CALIFORNIA
Cris K. O'Neall, CAHILL DAVIS & O'NEALL, LLP

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PROGRAM FOR COLLECTING IN LIEU FEES FROM CITY’S UTILITYDIVISIONS VIOLATED REQUIREMENTS OF PROPOSITION 218

CREATION OF SPECIAL ASSESSMENT DISTRICT FOR ACQUISITION OF OPEN SPACE LAND COMPLIED WITH PROPOSITION 218
Silicon Valley Taxpayers Assn., Inc. v. Santa Clara County Open Space Authority (130 Cal.App.4th 1295 [6th Dist., Jul. 6, 2005; Rev. granted, 35 Cal.Rptr.3d 317])

PARCEL TAX APPROVED BY ELECTORATE WAS VALID DESPITE NON-RESIDENT LANDOWNERS’ INABILITY TO VOTE ON TAX
Neilson v. City of California City (133 Cal.App.4th 1296 [5th Dist., Nov. 3, 2005])

PERSONAL PROPERTY USED BY U.S. GOVERNMENT DEFENSE CONTRACTOR WAS IMMUNE FROM PROPERTY TAXATION
Northrop Grumman Corp. v. County of Los Angeles (134 Cal.App.4th 424 [2nd Dist., Nov. 28, 2005])

STATE REGULATION GIVING CALAMITY RELIEF TO AIRPORT PROPERTIES FOLLOWING EVENTS OF 9/11/01 INVALIDATED
Slocum v. State Board of Equalization (134 Cal.App.4th 969 [1st Dist., Dec. 9, 2005])

FOUR YEAR LIMITATIONS PERIOD PREVENTS ADJUSTMENT OF PROPERTY’S VALUE UPON DISCOVERY OF RECORDED EASEMENT
Kuperman v. Assessment Appeals Bd. No. 1, San Diego County (137 Cal.App.4th 918 [4th Dist., March 20, 2006])

ANTICIPATED TERM OF POSSESSORY INTEREST NOT LIMITED BY MONTH-TO-MONTH LEASE PROVISION
Silveira v. County of Alameda (139 Cal.App.4th 989 [1st Dist., May 23, 2006])

TRANSFER OF GROUND-LEASED PROPERTY SUBJECTED TENANT-OWNED IMPROVEMENTS TO CHANGE OF OWNERSHIP
Auerbach v. Assessment Appeals Board No. 1 (Northern Trust Bank of California)(39 Cal.4th 153 [Calif. Supreme Ct., July 17, 2006])

CASE SUMMARIES:

Mayer v. L&B Real Estate
(June 16, 2008) 43 Cal.4th 1231

Property owners filed lawsuit to quiet title to commercial property following sale of portion of property at tax sale. Lower court held that quiet title action was barred because property owners were on notice and their action was barred by the applicable statute of limitations. Supreme Court reviewed prior court decisions and determined that, as property owners "in undisturbed possession" of their property, statute of limitations to bring quiet title action did not commence running until receipt of formal notice kom tax collector that sale had occurred, and quiet title action was timely brought. A key aspect of the Court's decision was its finding that the property owners did not have adequate notice of the sale due to the assessor's separate and erroneous assessment of a small portion of their property in contravention of assessor's normal procedure
for handling multi-parcel properties.

County of Los Angeles v. Raytheon
(January 18, 2008) 159 Cal.App.4th 27

Defense contractor Raytheon and related parties were successors in interest to long-term leases of property used for commercial purposes. The leases provided that Raytheon pay all property taxes. The assessor audited Raytheon's personal property assessments and issued escape
assessments following such audit. Raytheon appealed those escape assessments and, pursuant to Revenue and Taxation Code section 469, also appealed assessment on all real property at the location where personal property was situated. Raytheon's administrative appeals were denied by the Assessment Appeals Board and, following denials of claims for refund and pursuant to a stipulation with the County, Raytheon filed suit in Superior Court. The lower court found in favor of Raytheon and remanded Raytheon's appeals to the Appeals Board. The County subsequently appealed to the Court of Appeal. The Court of Appeal affirmed the Superior Court's decision, ruling that Raytheon was entitled to challenge its real property assessments based on issuance of audit escape assessments against personal property. The appellate court found that Raytheon had standing to challenge the real property assessments because it was required to pay the taxes under the terms of the operative leases and because, under property tax law pertaining to leases, Raytheon's leases (which had terms exceeding 35 years) gave Raytheon standing equivalent to fee owners of subject property.

