California Codes

Cal. Revenue and Taxation Code § 107.1 (2026)

✓ current as of May 2026

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The full cash value of a possessory interest, when arising out of a lease of exempt property, is the excess, if any, of the value of the lease on the open market, as determined by the formula contained in the case of De Luz Homes, Inc. v. County of San Diego (1955), 45 Cal. 2d 546, over the present worth of the rentals under said lease for the unexpired term thereof.

A possessory interest taxable under the provisions of this section shall be assessed to the lessee on the same basis or percentage of valuation employed as to other tangible property on the same roll.

This section applies only to possessory interests created prior to the date on which the decision of the California Supreme Court in De Luz Homes, Inc. v. County of San Diego (1955), 45 Cal. 2d 546, became final. It does not, however, apply to any of such interests created prior to that date that thereafter have been, or may hereafter be, extended or renewed, irrespective of whether the renewal or extension is provided for in the instrument creating the interest.

This section does not apply to leasehold estates for the production of gas, petroleum and other hydrocarbon substances from beneath the surface of the earth, and other rights relating to such substances which constitute incorporeal hereditaments or profits a prendre.

Notes of Decisions

Cited in 2 cases (1 in the last 5 years), 1977–2026 · leading case: Atl. Richfield Co. v. Cnty. of Los Angeles, 57 Oil & Gas Rep. 117 (Cal. Ct. App. 1977).

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Atl. Richfield Co. v. Cnty. of Los Angeles, 57 Oil & Gas Rep. 117 (Cal. Ct. App. 1977). “2 However, before 1963, assessors in California assessed the oil lessee-possessory interest in property leased from a tax exempt lessor by estimating the present value of recoverable hydrocarbons and deducting from that value the estimated present value of the costs of recovery…”

In re Bergstrom (Cal. Ct. App. 2026). “) Revenue and Taxation Code section 107.1 provided, in part, that “ ‘[a] possessory interest, when arising out of a lease of exempt property, consists of the lessee’s interest under such lease and is hereby declared to be personal property within the meaning of [s]ection 14 of…”

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