Is a partnership-owned LLC subject to a documentary transfer tax for a change in ownership of property it holds when more than 50% of the interests in the partnership are transferred?

Facts: A partnership formed by a family trust establishes an LLC, naming the partnership as its sole member, to hold title to a property. The trust transfers all ownership interests in the partnership to various subtrusts and, from the subtrusts, conveys 90% of the partnership interests to separate trusts held by different trustees. Thereafter, the county imposes a documentary transfer tax based on the value of the LLC’s property due to the change in ownership of the property following the transfer of interests in the partnership. The LLC pays the tax.

Claim: The LLC seeks a documentary transfer tax refund, claiming the transfer of interests in the partnership owning the LLC did not trigger a documentary transfer tax since neither the property nor the LLC owning the property were sold as only the partnership owning the LLC changed ownership.

Counter claim: The county claims the documentary transfer tax applies to the transfer since the tax is subject to the same rules as property tax, which hold the transfer of more than 50% of the interest in a partnership following an exempt transfer — conveying interests from the family trust to subtrusts — constitutes a change in ownership of the partnership and, thus, the LLC it owns and any property held by the LLC.

Holding: A California court of appeals held the county properly imposed the documentary transfer tax on the LLC since the transfer of more than 50% of the ownership interest in the partnership owning the LLC constituted a change in ownership of the LLC and property held by the LLC and, thus, subjected the LLC to a documentary transfer tax. [926 North Ardmore Avenue LLC v. County of Los Angeles (September 22, 2014)_CA4th_]