Korean Air Lines Co., Ltd v. County of Los Angeles
(April 28, 2008) 162 Cal.App.4th 552

Trial court held that airline's interest in U.S. Government inspection area at Los Angeles International Airport (LAX) was not subject to property tax assessment. County appealed asserting that airline's possessory interest in LAX property was sufficiently "independent" of the U.S. Government to constitute a taxable possessory interest. The Court of Appeal agreed, based on a review of case law, the relevant lease document, and the facts surrounding airline's use of LAX property for inspection of airline travelers' luggage. The appellate court did not view the airline's relationship to LAX as a mere "agency," but found airline's use of various areas within LAX, including inspection area, resulted in a private benefit to airline and overcame implications of federal regulations stating that the U.S. Government "controlled" LAX airport's inspection
areas.

William Jefferson & Co. v. Orange County
(November 29, 2007) 2007 WL 4215639 (Unreported).

This decision provides a good reminder that taxpayers must fully exhaust their administrative remedies as condition for judicial review. The taxpayer failed to "check the box" for a base year value correction on its application for changed assessment, although the taxpayer did modify that portion of the application to identify the base year in issue. The taxpayer compounded this error by failing to introduce evidence or argument relating to each ground for appeal at the equalization hearing before the Assessment Appeals Board. The Court of Appeal concluded that even if the correct box on the application had been "checked," it could not consider any error attributed to the Board because the taxpayer's failure to introduce evidence and argument on the base year value issue constituted a failure to exhaust the administrative remedy. The appellate court also noted that the fact that the Board had access to the public records pertinent to the taxpayer's claim did not relieve the taxpayer of its obligation to actually place the evidence into the record. The court cited the controlling rule to be that: "A taxpayer, questioning the correctness of the assessed value, must fairly and fully present his showing to the Board as a prerequisite to a judicial attack upon the Board's determination."

Michael Strong v. State Board of Equalization
(October 2, 2007) 155 Cal.App.4th 1182

This case confirms the SEE'S extension to domestic partners of the exclusion from changes in ownership extended to inter-spousal transfers. Revenue and Taxation Code section 63 excludes inter-spousal transfers from "changes in ownership" for purposes of property tax. This protection was added to the California Constitution by Proposition 58 is 1986. In 2003, the SBE amended Property Tax Rule 422.240 to extend similar protections to domestic partners in the event of interstate succession. The California Legislature acted in 2005 to significantly expand the exclusion created by the SEE by adding subdivision (p) to Revenue and Taxation Code section 62. Various county assessors filed this action to invalidate the expansion of the spousal exclusion, contending that neither the SEE nor the Legislature had the power to create new exclusions or expand existing exclusions. The Court of Appeal concluded that defining the meaning and scope of the "change in ownership" was left to the discretion of the Legislature, and thus amendment of Section 62, and the implied ratification of SBE Rule 422.240, was proper.

William Little v. Los Angeles County Assessment Appeals Board
(September 27, 2007) 155 Cal.App.4th 915.

This case reviews the anti-injunction rule that substantially limits a taxpayer to the remedy of paying the disputed tax and then obtaining judicial review and the statute of limitations governing the correction of base year values. The taxpayer purchased an apartment building in 1991. The taxpayer filed a Proposition 8 decline-in-value appeal in 1994 which resulted in a stipulated reduction in taxable value. For reasons not clear from the published opinion, the Proposition 8 reduction in value was thereafter considered to be a correction to the 1991 base year value. The assessor restored the trended base year value in 2004 and the taxpayer appealed to the Assessment Appeals Board, contending that the base year value was incorrect. The Board declined to change the earlier base year determination and taxpayer filed a petition for writ of mandate. The Court of Appeal concluded that the writ was not a proper remedy because it directed the correction of a base year value, which relief would require that all subsequent years' assessed values be capped, which outcome would in turn be the equivalent of an action to enjoin the collection of a tax prospectively in violation of California Constitution art. 13, section 32. In addition, the appellate court found that even if the infirm petition for write of mandate was construed as a valid complaint for refund, the complaint was untimely. The Court relied on Revenue and Taxation Code section 5 1.5 for the proposition that errors in the base year value that resulted from the exercise of judgment must be corrected within four years, and that the
stipulated 1994 determination required the exercise of judgment based on the size of the property and consideration of comparable sales that were, presumably, used to justify the stipulation to the Board.

