale business operations in publicly owned buildings
  • Employee occupants of cabins on US (Forest Service, etc.) state, county, city, or district property
  • Midway operators at fairgrounds
  • Any person whose occupancy is not continuous, but is recurring, such as air show promoters, concert or dance promoters on public lands or in public buildings
  • Skating rink operator on public lands
  • Pro shop or golf operator at a public golf course
  • Food concessionaire or bar operator at a public golf course
  • Rent-a-Car facilities on public lands
  • Auto racing promoters and concessionaires on public racetracks
  • Cab or bus company operating out of a public building
  • Builder/operator of power generation or other facilities on irrigation district property
  • Promoters of annual events, e.g., "Old Timers Day," antique shows, gun shows, bird shows, country jamboree
  • Corporations who hold their annual company dinner on public property
  • Privately owned medical/dental/other clinics operating out of a publicly owned hospital or building
  • Adult/evening school operating out of a public school facility
  • Privately owned pharmacy operating out of a publicly owned hospital

What causes the creation of a Possessory Interest?

Governmental agencies rent facilities such as camp grounds, factories, stables, acreage, parking lots, cabins, golf courses, ski resorts, airplane hangars and terminals, water rights, restaurants, farmland, pro shops, grazing rights, stores, homes, apartments, cable TV franchises, easements and boat slips. A person's occupancy of the public domain is taxed because their occupancy prevents the remainder of the owners, who are all of the people of the United States of America, from occupying land technically owned by them.

Why are Publicly Owned Properties available for personal occupancy?

Federal, state and local governments are major landowners. Government ownership of land has existed throughout our nation's history. Certain government-owned lands are devoted to the public welfare, such as airports and fairgrounds, because these are large-scale public endeavors, created through publicly-paid tax dollars. When a person obtains the exclusive use of a large hangar for an airplane repair company, an individual stores an airplane in a small T-hangar, or a midway operator sets up at the county fair, an occupancy of the public domain occurs which creates a taxable possessory interest.

How are property taxes on Possessory Interests levied?

California law exempts public agencies from paying property taxes on the property they own. However, persons renting property from public agencies, like a city or county department, may, under certain circumstances, acquire a taxable possessory interest in that property. To be taxable, the interest must be sufficiently independent, last for a determinable time, and provide a private benefit of exclusive use beyond mere entry and exit, or momentary occupancy. The taxation of these interests is rooted in historical precedent. As long ago as 1859, the California legislature authorized the valuation of PI's for property tax purposes. The methods that Assessors may use to value these interests include the market sales approach, the cost method, and the income (rental) capitalization approach. Adjustments are made to each of these methods to assess only an interest less than the ownership of the property, the possessory interest.

Property taxes pay for many services provided to the public, including schools, police and fire departments, flood control, community health and recreational organizations and the services of many other public agencies. The taxes generated by possessory interests contribute to the funding of these same services.

How are Possessory Interests valued?

The major elements for determining the value are permitted use, term of possession and economic rent, and/or improvements. As with all locally assessed real property, the Assessor establishes a base year value for the PI.

The actual permitted use under a lease or special use permit is the first element of valuation considered by the Assessor. The Assessor will also consider that there is only a lease held by the occupant, not the fee ownership of the property. In addition, the Assessor will consider the actual or anticipated term of possession. Property leased from the government for ten years, will revert back to the government at that time. It is the present value of the rights for ten years, which are held by the occupant, which are assessed. The rights that will revert back to the government after the ten-year occupancy are not assessed to the holder of the PI.

Perhaps the most common method of valuing PI's is the capitalization of economic rent method. The staff of the Assessor's office can explain this method to you.

The value determined represents the base year value and is protected by Proposition 13, increasing only by a maximum of 2% per year, until a new reappraisable event occurs. A change of ownership or new construction are examples of reappraisable events.

Who is responsible for paying the taxes?

All taxable PI's are assessed as the lien date, January 1, of each year. The person in possession of the property on the lien date is liable for the entire fiscal year's taxes. Unfortunately, no provision exists for the proration of the bill upon termination of the possessory interest.

How does the Assessor's Office find Possessory Interests?

Annually, pursuant to Revenue and Taxation Code Section 480.6, the Assessor's staff requests that every government agency in the county provide information regarding all occupancies of their property. The Assessor analyzes this and makes the appropriate assessments.

What do I need to do?

It is important that an occupant of public domain property notify the Assessor's office whenever a change of ownership occurs. By doing so, the former and current owner ensure that the tax bills go to the proper person during the appropriate tax year. In addition, if new construction occurs, it should be reported timely to the Assessor. If either new construction or a change of ownership is discovered after-the-fact, multiple escape bills and costly penalties may result.

How do I get more information?

For further information regarding possessory interests, see the end of this page for contact information.