Greenspan v. County of Los Angeles ( 2023 )


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  • Filed 12/21/23
    CERTIFIED FOR PUBLICATION
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION FOUR
    YAAKOV and SARAH                      B323864
    GREENSPAN, Individually and as       (Los Angeles County
    Cotrustees of the GREENSPAN          Super. Ct. No.19STCP03626)
    FAMILY TRUST,
    Plaintiffs and Appellants,
    v.
    COUNTY OF LOS ANGELES et
    al.,
    Defendants and
    Respondents.
    APPEAL from a judgment of the Superior Court of
    Los Angeles County, David Sotelo, Judge. Reversed and
    remanded, with directions.
    Westland Real Estate Group, Asher B. Fried, and Bashir
    Eustache, for Plaintiffs and Appellants.
    Dawyn R. Harrison, County Counsel, and Drew M. Taylor,
    Deputy County Counsel, for Defendants and Respondents.
    ____________________________
    Proposition 13, adopted by voters in 1978, amended
    California’s Constitution to limit real property taxes to 1 percent
    of a property’s base-year value, with an annual 2 percent cap for
    inflation. A property’s base-year value may be reestablished only
    upon purchase, new construction, or a change in ownership. In
    addition, the assessed value of the property must be allocated
    between land and improvements.
    In April 2014, appellants Yaakov and Sarah Greenspan
    purchased a 2,400-square-foot home in Long Beach for $900,000.
    The County of Los Angeles (County) appraised the property with
    a new base-year value of $900,000, allocating $540,000 to the
    land and $360,000 to the improvements. In 2016, the
    Greenspans demolished the original residence, except the garage,
    and built a new single-family home on the property.
    Under Revenue and Taxation Code sections 51 and 75.10,1
    the value of any structure removed by a homeowner is to be
    deducted from the prior base-year value. Once new construction
    is completed, the value of the new construction is appraised and
    assigned a new base-year value going forward, which is then
    added to the existing base-year value allocated to the land.
    This is not what occurred in this case. Instead, the Los
    Angeles County Assessor (Assessor) took the value of the
    1     All further statutory references are to the Revenue and Taxation
    Code unless otherwise specified.
    2
    structure demolished ($320,000) and reallocated that entire
    amount to the land portion of the purchase price, leaving a
    $40,000 “credit” for the remaining garage. This resulted in a new
    allocation of the original purchase price of $860,000 to land and
    $40,000 to improvements. The Assessor then separately
    appraised the value of the new construction at $1,183,130 and
    added this amount to the reallocated land and improvements.
    The County’s justification for the failure to give the
    Greenspans credit for the demolished residence was a policy
    allowing an assessor to reallocate to land any portion of the
    property substantially renovated within two years of the
    purchase date on the assumption the owner purchased the
    property for land value alone. The County argues that it can do
    this because section 51.5 allows for the correction of any errors or
    omissions made in the original determination of the base-year
    value.
    The Greenspans filed separate applications to the Los
    Angeles County Assessment Appeals Board (Board) challenging
    (1) the County’s reallocation of their original purchase to
    primarily land as a practice contrary to statutory law, and (2) the
    County’s valuation of their new construction as excessive. After
    prevailing on their new construction challenge, the Greenspans
    filed suit against the County in superior court challenging the
    Board’s denial of their reallocation appeal and seeking repayment
    for any taxes overpaid. The trial court denied relief and entered
    judgment in favor of the County. On appeal, the Greenspans
    contend, and we agree, that the County’s reallocation of their
    base-year land and improvement value was contrary to statutory
    law. The Assessor’s automatic reallocation of the base-year value
    for the entire structure removed (with “credit” for the remaining
    3
    garage) cannot be squared with sections 51 and 75.10, which
    command that a property owner receive a reduction in previously
    assessed base values for portions of any property removed. To
    the extent section 51.5 allows for error correction, that statute
    was enacted with an extensive legislative declaration stating any
    such corrections must be consistent with Proposition 13 and
    existing statutory valuation standards. In light of this statutory
    scheme, the Board’s denial of the Greenspans’ allocation appeal
    was legal error subject to our judicial correction.
    We therefore reverse the trial court’s judgment and direct
    the trial court to enter a new judgment vacating the decision of
    the Board and remanding the matter for further proceedings
    consistent with this opinion.
    FACTUAL AND PROCEDURAL BACKGROUND
    A.     The Framework for Tax Refunds
    When a taxpayer seeks to challenge the assessment of its
    property, it may petition the Board for a reduction. (Fisher v.
    County of Orange (2022) 
    82 Cal.App.5th 39
    , 51 (Fisher).)
    “‘Although a local assessment appeals board decision arises from
    an administrative hearing process, the mechanism for seeking
    judicial review of the decision is “‘significantly different from that
    of other administrative agency decisions. Ordinarily, the
    aggrieved taxpayer’s remedy is not to seek administrative
    mandate pursuant to Code of Civil Procedure section 1094.5, but
    to pay the tax and file suit in superior court for a refund.’”’”