California Minerals v. County of Kern
(June 26, 2007) 152 Cal.App.4th 1016

Purchaser of undeveloped and unexplored oil and gas property interest challenged property tax assessment asserting there was no evidence of reserves to support assessment. Court of Appeal found that property owner had acquired right to explore for and develop oil and gas and that such interest, although not supported by evidence of proved reserves (but only probable or possible reserves), was assessable under the Court of Appeal's prior ruling in Maples v. Kern County Assessment Appeals Board. Appellate court also held that purchase price paid for such interest, even though not supported by any specific engineering or geologic data, represented the fair market value of such property for property assessment purposes.

Beck v. County of Riverside
(May 7, 2007) 2007 WL 1345849 (Unreported).

Property owners asserted that assessor and Assessment Appeals Board had incorrectly valued property, and that property should have been valued based on price established through foreclosure sale of shopping center. Owners also asserted that value of property should also be relative to value of other foreclosed parcels within same shopping center. Trial court ruled, and Court of Appeal affined, that foreclosure sale was not proper basis for property's assessed value as it did not represent fair market value, and that assessor and Board were not required to value property in accordance with the values of other foreclosed properties within the same shopping center.

Reilly v. City and County of Sarz Francisco
(August 29, 2006) 142 Cal.App.4th 480

Local assessor reassessed property held by trust upon death of income beneficiary who was succeeded by a new income beneficiary under the terms of the trust instrument. Trustee challenged reassessment, but trial court concluded that transfer of property to successor beneficiary constituted a change of ownership and a reassessable event under Proposition 13 and relevant statute because successor beneficiary acquired a present beneficial interest in the property upon the decease of the prior income beneficiary. The Court of Appeal affirmed the trial court's decision.

Silveira v. County of Alameda
(May 23, 2006) 139 Cal.App.4th 989

Taxpayer occupied marina as a month-to-month tenant under a holdover provision in a lease with the City of Oakland. The local assessor assessed tenant as the holder of a taxable possessory interest in the marina property. Taxpayer challenged the assessed value placed on the marina property by the assessor, asserting that taxpayer's month-to-month tenancy required a lower value. The appellate court disagreed, finding that the longevity of taxpayer's tenancy (several decades), along with Property Tax Rule 21's statement that a month-to-month tenancy amounts to a tenancy with "no stated term of possession," supported a higher value for taxpayer's possessory interest, and was consistent with the fair market value of the property.

Kuperman v. Assessment Appeals Board No. 1
(March 20, 2006) 137 Cal.App.4th 918

Taxpayer acquired property in San Diego County in 1996. Several years later, taxpayer learned that property was encumbered with a recorded easement in favor of the local electric utility.
Taxpayer subsequently appealed his assessed value to the assessor and the Assessment Appeals Board, both of which denied his claim for reduction. Denial was based on fact that taxpayer's claim was brought more than four years after base-year value of property had been established and, as such, taxpayer's claim was untimely under the applicable four-year statute of limitations.
Trial court and the appellate court affirmed. Although taxpayer had brought his claim within four years of discovering the utility easement, the courts concluded that the relevant statute of limitations was triggered by taxpayer's purchase of the property which established the property's base year value. The taxpayer had purchased the property more than four years prior to the date on which taxpayer's equalization claim had been filed. The courts dismissed the taxpayer's claim that the statute of limitations started to run upon taxpayer's discovery of the utility easement. The courts also turned away the taxpayer's argument that the assessor had not exercised judgment and, for that reason, a different statute of limitations should apply.

