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A taxable possessory interest (PI) is created when real estate owned by a government agency is leased, rented, or used by a private individual or entity for their own exclusive use. The taxation of this interest is similar to the taxation of owners of privately owned property. A taxable possessory interest may be created or acquired through a contract, lease, concession agreement, license, permit, verbal agreement, or simply by possession or occupation without agreement. The use of the property may be concurrent or alternating with another use or user.

A base year value is established for taxable possessory interest upon its creation, a change in ownership, or completion of new construction under the guidelines of Proposition 13. This value, by law, will only increase by a maximum of 2% per year, until a new reassessable event (change of ownership or completion of new construction) occurs, or the property suffers a decline-in-value.  For an expanded definition see Revenue and Taxation (R&T) Code Section 61, 107-107.9, 480.6 and Property Tax Rules 20,21-22, and 27-28 available online at http://www.boe.ca.gov/proptaxes/proptax.htm. A change in ownership occurs when a possessory interest is created, assigned, or upon the expiration of the lease per Revenue & Taxation Code Section 61 available online at http://www.boe.ca.gov/proptaxes/proptax.htm

The valuation of possessory interests is different from other forms of property tax appraisal in two ways:

1)  Only the rights held by the private user are valued
2)  The assessor must not include the value of the lessor’s retained rights in the property or any rights that will revert back to the public owners (the “reversionary interest”) at the end of the lease. 

As a result, possessory interest assessments are frequently less than the assessments of similar privately-owned property.

When a new base year value is computed for a possessory interest property, the Assessor uses the income, comparative sales, or cost approach. The quality and quantity of the available market information, the type of interest being valued, and the estimated reasonable term of possession will determine which of the three valuation approaches is most appropriate to use.

Income Approach: This is the most commonly used method for valuing a possessory interest. Using this approach, the PI value is estimated by first determining the landlord’s net income over the entire contract term. The net income results from subtracting management expenses from the economic income. The net income is then multiplied by a present worth factor to arrive at the PI value. Using the economic net income for the term of possession allows the Assessor to value only the rights “possessed” by the tenant and exclude any non-taxable rights retained by the government landlord.

Comparative Sales Approach: In this approach to value, the sales price of the property and those of similar possessory interest properties are used to determine possessory interest value. Rent paid on the property and any other obligations assumed by the buyer are valued at present worth and added to the sales price.

Cost Approach: In the cost approach, the land and improvement values are determined separately. The land value is determined using the comparative sales approach or the income approach. Consideration is given for the reversionary value of the land at the end of the anticipated term of possession. The improvement value is estimated by estimating replacement cost new and subtracting the accrued depreciation. Consideration is given for the estimated value of the improvements at the end of the anticipated term of possession. The total value of the PI is determined by adding the estimated land value to the estimated improvement value.

Examples of Possessory Interests:

·         A boat dock built on a public lake, bay or river;
·         Private companies leasing government buildings
·         The right to have food vending machines or ATMs located in a government building
·         Cable television right-of-way easements
·         Private companies leasing government buildings
·         Boat slips in public marinas.
·         Concert or air show on public land
·         All property  along the waterfront under Port of San Francisco jurisdiction

A taxable PI is created when real property owned by a government agency is leased, rented, or used by a private individual or entity.  PIs are subject to property taxes under California law unless a qualifying exemption applies, e.g., welfare exemption, etc.


A taxable PI may be created or acquired in a number of ways, including but not limited to through a contract, lease, concession agreement, license, permit, verbal agreement, or simply by possession or occupation without agreement.  California Revenue and Taxation Code section 107 provides the definition of a PI, including the required elements of independence, durability and exclusivity.  The use of the property may be concurrent or alternating with another use or user. 


Examples of PIs:

o    Private boat docks built on a public lake, bay or river;

o    Boat slips in public marinas;

o    Private individuals or companies leasing land or buildings owned by the City

      (including the Port of San Francisco), the State of California, the United States

      government, or regional  agencies (e.g., BART);

o    Operating food vending machines or ATMs located in a government building;

o    Operating a business on public property;

o    Cable television right-of-way easements;

o    Concerts on public land; and

o    Concession spaces at convention centers and fairgrounds.


Although all privately-owned real property is taxable under the California Constitution, government entities do not have to pay property tax for government-owned property. Once government property is put to use by a private party, however, a taxable PI is created and property taxes are due. 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 PIs contribute to the funding of these same services.

In San Francisco, most PIs are assessed on the unsecured roll. This is because the property underlying the rights being assessed is owned by the government agency, not the assessee, and cannot provide security for the taxes owed

Unsecured bills are sent in early July and are due and payable in full by August 31st unless otherwise stated. Unsecured bills are not split into two installments with different due dates, as is the case with secured roll tax bills.

You may receive multiple bills if more than one tax year has passed since the date the PI was created and you have not yet paid the PI taxes for the prior years. Since you owe taxes from the date the PI was created to the current tax year, you may receive a current year tax bill and prior year “escape assessments.”

The person or entity in possession of the property on the lien date (January 1) is liable for the entire subsequent fiscal year’s taxes. No provision is made for the City to prorate the taxes if the PI is terminated after the lien date.

Please email pi@sfgov.org so that a possessory interest team member can look up the new/current year assessment number/bill number.

Taxpayers can download a copy of their tax bill online on the Tax Collector’s website: https://sftreasurer.org/property/unsecured-property-taxes

Once a cancelation has been initiated, it may take 2 - 8 weeks for the process to be completed.

If the bill has not yet been canceled it is an active bill. You can review the status of your bill online at: http://www.sftreasurer.org/property-tax-payments.

If you have additional questions for the Tax Collector, please submit an electronic service request at: http://www.sftreasurer.org/contact-us or by calling 3-1-1 (415-701-2311 if outside San Francisco).

For more information on possessory interest from the Board of Equalization, please visit http://www.boe.ca.gov/Assessors/pdf/tpi_general.pdf.