    (Ibid.; accord, William Jefferson & Co., Inc. v. Orange County
    Assessment Appeals Bd. No. 2 (2014) 
    228 Cal.App.4th 1
    , 10–11
    (William Jefferson).)
    4
    B.      Property Purchase and Initial Assessment in
    2014
    On March 20, 2014, the Greenspans purchased a home on
    Locust Avenue in Long Beach, California for $900,000.2 The
    change in ownership triggered a reassessment of the property.
    The Assessor appraised the property with a new base-year value
    (i.e., total taxable value) of $900,000, the purchase price, and
    allocated that value as follows: $540,000 for the land and
    $360,000 for the improvements on the property.
    In February 2016, the Greenspans started a substantial
    renovation of their property, which was completed on
    December 28, 2016. The Greenspans assert that they initially
    did not intend to remove the original residence but found it was
    necessary to do so once renovation was underway. They
    ultimately demolished the original residence, except the garage,
    and built a new single-family residence on the property.
    C.    Reallocation of 2014 Base-Year Values
    In 2017, based on the Greenspans’ demolition of the
    original residence, the Assessor modified the 2014 base-year
    value of the property, allocating more of the purchase price to the
    land than to the improvements that were on it. While the
    improvements were initially assessed at $360,000, the Assessor
    reduced that to $40,000 in recognition that only the original
    garage remained. This resulted in a base-year land value of
    $860,000, with $40,000 in remaining improvements.
    2      On February 13, 2017, appellants transferred the property to
    themselves as cotrustees of the Greenspan Family Trust, a revocable
    living trust.
    5
    The County then issued “an adjusted property tax bill” for
    the 2016–2017 roll year. Prior to the adjustment, the 2016–2017
    base value for the property was a total of $931,979, with an
    allocation of $559,188 to land and $372,791 to improvements.3
    After modification, the total value was $931,980, with $890,559
    allocated to land and $41,421 allocated to improvements.4
    In an email exchange with the Assessor’s office, the
    Greenspans asked why they did not “get credit for the old house.”
    The Appraiser responded, “[W]e look at when you purchased the
    property and when you requested the permit to demolish. The
    purchased [sic] date we have is [April 29, 2014,] and the permit to
    demolish the property was requested on [January 19, 2016,] and
    the permit to build was requested on [February 5, 2016].
    Unfortunately it did not go beyond the two years.” After the
    Greenspans asked the County’s appraiser “to send . . . the code
    that references the [two-year] requirement,” he responded that
    “[t]he [Revenue and Tax] code that allows us to reallocate the
    value from the improvement to land can be found on the [Board
    of Equalization] website . . . section 51.5b.” He added, “[T]o be
    exact[,] the portion of the garage that was not demolished was
    given as credit.”
    3     This amount reflects the initial purchase price allocations, plus
    any standard inflationary increases permitted by Proposition 13.
    4      We observe that although this base value is $1 higher than the
    prior total base value, neither party attaches any significance to this
    $1 difference.
    6
    D.      Appraisal of the Newly Constructed Residence
    In 2017, the Assessor also appraised the new residence the
    Greenspans constructed and issued a “supplemental property tax
    bill” for the 2016–2017 roll year. The notice reflected a “net
    assessed value” of $1,183,130 due to the “completion of new
    construction occurring [December 28, 2016].” The Assessor
    valued the new construction at $1,183,130, estimating the costs
    of the various improvements added to the property by the new
    construction. This amount was then added to the previously
    reallocated land value of $890,559 and improvements of $41,421,
    for a total sum value of $2,115,110.
    E.    The Appeal Before the Board
    The Greenspans separately appealed (1) the Assessor’s
    modification of the initial base-year allocations between land and
    improvements, and (2) the supplemental assessment of the new
    construction completed on December 28, 2016. The Greenspans
    argued (1) the method used by the County in 2017 to
    retroactively reallocate the 2014 value of their original purchase
    between the land and improvements was based on an improper
    presumption and contrary to statutory law, and (2) the value the
    County assigned to their newly renovated home was excessive.
    In their applications, the Greenspans set out their
    challenges to the valuation numbers as follows:
    4. Value                      A. Value on Roll   B. Applicant’s
    Opinion of Value
    Land                          $890,559           $559,188
    Improvements/Structures       $1,224,551         $1,041,421
    TOTAL                         $2,115,110         $1,600,609
    7
    At an initial hearing on January 31, 2018, a Los Angeles
    County Assessment Hearing Officer agreed with the Greenspans’
    position in both appeals. The hearing officer recommended to the
    Board that the value of the property be allocated between the
    land and improvements according to the values the Greenspans
    assigned to them in their applications for relief.