County of Los Angeles v. County of Los Angeles Assessment Appeals Board No. 4 (ARCO)
(February 27, 2006) 2006 WL 459326 (Unreported)

APPLICATION OF SALES METHOD COMPLIED WITH LEGAL STANDARDS

Taxpayer and property owner Olen constructed two multi-story buildings in 1998 and 1999. The assessor assessed the buildings on completion, and Olen challenged the assessments by filing assessment appeals with the Orange County Assessment Appeals Board. The Board denied the appeals, and Olen appealed to the Superior Court, which affirmed the decision by the Board. Olen appealed the Superior Court’s ruling to the Court of Appeal.

Olen’s challenge was directed to the manner in which the assessor and Board had valued its properties under Property Tax Rule 4. In particular, Olen had challenged the use of the sales comparison approach, asserting that the cost approach was the only approach available to value the building improvements that Olen had constructed. The errors alleged by Olen were: (a) the assessor had failed to obtain a sufficient number of comparable sales or to make adjustments to those sales; (b) that the comparable sales used by the assessor were irrelevant because Olen had acquired the land prior to the passage of Proposition 13, and the only issue was the value of the new building improvements; (c) the assessor had not converted non-cash sales to their cash equivalent; (d) adjustments for time had not been made to the assessor’s sales; (e) the assessor’s sales had not been adjusted for physical attributes, location and amenities; (f) adjustments for differences in parking ratios were not made; and (g) the assessor did not make adjustments to his comparable land sales.

The Court of Appeal turned aside all of Olen’s assertions, finding that the assessor (and Board) had complied with the requirements of Property Tax Rules 2 and 4, and Revenue and Taxation Code section 402.5, in valuing the Olen’s properties. The appellate court upheld the Board’s decision and the Superior Court’s affirmation of that decision, concluding that the Board’s decision was supported by substantial evidence in the record.

In its appeal to the Superior Court, Olen sought to introduce a declaration by an appraiser to support one of its contentions by bringing a motion to augment the administrative record before the Board. The Superior Court excluded the declaration by the denying the motion to augment, and the Court of Appeal affirmed that ruling.

Olen also contended that the assessor was required to disclose the method used to value Olen’s property prior to the hearing before the Board. The Court of Appeal disagreed, pointing out that Olen had been provided information about the assessor’s sales comparison approach before the hearing.

Finally, Olen asserted that it was being taxed on the same tenant improvements that had been reported by the tenants in its buildings on their Business Property Statements. The court rejected this argument because the evidence presented did not show that taxes had been paid twice on the same property.

Olen Commercial Realty Corp. v. County of Orange (126 Cal.App.4th 1441 [4th Dist., Jan. 27, 2005])

PROGRAM FOR COLLECTING IN LIEU FEES FROM CITY’S UTILITYDIVISIONS VIOLATED REQUIREMENTS OF PROPOSITION 218

The City of Fresno requires all City divisions which perform municipal utility functions, such as provision of water and sewer services, to pay the City fees in lieu of property taxes. The “in lieu fees” collected are amounts above and beyond the cost of each City division’s operating expenses. Fee collected are placed in the City’s general fund. The fees charged by the City’s divisions are passed through to and paid by customers who use each division’s services.

Howard Jarvis Taxpayers Association (HJTA) challenged the City’s in lieu fee program, which had been in use since the late 1960s, by filing suit in Superior Court. HJTA contended that the City’s collection of fees amounted to imposition of property taxes and that such fees violated state constitutional provisions, including Proposition 218, that prohibit the imposition of fees which exceed the cost of providing a municipal service. City denied that its in lieu fee program with the City’s divisions violated any provision of law, including Proposition 218. The trial court granted HJTA’s summary judgment motion and the City appealed to the Court of Appeal.

The Court of Appeal affirmed the Superior Court’s decision in favor of HJTA’s position that the City’s in lieu fee program violated a portion of Proposition 218 (Cal. Const., art. XIII D, § 6) in that: (1) the City’s in lieu fees were not required in order to provide a property related service; (2) revenues raised through the in lieu fees were being used for a purpose other than that for which the fee was actually being charged (i.e., provision of a City utility service); and (3) the in lieu fees were being deposited in the City’s general fund to be used in providing general government services.

