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WESTERN STATES PETROLEUM ASSN. v. BOARD OF EQUALIZATION
202 Cal.App.4th 1092 (2012)
WESTERN STATES PETROLEUM ASSOCIATION, Plaintiff and Respondent,
v.
BOARD OF EQUALIZATION, Defendant and Appellant.
No. B225932.
Court of Appeals of California, Second District, Division Eight.
January 19, 2012.
OPINIONBIGELOW, P. J.— For more than 25 years, the state Board of Equalization (SBE) directed county assessors to assess the value of the "real property" at petroleum refineries by applying valuation formulas generally applicable to all industrial and manufacturing properties. (See Cal. Code Regs., tit. 18, § 461.) Then, responding to entreaties from a number of county-level government officials, SBE concluded that it had become necessary to adopt new valuation formulas uniquely applied to petroleum refineries. (See Cal. Code Regs., tit. 18, § 474 (hereafter Rule 474).) The current litigation by the
Western States Petroleum Association (WSPA) followed. WSPA filed a complaint for declaratory relief that Rule 474 was invalid for several reasons, including that SBE had violated various requirements of the Administrative Procedure Act (APA; see Gov. Code, § 11340 et seq.) in adopting Rule 474 and/or that Rule 474 was inconsistent with constitutional law (see Cal. Const., art. XIII A) and statutory law (see Rev. & Tax. Code, § 51, subd. (d)). On materially undisputed facts presented in the context of cross-motions for summary judgment (MSJ), the trial court declared Rule 474 invalid, and entered judgment in favor of WSPA. SBE appeals. We affirm. FACTSBackground: The Valuation of Real Property From California's earliest days, its residents and business enterprises have pursued their economic activities and expectations in light of the constitutional principle that "`all property in this state shall be taxed in proportion to its value, to be ascertained as directed by law ....'" (State Bd. of Equalization v. Board of Supervisors (1980) 105 Cal.App.3d 813, 820 [164 Cal.Rptr. 739], quoting Cal. Const. of 1849, art. XI, § 13.) This constitutional principle remains in influence in present times. (See Cal. Const., art. XIII, § 1, subd. (a) ["All property is taxable ...."].) At the same time, however, the defining or classifying of what constitutes "real property," or "tangible personal property," or any other cognizable property interest subject to taxation, is largely a legislative and/or regulatory function, as is the establishment of the rules that prescribe the formulas by which the value of real property or other types of taxable property is to be determined. Created by state constitutional amendment in 1879, SBE is an elective body with the authority, among its other powers, to assure that real property assessment practices—i.e., valuation formulas—are equalized and made uniform across our state so that real property owners share the load equally when it comes time to pay their real property taxes. (See Cal. Const., art. XIII, §§ 17, 18; see also Gov. Code, § 15606.) The issues in the case before us today grow out of the valuation intricacies involved when assessors assess the value of the real property at an industrial or manufacturing property. These valuation intricacies involve the interplay between valuing the land, valuing the improvements, i.e., buildings and structures, and valuing the fixtures on the site such as machinery and equipment, which are more-or-less affixed. As a general proposition, the definition of real property for purposes of ad valorem real property taxes
encompasses all three of the components noted in the previous sentence. (See Rev. & Tax. Code, §§ 104, 105; see generally Morse Signal Devices v. County of Los Angeles (1984) 161 Cal.App.3d 570, 577 [207 Cal.Rptr. 742].) The noted interplay is the result of the long-recognized accounting realities that fixtures typically depreciate in value year to year, whereas land and improvements typically appreciate in value year to year, the last few years of our state's history notwithstanding.
1. Any decline in taxes associated with a decline in the value of the fixture-related appraisal unit would not necessarily mean that the total property tax bill would decline. If the value of the appraisal unit for land and improvements increased, and the increased taxes associated with the land and improvements appraisal unit outpaced any decline in taxes associated with the fixtures appraisal unit, then the overall tax bill would increase.
2. All references to article XIII A are to that article of the California Constitution.
3. The Task Force's recommendation was eminently sensible. In enacting Prop. 13 to render change to the tax system on real property, the voters presumably had in mind the then existing definition of real property, and the then existing methods for valuing real property, and they voted to constitutionally restrict taxes on real property within such a framework. If definitions and valuation formulas could be changed at will by the Legislature, or regulators, it would undermine the voters' clear intent to restrict taxes on real property as then defined and valued. In summary, an owner of a taxable appraisal unit of real property before Prop. 13 could expect that he or she would receive the benefit of restricted taxes on the same "appraisal unit" of "real property" after Prop. 13.
4. All references to section 51 are to that section of the Revenue and Taxation Code.
5. The "taking into account" language included in section 51, subdivision (a)(2), is interesting. On the one hand, we cannot lightly disregard the language as meaningless. (Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 274 [41 Cal.Rptr.2d 220, 895 P.2d 56] [statutory interpretation should not render any part of a statute meaningless].) On the other hand, all of the expressly cited elements found in section 51, subdivision (a)(2), would appear to be factors which would be considered in any event by a buyer and seller, without regard to any statute, in a hypothetical sale of a property in a fair, open market sale.
6. Hereafter, section 51(d).
7. All references to Rule 461(e) are to Rule 461, subdivision (e).
8. The "rule-making file" for Rule 474, submitted to the trial court for review in connection with the cross-MSJ's, ostensibly contains the "record" of the rule-making process, i.e., the underlying testimony and written submissions, received and compiled by SBE.
9. Hereafter, Rule 474(d)(2).
10. Contrary to the assertion in the concurring opinion, this statutory consistency analysis is by no means "dicta." WSPA filed a complaint seeking declaratory relief that SBE had violated the APA in adopting Rule 474 because, among other claims, it was inconsistent with section 51(d). Our decision in this area is therefore necessary to a full decision on the merits and is binding precedent. (Bunch v. Coachella Valley Water Dist. (1989) 214 Cal.App.3d 203, 212 [262 Cal.Rptr. 513].) In addition, our determination that SBE's existing economic impact statement (EIS) is not an adequate informational document for purposes of showing the economic impact of Rule 474 will not put an end to the overriding issue of public importance presented in this case. In the event SBE hereafter resubmits an EIS which adequately informs the public of the true economic impact of the new rule, the issue of whether SBE may adopt a new formula for valuing petroleum refineries without conflicting with statutory law will still remain.
1. I do not believe we need to reach the issue of Rule 474's compliance with the applicable statute. But if I were to reach the merits, I have doubts whether Rule 474 has run afoul of the statute. Rather than ignoring either part of the statutory test (bought and sold as a unit/normally valued separately), Rule 474 makes a factual determination that over the years since the passage of Revenue and Taxation Code section 51, subdivision (d), and earlier California Code of Regulations, title 18, section 461, it appears that petroleum refineries are now being bought and sold in one unit comprising real property, improvements and fixtures. On that factual assumption, the new rule creates a rebuttable presumption that refineries are sold in such a manner. Rule 474 still requires individual valuation based on how the marketplace actually functions, and, in my view, appears to be consistent with the statutory language.
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