    The Assessor rebutted the hearing officer’s
    recommendation, and a hearing before the Board was set for
    February 22, 2019. At the hearing, the County presented new
    pre-construction and post-construction appraisal reports bearing
    the dates February 5 and February 21, 2019, respectively. The
    pre-construction appraisal compared the property to three
    smaller vacant-land lots and valued the property as if it were
    vacant land on December 28, 2016. The post-construction
    appraisal valued the property with the new construction
    completed as of December 28, 2016, and recommended a
    reduction in value from $1,183,130 to $963,350 for the new
    construction.
    On February 28, 2019, the Board issued its decision in both
    appeals.5 The Board denied that the value of the property had
    been incorrectly allocated between land and improvements.
    However, the Board recommended the value of the post-
    construction improvements be reduced. In reaching its decision,
    the Board set out the final valuation numbers as follows:
    5    The Greenspans did not request findings of fact from the Board.
    8
    Prior Tax Value       Board Found     Net Change in
    Value           Value
    Land             $890,559.00           $890,559.00     $0.00
    Improvements     $1,224,551.00         $1,004,771.00   ($219,780.00)
    Taxable Value    $2,115,110.00         $1,895,330.00   ($219,780.00)
    F.    The Trial Court Refund Action
    On September 27, 2019, the Greenspans filed their first
    amended complaint (FAC), the operative pleading in the trial
    court. The FAC sought a refund of any excess taxes paid based
    on the reallocation of improvements to land that occurred as of
    2016. In the alternative, the complaint sought an order
    remanding the matter to the Board for reconsideration of the
    2016 assessment that did not utilize the reallocation practice that
    the Assessor had employed previously.
    On April 8, 2022, the trial court ruled in favor of the
    County. It entered judgment on June 15, 2022. The Greenspans
    timely appealed.
    DISCUSSION
    A.    Standards of Review
    The Board’s “‘“‘factual determinations are entitled on
    appeal to the same deference due a judicial decision, i.e., review
    under the substantial evidence standard.’ [Citation.]” [Citation.]
    When the assessment appeals board decides a question of law,
    such as the interpretation of a statute, courts are authorized to
    conduct an independent reassessment.’” (Fisher, supra, 82
    Cal.App.5th at p. 51; accord, Manson Construction Co. v. County
    of Contra Costa (2020) 
    56 Cal.App.5th 1079
    , 1087.)
    When interpreting a statute, “our core task . . . is to
    determine and give effect to the Legislature’s underlying purpose
    9
    in enacting the statutes at issue.” (McHugh v. Protective Life Ins.
    Co. (2021) 
    12 Cal.5th 213
    , 227; accord, Jarman v. HCR
    ManorCare, Inc. (2020) 
    10 Cal.5th 375
    , 381.) “We first consider
    the words of the statutes, as statutory language is generally the
    most reliable indicator of legislation’s intended purpose.
    [Citation.] We consider the ordinary meaning of the relevant
    terms, related provisions, terms used in other parts of the
    statute, and the structure of the statutory scheme.” (McHugh,
    supra, at p. 227; accord, Jarman, supra, at p. 381.)
    B.     Agency Rules, Handbooks, and Annotations
    Pursuant to Government Code section 15606,
    subdivision (c), the State Board of Equalization (SBE) has
    promulgated regulations that are referred to as the “Property Tax
    Rules” and are located at Title 18, Public Revenues, Chapter 1 of
    the California Code of Regulations. The Property Tax Rules
    “have the force and effect of law.” (Prudential Ins. Co. v. City and
    County of San Francisco (1987) 
    191 Cal.App.3d 1142
    , 1152.)
    The SBE has also issued handbooks for use by assessors
    throughout the state. (Torres v. San Francisco Assessment
    Appeals Bd. No. 1 (2023) 
    89 Cal.App.5th 894
    , 899–900 (Torres).)
    “‘“Although assessors’ handbooks are not regulations and do not
    possess the force of law, they . . . have been relied upon and
    accorded great weight in interpreting valuation questions.”’” (Id.
    at p. 900; Sky River LLC v. County of Kern (2013) 
    214 Cal.App.4th 720
    , 735–736.)
    Finally, the SBE periodically publishes non-binding,
    advisory “Annotations” on its website. (Cal. Code Regs., tit. 18,
    § 5700.) According to the SBE, these Annotations “are a research
    tool” and contain its counsel’s opinions regarding “the application
    10
    of the statutory law, regulatory law, or judicial opinions to a
    particular factual circumstance.” (Id., tit. 18, § 5700, subd. (c);
    Phillis v. County of Humboldt (2020) 
    59 Cal.App.5th 432
    , 443
    (Humboldt).)
    Where the SBE has not adopted a formal rule or regulation
    concerning a particular tax issue, its interpretation of the
    statutes and existing regulations in assessing taxes due is subject
    to broad judicial review. (See Wallace Berrie & Co. v. State Bd. of
    Equalization (1985) 
    40 Cal.3d 60
    , 65; see also Yamaha Corp. of
    America v. State Bd. of Equalization (1998) 
    19 Cal.4th 1
    , 11
    [“Unlike quasi-legislative rules, an agency’s interpretation does
    not implicate the exercise of a delegated lawmaking power;
    instead, it represents the agency’s view of the statute’s legal
    meaning and effect, questions lying within the constitutional
    domain of the courts”]; see also Farmers Ins. Exchange v.