The appellate court addressed the City’s arguments in favor of the in lieu fee program in its decision, finding fault with the points raised by the City. First, the court dismissed the City’s contention that Proposition 218’s prohibitions did not apply to the in lieu fee program because the ordinance permitting use of in lieu fees was in existence prior to the passage of Proposition 218. Pointing to specific language in Proposition 218, the court found that the constitutional provision applied to existing tax arrangements, including the City’s in lieu tax program. Second, the court concluded that the in lieu fees were passed through to property owners and, therefore, the fees were an incident of property ownership and subject to the requirements of Proposition 218. The court also rejected the City’s argument that the in lieu fees passed through to consumers were a form of utility user’s tax.

Howard Jarvis Taxpayers Association v. City of Fresno (127 Cal.App.4th 914 [5th Dist., Mar. 23, 2005])

CREATION OF SPECIAL ASSESSMENT DISTRICT FOR ACQUISITION OF OPEN SPACE LAND COMPLIED WITH PROPOSITION 218

Relying on the provisions of Proposition 218 (Cal. Const., art. XIII D), plaintiff taxpayer associations challenged defendant Open Space Authority’s establishment of a special assessment district with the power to levy special assessments to be used to acquire open space lands. Such acquisitions were to be made in order to slow the conversion of land to urban uses, preserve quality of life and encourage agriculture within Santa Clara County.

The Authority was required to follow the guidelines for establishing special assessment districts set forth in Proposition 218. Accordingly, the Authority retained an engineering firm to prepare the necessary analyses and conducted an election in accordance with Proposition 218 which resulted in approval of the new assessment district. Following the election, plaintiffs filed suit in Superior Court to block any levies of special assessments by the Authority. The trial court granted the Authority’s motion for summary judgment, and plaintiffs sought review by the Court of Appeal.

The appellate court adjudicated: (1) whether the Authority could levy assessments for future acquisitions of unidentified open space land; (2) whether the acquisition of open space land conferred special benefits on the assessed properties; (3) whether the special assessments levied against the affected properties were proportional to the special benefits conferred on those properties; and (4) whether the Authority had segregated general benefits from special benefits in establishing the special assessment district. The court was also asked to adjudicate (and ultimately dismissed) certain irregularities in the manner in which the election establishing the new assessment district was conducted.

The Court of Appeal first reviewed Supreme Court precedent and the provisions of Proposition 218 relating to (a) “special benefit” and (b) “proportionality” between an assessment made and benefit conferred. The court found that, though Proposition 218 put the burden on the taxing agency to demonstrate these items, the agency’s decisions on those elements were entitled to judicial deference as legislative enactments. The court also found, however, that it could fully review whether Proposition 218’s procedures for establishing special assessment districts had been followed.

The court ruled that Proposition 218 did not contain a requirement that the cost or object of a special benefit (in this case, open space land to be acquired in the future) be known before an assessment could be levied. The court also held that assessments for the purchase of open space land conferred special benefits that could be deemed to benefit the assessed properties and not the public generally, that the special assessments were proportional to the benefits conferred on the affected properties because the open space land properties acquired by the Authority would be distributed throughout the assessment district, and that the Authority had used a reasonable method for separating general and special benefits.

Silicon Valley Taxpayers Assn., Inc. v. Santa Clara County Open Space Authority (130 Cal.App.4th 1295 [6th Dist., Jul. 6, 2005; Rev. granted, 35 Cal.Rptr.3d 317])

PARCEL TAX APPROVED BY ELECTORATE WAS VALID DESPITE NON-RESIDENT LANDOWNERS’ INABILITY TO VOTE ON TAX

In 2004, the City of California City held a municipal election to renew a parcel tax of up to $75 per lot for the purpose of raising funds to pay for police, fire and other city services. Over seventy percent of the City’s voters approved renewal of the tax, although most of the lots in the City were owned by absentee owners who resided outside of the City and could not vote in the election.

Neilson, a non-resident owner of property in the City, filed suit against the City, asserting that the parcel tax violated Proposition 13 and its progeny, including Proposition 218, as well as the Equal Protection Clause, primarily because 85 percent of the property in the City was held by absentee landowners who could not vote in the municipal election in which the tax was approved. Neilson also asserted that the parcel tax was instituted for multiple purposes and, as such, was not a “special tax” but a “general tax” intended to support general government purposes. The Superior Court sustained the City’s demurrer to Neilson’s amended complaint without leave to amend. Neilson then appealed to the Court of Appeal.

