Government Leased Property (Possessory Interest)

  1. Description
  2. Frequently Asked Questions
  3. Forms & Resources

What is Taxable Possessory Interest (PI)?

When a person or entity leases, rents, or uses real estate owned by a government agency for its exclusive use, a taxable possessory interest occurs. The taxation of this interest is similar to the taxation of owners of privately owned property. However, a holder of a possessory interest frequently pays significantly less property tax than the private owner of a similar property.

PI Property Tax

Possessory interest tax helps pay the holders fair share of services and benefits that owners of similar taxable properties enjoy. These services and benefits include fire and police protection, schools, and local government.

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. Unfortunately, no provision is made for the Assessor to prorate the taxes if the possessory interest is terminated after the lien date.

Assessor's Responsibility

By law, every governmental agency in the county must respond to the Assessor’s annual request for information. The information assists the Assessor in conducting fair and accurate possessory interest assessments.

Valuing Taxable PI

A base year value is established for taxable possessory interests upon a change in ownership or completion of new construction under the guidelines of Proposition 13.2This value, by law, will only increase by a maximum of 2% per year, until a new reappraisable event (change of ownership or completion of new construction) occurs, or the property suffers a decline-in-value.

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 owner (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.