Stanford University sues Santa Clara County to give tax relief to faculty homeowners

In an effort to get a partial property tax exemption for faculty homeowners, Stanford University is suing Santa Clara County arguing that the subdivision of these homes on campus is a “college interest” and should lower the homeowner’s tax bill.

Stanford University announced this week said it is initiating legal proceedings to gain clarity on property tax issues that are creating significant financial uncertainty and hardship for many of the faculty members who own long-term” lease homes on campus. The tax issue has been a long-running debate between county leaders who want to see more tax money from the university with the largest endowment in the country and Stanford which wants to protect its mission to keep the university private and grow its influence.

At the center of the lawsuit are Stanford’s roughly 900 homes in the faculty subdivision —  691 of which are single-family homes and 222 are condos — particularly one home at 828 Cedro Way. The university contends homeowners overpaid taxes when the property changed hands in 2018.

Like other residential homes in Santa Clara County, faculty homes on Stanford’s campus — most of them located on winding suburban streets west of the main quad — have been assessed property taxes based on the purchase price of the property which reflects their ownership interest. But the university said in its statement that the county assessor has increased the assessed value of some newly purchased faculty homes on Stanford’s campus to levels well above the faculty purchase prices.

The reassessment has created “unexpected and substantial financial difficulty for some faculty homeowners,” the statement said. And the reassessment, the university argues, does not account for the fact faculty homes are “leaseholds” — meaning homeowners do not have a full property interest in these homes — and that Stanford “retains an interest in the properties and places restriction on faculty sales, ownership and use of these properties” noting that they are “in effect… support” for the “education mission of the university.”

“Stanford is seeking a partial property tax exemption based on the value of the minority interest in the property retained by Stanford as the underlying property owner,” Stanford said in a statement. “If the university’s legal case is successful, faculty homeowners will continue to pay full property taxes based on their majority ownership interest in the property.”

Because homeowners have an agreement to lease the land from Stanford, the university says in its lawsuit that the value of the property should be split between the “faculty interest” and “college interest.” It argues that the faculty interest is “the more valuable interest in the property” at about 75% of the 2021-2022 property tax bill and that “only the remaining 25% is directly attributable to the exempt College Interest,” making it tax exempt.

The university is taking the county to court in part to get a $9,087.03 refund for taxes homeowners paid on the Cedro Way property in the 2021-2022 tax year. If granted “the net result of this refund action is that the faculty lessee would pay property taxes based on their arms-length, negotiated purchase price.”

The lawsuit is the latest volley in a fight that has been going for years between Santa Clara County and other interests seeking to get Stanford University to pay more of its fair share in taxes. The result of the legal battle over taxes could have a huge impact on the county. County Counsel James Williams told the Palo Alto Weekly in September 2022 that if the university pursues additional refunds based don’t the same claims, the county and local jurisdictions could lose about $5 million annually, including about a $2.3 million loss for the Palo Alto Unified School District.

Williams did not immediately return a request for comment.