As a threshold issue, the appellate court was asked to determine whether the tax enacted by the City’s voters was permissible because it was not denominated an ad valorem tax. The Court of Appeal held that the parcel tax was a special tax, and that the tax was permitted under Proposition 218, which allowed taxes “upon any parcel of property or upon any person as an incident of property ownership.”

The court next addressed the issue of whether the City’s parcel tax constituted a general tax for general governmental purposes or a special tax imposed for specific purposes. Neilson contended that the tax was a general tax because the purposes given to the City’s voters, including police, fire and parks and recreation services, were general government purposes. The Court of Appeal found that the intended purposes for the parcel tax related to general government services but were not for general government purposes, and that Proposition 218 allowed multiple designated purposes for a special tax.

On the question of whether absentee landowners were entitled to vote in the City’s election, the appellate court held that Propositions 13 and 218 only permitted voters who resided in the City to vote on the proposed tax. The court’s ruling was based in part on specific provisions in Proposition 218 for elections relating to special assessments (inapplicable in this case) which required approval of landowners regardless of residence. In a similar fashion, the Court of Appeal overruled Neilson’s equal protection claim, relying on precedents which allow for exclusion of persons residing outside of the geographical boundaries of a particular jurisdiction from voting in elections affecting that jurisdiction.

Neilson v. City of California City (133 Cal.App.4th 1296 [5th Dist., Nov. 3, 2005])

PERSONAL PROPERTY USED BY U.S. GOVERNMENT DEFENSE CONTRACTOR WAS IMMUNE FROM PROPERTY TAXATION

Northrop Grumman is a defense contractor primarily engaged in the business of designing and building military aircraft and weapons systems for the U.S. Government. In carrying out its contractual obligations to the Government, Northrop employed low-value items such as tools, equipment, supplies and books, purchased by Northrop and allocated among all of Northrop’s contracts as “overhead property,” in accordance with generally accepted accounting principles and Federal Acquisition Regulations (FAR). Northrop claimed that its overhead property allocated to fixed price government contracts was immune from taxation because it was owned by the U.S. Government pursuant to the terms of those contracts and provisions in the FAR.

Despite Northrop’s contention, the Los Angeles County Assessor proceeded to assess Northrop's “overhead property.” Northrop filed claims for refund and then a lawsuit in Superior Court on the legal issue of whether the overhead property was taxable or non-taxable. The Superior Court agreed that the overhead property was immune from taxation, and entered judgment in favor of Northrop.

The assessor appealed to the Court of Appeal, asserting that the Government’s practice of making “progress payments” to Northrop for material acquired and work performed on Government contracts merely created a lien on the overhead property, and did not vest the Government with title to the property. The assessor also asserted that overhead property that was not earmarked to a specific government contract belonged to Northrop, not the government, and was therefore taxable.

The Court of Appeal rejected the assessor’s contentions, and held that title to all the overhead property Northrop used in the performance of its Government contracts vests in the U.S. Government, and was therefore immune from taxation. The appellate court found that the Government’s method of using progress payments to pay Northrop did not make the overhead property taxable, and that Northrop did not have to allocate the overhead property to specific contracts in order to immunize the property from taxation. The court’s decision was bolstered by reference to numerous federal and state court decisions and to actions taken by Congress in the late 1990s.

The Court of Appeal’s decision is significant because the court declined to follow the prior decision of another Second Appellate District division arising from the same facts and interpreting the same FAR provisions, namely TRW Space and Defense Sector v. County of Los Angeles (1996) 50 Cal.App.4th 1703. Instead, the appellate court specifically chose to follow the decision by the Fourth Appellate District in Hughes Aircraft Co. v. County of Orange (2002) 96 Cal.App.4th 540 (which strongly criticized the TRW decision) and several recent decisions by courts in other states.

