What is a taxable possessory interest?

In California, most public property is tax-exempt. However, if you use public property in a way that benefits you privately (like running a business or leasing space), the law treats your use as a taxable property right. A taxable possessory interest (PI) happens when someone has the right to use or control land or buildings owned by the public for their private benefit. Even though the government owns the property, your private use may be subject to property taxes. Possessory interests are typically created through contracts, leases, concession agreements, licenses or permits.

Examples of taxable possessory interests:

• Renting a cabin on public land

• Leasing an aircraft hangar or tie-down space at a public airport

• Holding a grazing permit on public land

• Running a concession stand at a county fairground

How are taxable possessory interests assessed?

• When your PI is created or changes ownership, it gets a starting taxable value called a base year value.

• Each year, the taxable value is the lower of:

  1. The adjusted base year value (based on annual inflation increases)

  2. The fair market value as of January 1 (lien date)

• If your PI changes hands or you make improvements, the property may be reassessed.

• Similar to other types of real property, possessory interests are subject to supplemental assessment when ownership or use changes during the year.

What types of property are not taxed as possessory interests?

• Business and personal property, such as equipment, machinery, boats and airplanes, are not generally subject to possessory interest assessment.