Should buyers/sellers split or pro-rate property taxes as part of escrow?

[jeromedawg]

Hey all,

It seems like there's nothing that mandates how property taxes (unsecured or secured) are paid, as long as they are paid, period (well, at least in CA). That said, is there some kind of 'standard' that most people follow when it comes to property taxes and if the buyer usually pays a pro-rated amount of taxes? For example, if a business is expected to sell (escrow closes and ownership transfers) on February 1st 2019, and the seller paid unsecured property taxes for all of 2019, should it be requested that the buyer credit the seller a pro-rated amount based on 11 months of the taxes that were paid by the seller?

[Another Reader]

Property taxes are based on a fiscal year, July 1 through the following June 30.  If your in laws paid all of the 2018-2019 taxes, the escrow agent should prorate on that basis.

[jeromedawg]

Property taxes are based on a fiscal year, July 1 through the following June 30.  If your in laws paid all of the 2018-2019 taxes, the escrow agent should prorate on that basis.

Thanks. The escrow agent is seeking approval from the seller and the seller is refusing to pay because she's conflating it with business taxes, thinking that she has already paid those. So there's a certain level of misunderstanding. But besides that, are you saying the escrow agent should just prorate, period, and shouldn't have asked for the seller's approval of this? My in-laws CPA is saying pretty much the same thing you are, but it seems nobody is willing to actually 'enforce' it.

[Another Reader]

The escrow agent should prorate business personal property taxes as of the close of escrow date.  Not sure what you mean by business tax.  Is that a city tax?

[jeromedawg]

The escrow agent should prorate business personal property taxes as of the close of escrow date.  Not sure what you mean by business tax.  Is that a city tax?

It sounds like the escrow agent isn't doing her job then. She keeps passing the buck back about most issues, saying "it's up to whatever the buyer and seller agree upon"

Yea "business" tax is the city of LA business taxes AFAIK - it's the same entity that bills for the fire permits.

[Another Reader]

The default should be proration as of COE.  That's the common practice.  There is no law governing this AFAIK.  If they are telling you that's not the practice where you are, the buyer and seller will have to execute a contract addendum to instruct the escrow agent what to do.

[jeromedawg]

The default should be proration as of COE.  That's the common practice.  There is no law governing this AFAIK.  If they are telling you that's not the practice where you are, the buyer and seller will have to execute a contract addendum to instruct the escrow agent what to do.

So we just reviewed the purchase agreement and it does in fact clearly state as a line item that "personal property taxes" are to be pro-rated per close of escrow. Now, what complicates things is that they handed business operations over prior to escrow closing and we are still actually waiting for close of escrow. In either case, the pro-ration calculations at this point are based on the date the new owner took over business operations.