The Supervisor’s Guide to Living Large by Avoiding Taxes

“I’ve had it with California. It’s the hostile business climate, the politics and high taxes,” said Stanislaus County Supervisor James R. DeMartini, explaining why he was moving to Nevada instead of running again for his board seat.

If he was trying to sound like a victim, some aren’t buying it.

Mr. DeMartini has been living large and will only live larger when he makes the move. Here what he has done so far in the ramp up to pulling stakes:

1. Sold his Incline Village, NV, vacation home (5 bed, 5 bth, 5,600 sq ft ) for right at $3,000,000.
2. Purchased a five acre parcel in Reno (6 bed, 5 1/2 bth, 10,000 sq ft) for right at $4,000,000. (The place has a pond that has to be more than an acre)
3. Sold most of his 1200 acres in individual farming parcels for more than $30,000,000. 

If you’re surprised about his wealth, it may be that his California Form 700, the annual financial form required of every elected figure, didn’t really provide clues and in the last two required filings failed to even get close to disclosing his real estate assets. More on that later.

The tax burden he complains about surely can’t be aimed at the property taxes he paid. All but a small parcel carved out of his orchard holdings for his current home (3 bed, 3 bth, 4,800 sq ft.) were under the Williamson Act. That act trades a promise not to develop farm land for lower taxes.

Most property owners pay 1 percent. Williamson Act properties usually play less than half a percent. The difference becomes clear when you consider that the typical homeowner will have paid a total of 10 percent over 10 years while those under the act will have paid about 4 percent over that same period.

An example of the tax difference can be found in properties Mr. DeMartini owned. The 3 plus acre parcel where he lives was valued right around $1,000,000 and the property tax was about $10,000. The 135 acre orchard which surrounded his home, and which he owned until 2018 sold for $4,300,000 and is taxed at a little less than $20,000. Four times the value but only twice the taxes.

There is no recapture of taxes if the new buyer continues the use. Continued use is pretty much assured, as most of the DeMartini properties (about $26,000,000 worth) were sold to entities connected to the Angle family of Hughson, whose orchard footprint in Stanislaus County is very large.

It is pretty clear that tax avoidance plays a big role in motivating Supervisor DeMartini’s move. He has said that he used the proceeds from the sale of his farms to buy commercial and industrial properties in Nevada.

That would be consistent with use of what is commonly called a 1031 Exchange. That refers to an IRS code provision which allows a seller to defer the payment of capital gains taxes.

Once established as a Nevada resident, he could, if he wished to, cash out some or all of the exchanged properties, which would probably avoid the 13% capital gains taxes imposed on a California residents. Nevada does not tax capital gains.

There is some potential blowback from such an exchange because Mr. DeMartini stayed in California to complete his term as a supervisor. So, if the commercial and industrial properties purchased in 2018 or 2019 produced income, in those years and in 2020 he would have to pay state income tax on those amounts.

Speaking of Nevada properties purchased in 2018 or 2019, you would have expected a compliant Form 700 to disclose those holdings. But, nope! In the disclosures for those years, Mr. DeMartini simply did not tick the box which would have triggered the submission of a schedule listing each property…and its value.

In prior years, Mr.DeMartini’s real estate holdings were not transparently disclosed. What he did was list the address of his Jennings Road home, a small parcel in among some his orchards in that area. I guess he could argue that this was, “farm headquarters,” but each of the nine properties sold in late 2018 bore separate assessor parcel numbers, spawned individual tax assessments, tax payments, transfer deeds, or deed references.

By listing the “farm headquarters” as he did, he was only required to tick the box that disclosed that the total value of the parcels was over $1,000,000. If he had listed the individual properties, most of them would have been listed at more than $1,000,000, based on their sale price in 2018.

Some of those who are galled at any hint that Mr. DeMartini is some sort of victim know his personal history. Orphaned as an infant,  he was raised by a childless couple who farmed several parcels near Empire. He ultimately inherited those properties. Because they were scattered parcels, he tired of moving his equipment from place to place, he told former Modesto Bee columnist Jeff Jardine, so he sold those parcels and bought the acreage west of Ceres.

Not to say he hasn’t worked hard and effectively, but it could be said that luck played a part in getting him where he is. Nothing he is doing to avoid taxes is illegal. In fact, it is smart. He’ll no doubt pay all the taxes that are due.

Still, some who recognize that he would not be paying California State income tax if he pulls any retirement payments from his 16 years as a county supervisor are saying “don’t let the door….”

Sources: material for this piece came from interviews Mr. DeMartini has given to The Bee over the years plus real estate data from Zillow (the Incline Village property) as well as the records of the assessors of Stanislaus County (farm sales) and Washoe County, Nevada, (the Reno property). 

Steve Ringhoff is a freelance writer. See more of his work at: A Little Long Form Journalism.