    Superior Court (2006) 
    137 Cal.App.4th 842
    , 859 [observing that
    “[a]n agency’s ad hoc assertion of a statutory interpretation in a
    particular matter or in the course of litigation . . . does not
    engender the same degree of respect”].)6
    6     We take judicial notice of the Assessor’s Handbook and SBE
    Annotations. (County of San Diego v. Assessment Appeals Bd. No. 2
    (1983) 
    140 Cal.App.3d 52
    , 59; Hunt-Wesson Foods, Inc. v. County of
    Alameda (1974) 
    41 Cal.App.3d 163
    , 180; see Fisher, supra, 82
    Cal.App.5th at pp. 48–49; Evid. Code, §§ 452, subd. (c) [judicial notice
    may be taken of “[o]fficial acts of the legislative, executive, and judicial
    departments of . . . any state of the United States”], 459, subd. (a); cf.
    Humboldt, supra, 59 Cal.App.5th at p. 437 [discussing various
    annotations].)
    11
    C.     Proposition 13 and New Construction
    1.    Proposition 13
    “In California all real property and business personal
    property is taxable ‘in proportion to its full value’ unless
    specifically exempted. (Cal. Const., art. XIII, § 1, subd. (b).)”
    (County of Los Angeles v. Raytheon Co. (2008) 
    159 Cal.App.4th 27
    , 34.) “In 1978, Proposition 13 amended the California
    Constitution to limit real property taxes to 1 percent of a
    property’s base[-]year value adjusted annually by an inflation
    factor not to exceed 2 percent of the prior year’s value. (Cal.
    Const., art. XIII A, §§ 1, subd. (a), 2, subd. (b); [citations].)” “A
    property’s base[-]year value may be reestablished only if the
    property is purchased, is newly constructed, or there is a change
    in ownership.” (William Jefferson, supra, 228 Cal.App.4th at
    p. 9; see Fisher, supra, 82 Cal.App.5th at p. 49; §§ 110.1, subd. (f),
    51, subd. (a); Cal. Code Regs., tit. 18, § 460, subd. (b)(5).) “Land
    and improvements shall be separately assessed.” (§ 607; Cal.
    Const., art. XIII, § 13.)
    The purchase price is rebuttably presumed to be the “full
    cash value” or “fair market value” if the terms of the transaction
    were negotiated at arm’s length in an open market. (§ 110,
    subd. (b).) Thereafter, entries onto the assessment roles are
    generally “‘“done pro forma without the need to exercise one’s
    judgment as to value, simply by applying an inflation factor to
    the previous year’s entry.”’” (Little v. Los Angeles County
    Assessment Appeals Bds. (2007) 
    155 Cal.App.4th 915
    , 918, fn. 1,
    internal citations omitted.)
    In the case of new construction, “additions, alterations, or
    other changes to existing property may trigger a partial
    reassessment under Proposition 13, such that a new base[-]year
    12
    value will be established for the newly constructed portion of the
    property.” (Wunderlich v. County of Santa Cruz (2009) 
    178 Cal.App.4th 680
    , 690 (Wunderlich)); § 71; Cal. Code Regs., tit. 18,
    § 463, subd. (a).)7
    2.      Statutory Valuation of New Construction
    The valuation of new construction is addressed by several
    sections of the Revenue and Taxation Code. (See generally Pope
    v. State Bd. of Equalization (1983) 
    146 Cal.App.3d 1132
    , 1135–
    1136 (Pope) [observing the Legislature passed legislation to
    address concept of “newly constructed property” after voters
    adopted Proposition 13].)
    First, under section 51, if a portion of real property has
    been destroyed or removed, including “by voluntary action by the
    taxpayer,” the base-year value of the property going forward
    “does not include that portion of the previous base[-]year
    value . . . that was attributable to any portion of the property that
    has been destroyed or removed.” (§ 51, subds. (b), (b)(2), italics
    added.)
    Second, under section 75.10, subdivision (a), an assessor
    must appraise construction at its full value on the date that it is
    completed and determine a new base-year value for the value of
    7      In 1983, the Legislature added various provisions to ensure that
    adjustments in assessed value were made as of the date a new event
    occurs (i.e., completion of new construction or change in ownership).
    These provisions were intended to eliminate any delay between
    valuation and reassessment and promote equity among taxpayers.
    (Chevron USA, Inc. v. County of Kern (2014) 
    230 Cal.App.4th 1315
    ;
    Shafer v. State Bd. of Equalization (1985) 
    174 Cal.App.3d 423
    , 426;
    Stats. 1983, ch. 498, § 133; §§ 71, 75, 75.10.)