Northrop Grumman Corp. v. County of Los Angeles (134 Cal.App.4th 424 [2nd Dist., Nov. 28, 2005])

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STATE REGULATION GIVING CALAMITY RELIEF TO AIRPORT PROPERTIES FOLLOWING EVENTS OF 9/11/01 INVALIDATED

In 2002 the California State Board of Equalization (SBE) enacted Property Tax Rule 139 which permitted owners and operators of properties located in public airports to seek property tax relief due to the temporary closure and subsequent limited access to airport facilities following the events of September 11, 2001. Rule 139 was enacted pursuant to the “misfortune and calamity” provisions of Revenue and Taxation Code section 170 and was intended to elaborate on the meaning of “damage or destruction” in that statute.

Assessors of certain California counties challenged the validity of Rule 139, asserting that airport property owners and operators had to show direct physical injury or damage to airport facilities which reduced the value of those facilities. The Superior Court granted the assessors’ motion for summary judgment to invalidate the rule. This appeal by affected airline operators, who had intervened in the Superior Court action, ensued.

The Court of Appeal examined the SBE’s authority to promulgate Rule 139 and the question of whether the rule was consistent with Section 170. It found that, although the SBE’s authority to interpret statutes in the course of administering the state’s property tax laws was significant, the SBE could not adopt a rule inconsistent with a controlling provision of the Revenue and Taxation Code.

In support of Rule 139, the airlines asserted that Section 170 specifically provided for the situation created by 9/11 due to the “restricted access” language in paragraph (1) of that section. The appellate court noted, however, that the events of 9/11 had not occurred in California, that no property at airports in the state had been physically damaged, and that the state of emergency declared by California’s Governor on 9/11 was not a disaster declaration as called for in Section 170.

In support of its conclusions, the court recited portions of California Constitution, article XIII, section 15, which authorizes Section 170 and refers to property which is “physically damaged or destroyed.” The court concluded that the physical impact of the event(s) supporting the misfortune or calamity must be present in the property for which relief is sought. The Court of Appeal also found support for the physical damage requirement in the language in paragraphs (a) and (g) of Section 170 (even though some portions of Section 170 referred to the impact of restricted access on the value of properties affected by misfortune and calamity). Finally, the court dismissed the airlines’ arguments arising from certain opinions of the California Attorney General and from the legislative history of Section 170 and its predecessor statute.

Slocum v. State Board of Equalization (134 Cal.App.4th 969 [1st Dist., Dec. 9, 2005])

FOUR YEAR LIMITATIONS PERIOD PREVENTS ADJUSTMENT OF PROPERTY’S VALUE UPON DISCOVERY OF RECORDED EASEMENT

In 1996, taxpayer Kuperman acquired a 50-acre parcel of land. In 2002, Kuperman discovered that his property was affected by a recorded easement and requested that the Assessor lower his base-year value. After the Assessor refused to reduce his base-year value, Kuperman appealed to the County Assessment Appeals Board, the Superior Court, and the Court of Appeal. The Court of Appeal affirmed the trial court’s decision on the grounds that it was not proper for the Assessor to adjust his base-year value under the four-year statute of limitations in Revenue and Taxation Code section 51.5(b).

Section 51.5(a) allows assessors to correct base-year values without any time limitation if an assessor did not exercise a judgment as to value. Under Section 51(b), however, an Assessor can only correct an error in value judgment within four years from the date the value was enrolled.

The key holding of the Court is that an Assessor is presumed to be aware of a recorded easement and to have taken it into account in setting a base-year value. Since the Assessor exercised a judgment as to value, the four-year limitations period applied.

Kuperman v. Assessment Appeals Bd. No. 1, San Diego County (137 Cal.App.4th 918 [4th Dist., March 20, 2006])

ANTICIPATED TERM OF POSSESSORY INTEREST NOT LIMITED BY MONTH-TO-MONTH LEASE PROVISION

This decision is concerned with the valuation of possessory interests. Here, taxpayer Silveira had been in possession of port property owned by the City of Oakland since 1967. Several agreements were entered into between Silveira and the City over the years regarding Silveira's use of the property. Relevant to this case, one such agreement ended on September 30, 1990.

