Learn about Possessory Interests (PI)

What is taxable possessory interest (PI)?

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 PI may be created or acquired through a contract, lease, concession agreement, license, permit, verbal agreement, or simply by possession or occupation without written agreement. The use of the property may be concurrent or alternating with another use or user.

Base year value for PI

A base year value is established for taxable PI upon its creation, a change in ownership, or completion of new construction under the guidelines of Proposition 13. This value will only increase by a maximum of 2% per year, until a new assessable 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 PI 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 PI is different from other forms of property tax appraisal in 2 ways:

• Only the rights held by the private user are valued.
• 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, PI assessments are frequently lower in assessed value than the assessments of similar privately-owned property.

3 approaches to valuing PI

When a new base year value is calculated, our office 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 term of possession will determine which of the three valuation approaches is most appropriate.

Income Approach: This is the most commonly used method for valuing PI. 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, the sales price of the property and those of similar PI 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 this 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 space in government buildings
• The right to have food vending machines or ATMs located in a government building
• Cable television right-of-way easements
• Boat slips in public marinas.
• Concert or air show on public land
• All property along the waterfront under Port of San Francisco jurisdiction

What's different about PI tax bills?

You may notice that your PI bill says "unsecured." In San Francisco, most PIs are assessed on the unsecured roll because the property is owned by the government agency, not the assessee, and cannot provide security for the taxes owed. 

Unlike regular tax bills, unsecured bills are not split into two installments with different due dates. Unsecured bills are sent in early July and are due and payable in full by August 31st unless otherwise stated. 

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.  

To obtain a copy of your tax bill, need assistance with a payment plan or cancelation, contact the Treasurer & Tax Collector's office: 
https://sftreasurer.org/property/unsecured-property-taxes

Change your PI mailing address

Download the mailing address change form.