    13
    the new construction—“except as provided in . . . subdivision (b).”
    (§ 75.10, subd. (a).) Under subdivision (b), “the removal of a
    structure from land” qualifies as its own “new construction” event
    but requires that “the new base[-]year value of the remaining
    property (after removal of the structure) shall be determined in
    the same manner as provided in subdivision (b) of section 51.”
    (§ 75.10, subds. (a), (b).) Thus, section 75.10 is consistent with
    section 51 regarding the treatment of removed structures: the
    value of the removed structure must be deducted from the
    existing base-year value.
    Consistent with these principles, section 71 provides that
    when new construction is complete, “[t]he assessor shall
    determine the new base[-]year value for the portion of any
    taxable real property which has been newly constructed. The
    base[-]year value of the remainder of the property assessed, which
    did not undergo new construction, shall not be changed.” (§ 71,
    italics and emphasis added.)
    The interaction of these statutes is reflected in Property
    Tax rule 463, subdivision (a) as follows:
    “When real property or a portion thereof, is
    newly constructed after the 1975 lien date, the
    assessor shall ascertain the full value of such ‘newly
    constructed property’ as of the date of completion.
    This will establish a new base[-]year full value for
    only that portion of the property which is newly
    constructed, whether it is an addition or alteration.
    The taxable value on the total property shall be
    determined by adding the full value of new
    construction to the taxable value of preexisting
    14
    property reduced to account for the taxable value of
    property removed during construction. The full value
    of new construction is only that value resulting from
    the new construction and does not include value
    increases not associated with the new construction.”
    (Cal. Code Regs., tit. 18, § 463, subd. (a), italics and
    emphasis added.)
    Similarly, Property Tax rule 461 states, “[T]he prior year
    taxable value of real property, or portion thereof, physically
    removed from the site shall be deducted from the property’s prior
    year taxable value, provided that such net value shall not be less
    than zero.” (Cal. Code Regs., tit. 18, § 461, subd. (c).)
    Subdivision (a) of that section expressly recognizes that
    “[s]ection 2 of article XIII A of the California Constitution
    provides, with certain exceptions stated therein, that real
    property shall be reappraised if purchased, newly constructed
    (regulation 463) or a change in ownership occurs (regulation 462)
    after the original base year.” (Id., tit. 18, § 461, subd. (a); see also
    Pope, supra, 146 Cal.App.3d at p. 1135 [noting SBE adopted
    Property Tax rules 460 through 467 “to deal more broadly with
    the issues raised by article XIII A”].)
    Finally, section 410 of the Assessor’s Handbook
    (“Assessment of Newly Constructed Property”) provides the
    following example of the interaction of these statutes and
    regulations:
    “A taxpayer purchased a 1,200[-]square-foot
    home for $400,000, with $350,000 allocated for land
    and $50,000 for improvements. The home is located
    15
    in a highly coveted neighborhood that has seen many
    average homes renovated into large mansions. The
    taxpayer gutted the home to its foundation and studs,
    built a new perimeter foundation to support
    additional floors, and rebuilt the home into a three-
    story, 3,600[-]square-foot mansion.
    The new construction converted the renovated
    structure to the status of substantially equivalent to
    new. The base[-]year value of the improvements
    should be reappraised to the current market values of
    other comparable properties in the area. A portion of
    the existing base[-]year value should be retained for
    the studs and foundation system that were not
    removed. The base[-]year value of the land would not
    change.”
    (California State Board of Equalization, Assessor’s Handbook
    (AH), § 410: Assessment of Newly Constructed Property (May
    2014, reprinted Jan. 2015), p. 29, italics added.)
    In sum, the Revenue and Taxation Code sections, Property
    Tax rules, and the Assessor’s Handbook are consistent on this
    point: After a property is purchased and acquires a new-base
    year value, the value of any subsequently removed structure is to
    be deducted from the base-year value. When the new
    construction is completed, any new improvements are appraised
    and assessed and their value is then added to the existing base
    values. The value of the unchanged portion of the property,
    however, remains the same. This allows a purchaser to retain
    16
    their Proposition 13 benefits going forward for any property that
    remains unchanged.
    Property Tax rule 463 recognizes these principles by
    stating: “In any instance in which an alteration is substantial
    enough to require reappraisal, only the value of the alteration
    shall be added to the base[-]year value of the pre-existing land
    or improvements. Increases in land value caused by
    appreciation or a zoning change rather than new construction
    shall not be enrolled . . .” (Cal. Code Regs., tit. 18, § 463,
    subd. (b)(2)(A), italics and emphasis added.)
    The County neither discusses nor denies the existence of
    these statutes regarding the valuation of new construction.
    D.    The County’s Reallocation of the Value of Removed
    Property to the Land Value Was Contrary to Law
    It is undisputed the Assessor reallocated the entire value of
    the improvements removed by the Greenspans to their purchase-
    price base-year land value based upon the non-binding analysis
    of SBE’s counsel embodied in Annotation 170.0005 on the SBE
    website.