Since September 30, 1990, Silveira continued to occupy the property under a month-to-month holdover provision. Silveira challenged tax assessment for years 1998, 2001 and 2002 because the Assessor was using an anticipated eight-year term of possession to value his possessory interest. Silveira argued that the Assessor was prohibited from valuing his use on a term of possession longer than one month. Silveira relied upon American Airlines, Inc. v. County of Los Angeles (1976) 65 Cal.App.3d 325, which, under somewhat similar factual circumstances, found in favor of a taxpayer stating that the assessor could not tax "something they do not have, namely possessory interests extending beyond the terms of their leases." (Id. at p. 331.)

The appellate court found that month-to-month tenancies are not simply tenancies for a fixed term that are periodically extended, but rather are tenancies having "no stated term of possession," as provided for in California Code of Regulations, title 18, section 21 (d)(3). As a result, the court distinguished Silveira's situation from that in American Airlines, and held that the Assessor's anticipated term of possession of eight years, and the assessment appeals board's findings that this term was reasonable, were supported by substantial evidence, and that the taxpayer’s month-to-month agreement did not limit the term for calculating the assessment on the taxpayer’s possessory interest.

Silveira v. County of Alameda (139 Cal.App.4th 989 [1st Dist., May 23, 2006])

TRANSFER OF GROUND-LEASED PROPERTY SUBJECTED TENANT-OWNED IMPROVEMENTS TO CHANGE OF OWNERSHIP

The property in this case was held by certain trusts for grandchildren beneficiaries Robert and Electra Anderson. In 1996, the property was leased to Tommy Hilfiger Retail, Inc. under a lease which permitted Hilfiger to demolish the existing improvements and construct new building improvements on the property which Hilfiger opted to do. Upon completion, the new improvements became the property of Hilfiger under the terms of a twenty-year ground lease between the trusts and Hilfiger. The trusts remained the owners of the land underlying the improvements.

After Hilfiger had completed the new improvements, the father of beneficiaries Robert and Electra Anderson passed away, which resulted in a transfer of the land at the property to the beneficiaries. Robert and Electra applied for and the Los Angeles County Assessor granted them a grandparent-grandchild property tax exclusion under Revenue and Taxation Code section 63.1. However, the assessor applied over ninety percent of the $1 million exclusion to the new building improvements which Hilfiger had constructed.

The trusts challenged the assessor’s allocation of the grandparent-grandchild exclusion by filing assessment appeals with the Los Angeles County Assessment Appeals Board. At the Board hearing, the trusts contended that the exclusion should have been applied only to the land because Robert and Electra Anderson did not have any present beneficial ownership interest in the improvements constructed by Hilfiger. The Board agreed, finding that the grandchildren did not have a present beneficial interest in the improvements, as required by Revenue and Taxation Code section 60, and that the exclusion should only have been applied to the land at the property. The Board rejected various arguments by the assessor including the assertion that improvements constructed by a tenant are presumed to be owned by the landowner by operation of law. The Board also turned away the assessor’s argument that the lease on the property, which was for a period less than 35 years, created a presumption that the improvements were owned by in the landowner under property tax ownership standards. The assessor appealed to the Superior Court, which affirmed the Board’s decision.

The assessor then sought review in the Court of Appeal, which reversed the decisions below. The appellate court found that Revenue and Taxation Code section 61(c), the 35-year lease change of ownership provision, supported the conclusion that an ownership change of the land and improvements at the property had occurred. In a lengthy dissent buttressed by a complete review of the underlying facts (which indicated that the trusts did not own Hilfiger’s improvements), Justice Vogel pointed out that the majority’s decision had ignored the primacy of the present beneficial ownership element in Section 60, and that no landlord ownership presumption applied to the improvements constructed by tenant Hilfiger.

The California Supreme Court upheld the decision of the Court of Appeal. The court determined that the interest held by Hilfiger was a leasehold interest or at most a possessory interest in an estate for years, which did not amount to a freehold estate. Being less than a 35 year lease, this situation did not fall within Revenue and Taxation Code section 61’s 35-year lease rule. As a result, the court reasoned, Hilfiger could not have an ownership interest in the land for purposes of Proposition 13. The court held that the change in ownership included both the land and the improvements.

Auerbach v. Assessment Appeals Board No. 1 (Northern Trust Bank of California)(39 Cal.4th 153 [Calif. Supreme Ct., July 17, 2006])

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