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The California Supreme Court upheld property taxation of the possessory interests of homesteaders who had the right to get Real Estate License and complete their formal ownership and acquire title to their Marin County land but refused to do so "for the sole reason that they expect thereby to escape taxation." The court found their property rights taxable because they were possessory, without regard to acquisition of bare legal title:
It is not the land itself, nor the title to the land, nor is it the identical estate held by the United States. It is not the pre-emption right, but it is the possession and valuable use of the land subsisting in the citizen. Why should it not contribute its proper share, according to the value of the interest, whatever it may be, of the taxes necessary to sustain the Government which recognizes and protects it?
A state may limit the taxation of partial interests to leaseholds alone, to possessory interests, or to other categories. California by statute defines a "possessory interest" as "possession of, claim to, or right to the possession of land or improvements." 1 This reliance upon "possession" as the basis of taxability presents an immediate problem of interpretation, for "possession is one of the most illusive concepts in the law." The Restatement of Property considers the right to exclude others the mark of a possessory interest. Under this approach, rights such as licenses, easements, and profits, which permit the holder to enter upon or make use of property but not to exclude others unless they interfere with this use, are not possessory. This is at odds with the historical origins and development of possessory interest taxation, for it would not include the kind of mineral rights and profits that gave rise to the initial cases in this area.
E.g., Thiokol Chemical Corp. v. Board of Taxation, ("[i]t must be remembered that the Legislature chose to limit the taxability of otherwise exempt real property in the use of one other than the owner to instances where the relationship between them was that of lessor and lessee.").
Attempts to extend California possessory interest taxation to rights in personal property were found to be without statutory authorization in General Dynamics Corp. v. County of Los Angeles. Subsequent efforts to enact such legislation were unsuccessful. A 1964 California legislative tax study commented that "while it would appear illogical to tax possessory interests in land and improvements but not in personality, there has been some fear that if California were to tax possessory interests in personality we could not compete as effectively for the defense contract dollar." In spite, however, of its practical importance from a legal point of view, the idea of possession appears to be peculiarly insusceptible of accurate definition.
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