    1.    Annotation 170.0005
    Annotation 170.0005 contains the following summary of a
    letter issued by SBE counsel in August 2005:
    “Allocation to Value. An assessor may reallocate land
    and improvement values for a single-family residence
    when a property is substantially renovated within two
    years of its original purchase. Revenue and Taxation
    Code section 51.5 allows an assessor to correct any
    17
    base[-]year value error or omission within four years
    after enrolling an assessment if that error was the
    result of the exercise of value judgment.”
    The cited letter issued by SBE counsel reflects the following
    response to an inquiry sent by a taxpayer:8 A property owner
    acquired a single-family residence in October of 2003 for
    $245,000, and the Assessor allocated that purchase price as
    follows: $200,000 to land and $45,000 to improvements. (State
    Bd. of Equalization, letter of counsel to a taxpayer, Aug. 2, 2005,
    p. 1 (hereinafter letter of counsel).) At the time of purchase, the
    house was inhabitable but also “run down.” While renovating the
    improvements, the owner encountered problems that caused the
    renovation to become a major remodel. (Letter of counsel, supra,
    at p. 2.) To correct an unrelated error, the county assessor sent
    an appraiser to visit the property, and after that visit, the
    Assessor sent a supplemental assessment notice, dated January
    2005, reflecting that the purchase price of $245,000 had been
    reallocated to $244,000 to land and $1,000 to improvements.
    Upon inquiry, the letter writer was informed that it was
    the assessor’s policy to reallocate most of the purchase price to
    land if a property has been substantially renovated within two
    years of its original purchase, relying on the “rationale that the
    owner bought the property for the land value alone if the
    improvements were torn down within that two-year period.”
    (Letter of counsel, supra, at p. 2.)
    8     According to the SBE: “Annotations do not embellish or
    interpret the legal rulings of counsel which they summarize.” (Cal.
    Code Regs., tit. 18, § 5700, subd. (a).)
    18
    The letter writer asked SBE counsel three questions:
    (1) whether the county assessor’s policy reflects the policy of
    other county assessors or the SBE; (2) what provisions of
    Proposition 13 and/or California Revenue and Taxation Code
    authorize that practice; and (3) what steps can be taken to
    change this policy.9 (Letter of counsel, supra, at p. 1.)
    As to the first question, SBE counsel stated that while it
    was aware that “other county assessors have also employed this
    practice” of reallocating most of the purchase price to land if a
    substantial renovation occurred within two years, the SBE had
    not weighed in on the practice. Counsel stated, “[T]he [SBE] has
    not issued any policies or guidelines promoting or prohibiting its
    application.” (Letter of counsel, supra, at p. 2.)
    In response to the second question, counsel stated, “We
    believe that this practice is authorized by section 51.5, which
    requires county assessors to correct errors or omissions made in
    the determination of new base[-]year values.” (Letter of counsel,
    supra, at p. 3.) In discussing the situation described by the
    inquiring party, counsel stated the following: “Based on the
    major renovation, the assessor apparently believed that an error
    in value judgment occurred when enrolling the original base[-
    ]year values for this property. Events subsequent to that change
    in ownership led the assessor to reallocate the land and
    improvement values, changing the base[-]year values for both
    during January 2005 . . . . Since the assessor discovered an
    apparent error in value judgment within the four-year statute of
    limitations prescribed by subdivision (b) of section 51.5, we
    9      Throughout the letter, the name of the county at issue is
    omitted. In the trial court, the Greenspans referred to this policy as
    the “L.A. County method.”
    19
    believe that the assessor was required to correct that error.”
    (Ibid.) The SBE later summarized this by stating, “To the extent
    that the original land and improvement value allocation may
    have been an error in value judgment, we believe that section 51.5
    would require its correction.” (Id. at p. 4, italics added.)
    As to the letter writer’s third query, SBE counsel stated the
    property owner could appeal the reallocation between land and
    improvements to the Board, alleging the reallocation resulted in
    an amount that was too high for either the land or improvements.
    (Letter of counsel, supra, at pp. 3–4.) This is what the
    Greenspans did in this case. In one appeal, they challenged the
    reallocation from improvements to land, arguing it was contrary
    to statutory law. They challenged the subsequent valuation of
    their completed new construction in a separate board appeal.10
    The letter concluded, “The views expressed in this letter
    are only advisory in nature. They represent the analysis of the
    legal staff of the Board based on present law and the facts set
    10     Specifically, in their application challenging the reallocation
    reflected in the County’s “escape” assessment, the Greenspans checked
    the box indicating they were appealing the “[a]llocation of value of
    property [a]s incorrect (e.g., between land and improvements).”
