Rev. & Tax. Code, § 24473

Notwithstanding any other provision of law, the contribution or other transfer of the assets of a mutual water company established prior to September 26, 1977, that is tax exempt under Section 501(c)(12) of the Internal Revenue Code, but is a taxable entity under California Law, including its lands, easements, rights, and obligations to act as sole agent of the stockholders in exercising the riparian rights of the stockholders, and rights relating to the ownership, operation, and maintenance of a water system and facilities serving the customers of the company, to a community services district formed pursuant to Part 1 (commencing with Section 61100) of Division 3 of Title 6 of the Government Code, is not a transfer subject to taxes imposed by this part if all of the following requirements are met:

(a) The consideration for the transfer of all or substantially all of the assets is the assumption by the district of the company’s liability to provide service to the company’s stockholders.

(b) The legal or beneficial title to all or substantially all of the company’s assets is vested in the district on or before January 1, 2008.

(c) For the one-year period immediately prior to commencement of the transfer and continuing until the transfer is completed, 85 percent or more of the company’s income consists of amounts collected from stockholders for the sole purpose of meeting losses and expenses.