    To the extent the assessment appeals form contains a specific
    category for allocation between land and improvements, we observe
    that in 1999 in Annotation Number 190.0008, SBE counsel advised
    that “[a] local assessment appeals board has jurisdiction to hear
    supplemental assessment and base[-]year value appeals involving the
    proper allocation of a total property value between land and
    improvements for applications filed within the time limitations periods
    of Revenue and Taxation Code section l605(b) for supplemental
    assessments or Revenue and Taxation Code section 80 for base[-]year
    value appeals.” (Annot., State Bd. of Equalization, Allocation of Value
    (1999).)
    20
    forth herein, and are not binding on any person or public entity.”
    (Letter of counsel, supra, at p. 5.)
    2.      Automatic Reallocation of the Value of Removed
    Improvements to Land
    In this case, the Assessor did not deduct the original value
    of the residence from the total value, leaving the original land
    value intact, and then add on the value of the new construction.
    The Assessor automatically reallocated the entire value of the
    improvements voluntarily removed by the Greenspans to the
    base land value from 2014, giving them “credit” for the garage
    left on site. It did so based solely on the fact the Greenspans
    requested their permit to demolish that portion of the structure
    within two years of purchase. This automatic reallocation was
    contrary to sections 51 and 75.10 which, consistent with
    Proposition 13, require that the value of any structure removed
    from real property be deleted from the base-year value. To the
    extent the Assessor relied upon section 51.5, which allows an
    assessor to correct “any error or omission” in base-year value, it
    was not appropriate to do so here.
    3.    Reliance on Section 51.5
    Section 51.5 discusses circumstances under which county
    assessors may correct assessments of base-year value. Section
    51.5(a) provides that errors in the determination of base-year
    value that do not involve the assessor’s judgment shall be
    corrected in the year they are discovered. More pertinent here,
    section 51.5(b) provides, “An error or an omission [in the
    determination of a base[-]year value] which involves the exercise
    of an assessor’s judgment as to value may be corrected only if it
    21
    is . . . corrected, within four years after July 1 of the assessment
    year for which the base[-]year value was first established.”
    Section 51.5(c) provides that this four-year time limit does not
    apply when the errors or omissions result from taxpayer fraud,
    concealment, misrepresentation, or failure to comply with laws
    concerning the furnishing of information.11
    In enacting section 51.5, the Legislature declared,
    “[F]airness and equity require that county assessors have express
    authority to make corrections to property tax base-year values
    whenever it is discovered that a base-year value does not reflect
    applicable constitutional or statutory valuation standards or the
    base-year value was omitted.” According to the Legislature,
    “[a]ny limitations imposed upon the assessor’s authority to
    correct these errors would result in a system of taxation
    which . . . denies the benefits of Article XIII A of the California
    Constitution [(Proposition 13)] to some taxpayers where the
    barred error or correction would reduce the base-year value.”
    11      The County, in issuing the adjusted property tax bill to the
    Greenspans regarding the reallocation of improvements to land, stated
    the reallocation was for the following reason: “[R]oll bill correction
    [for] escaped ass[essment] per sec[tions] 4821 or 531 R[evenue] & T[ax]
    Code.” Section 531 more generally provides: “If any property
    belonging on the local roll has escaped assessment, the assessor shall
    assess the property on discovery at its value on the lien date for the
    year for which it escaped assessment. It shall be subject to the tax rate
    in effect in the year of its escape except as provided in [s]ection 2905 of
    this code.” (§ 531, italics added; cf. Jensen v. Byram (1964) 
    229 Cal.App.2d 651
    , 652 [county could recover taxes as escaped
    assessments, where “land was assessed and taxes were paid, but
    through oversight, there was no assessment of improvements”],
    overruled on other grounds by Bauer-Schweitzer Malting Co. v. City
    and County of San Francisco (1973) 
    8 Cal.3d 942
    , 948.)
    22
    Further, the Legislature feared that if assessors failed to place
    value on property, allowing it to escape taxation, and they could
    not correct the error, it “would violate the constitutional
    requirement that all property in the state shall be subject to
    taxation.” The Legislature expressly noted, “Nothing in this act
    violates either the spirit or the letter of Article XIII A of the
    California Constitution [(Proposition 13)] since all corrections
    permitted by it must be consistent with applicable constitutional
    and statutory valuation standards.” (Stats. 1987, ch. 537, § 1(a);
    see also Plaza Hollister Ltd. Partnership v. County of San Benito
    (1999) 
    72 Cal.App.4th 1
    , 17–18 [discussing section 51.5 and
    recognizing legislative statement].)
    Here, in 2014, the Assessor set the Greenspans’
    improvements value at $360,000, 40 percent of the total base-
    year value. In 2017, the Assessor reallocated $320,000 of that
    value to land based solely on a presumption: The structure
    removed had a zero or de minimis value at the time of purchase,
    otherwise the owner would not have removed it within two years.
    There is no contention the Assessor reevaluated or even
    considered what had actually been removed before deeming its
    original assessment a mistake, enabling it to reallocate more of
    the base-year value to land. To permit this automatic
    reallocation to stand would allow the County to circumvent the
    requirements of Proposition 13 (and effectuating statutes) by
    automatically raising the land value after the removal of the
    improvement and then tacking on the value of any new
    improvement after construction is complete.
    The County argues that “[t]he Greenspans want credit for
    the value of house that they themselves elected to tear down.”
    That may be true, but that is what sections 51 and 75.10 direct.
    23
    The value of any structure—or portion thereof—voluntarily
    removed is deleted, while the portion of the base-year value
    attributable to land is maintained.
    The fact that the Greenspans elected to demolish the
    residence may well have given the assessor cause to consider
    whether it had made a mistake, but it did not establish that a
    mistake had been made. (See generally Carlson v. Assessment
    Appeals Bd. I (1985) 
    167 Cal.App.3d 1004
    , 1013 [observing
    subjective value to owner is not an appropriate method of
    assessment]; Wunderlich, supra, 178 Cal.App.4th at p. 689
    [observing the separate assessment of land and improvements
    required by article XII, § 13 of the state Constitution and
    section 607 are rooted in “‘the purpose of equalizing separately
    the assessments on land and on improvements’”].)12
    E.    Remand for a New Hearing
    In their complaint for refund below, the Greenspans
    requested either “a refund of all excess property taxes paid
    because of the Assessor’s unlawful or improper practice of
    reallocating improvements to land value” or alternatively “an
    order that this matter be remanded to the . . . Board, for
    12     Our opinion does not suggest that an appraiser must always
    separately appraise improvements or land. (See AH, supra, § 502:
    Advanced Appraisal, p. 5 [noting real property is generally appraised
    as a single unit]; Western States Petroleum Assn. v. Board of
    Equalization (2013) 
    57 Cal.4th 401
    , 422 [making general observation,
    in context of regulation addressing declines in market value of
    petroleum refinery property, that land need not be treated as a
    “separate appraisal unit”].) Our discussion is limited to the facts and
    statutes presented.
    24
    reconsideration of the escape assessment without taking into
    consideration the Assessor’s reallocation practice.” We agree the
    latter remedy is appropriate here.
    The County asserts that during the Board hearing on
    February 22, 2019, it presented “into evidence a sales comparison
    appraisal of the Property to determine that the entire purchase
    price of $900,000 should be allocated to the land.” The County
    argues we should presume the Board relied on this evidence to
    conclude the reallocation “was valid and supported by substantial
    evidence.” We disagree.
    At the hearing, the County submitted two pre-construction
    appraisals of the Greenspans’ property prepared the month of the
    hearing (February 2019). One appraisal (labeled “pre-
    construction”) valued the Greenspan’s property as of
    December 28, 2016, at $936,650 ($900,000 land and $36,650
    improvements) by comparing it to three small-lot vacant-land
    sales. The appraisal stated that “[the] pre-construction [was]
    valued as vacant land due to recent sale prior to demolishing of
    duplex, left workshop and garage.” The second appraisal (labeled
    “Prop. 8”) valued the property as of January 1, 2016, at $886,650
    ($850,000 to land and $36,650 to improvements) based on the
    same three vacant-lot comparables.13 Like the other pre-
    construction appraisal, this appraisal included the notation that
    the “2016 Prop. 8 [was] valued as vacant land due to recent sale
    prior to demolish[ing] of duplex, left workshop and garage.” Both
    appraisals were expressly based upon the premise that the
    property could be appraised as vacant land because the residence
    13    Proposition 8, passed by the voters in 1978, provides for a
    temporary reduction in assessed property value based on a subsequent
    decline in market value. (Fisher, supra, 82 Cal.App.5th at p. 49.)
    25
    was demolished within two years. Neither appraisal evaluated
    the improvements that existed on the property prior to
    demolition. Neither appraisal addressed the value of the
    property in 2014 when the mistaken assessment allegedly took
    place.14
    In its final decision on the allocation appeal, the Board left
    intact the exact figure of $890,559 for the land value challenged
    by the Greenspans in their appeal. This figure corresponds to the
    adjusted property tax bill issued to the Greenspans for the 2016–
    2017 roll year, which was admittedly based upon the fact the
    permit to demolish was requested within two years of the date
    the Greenspans purchased the property. As such, there is no
    indication the Board did anything other than deny the allocation
    appeal based on the reallocation conducted by the County
    pursuant to its two-year automatic reallocation policy.
    Under these circumstances, we conclude a new hearing on
    the reallocation appeal is the appropriate remedy. (Farr v.
    County of Nevada (2010) 
    187 Cal.App.4th 669
    , 685–686
    [determining that appropriate remedy is to remand for new
    hearing under correct burden of proof, noting “[t]he Board is the
    constitutionally designated body entrusted with the duty of
    determining the value of property for the purposes of tax
    14     The County also cites a Multiple Listing Services announcement
    for the Greenspans’ property and argues it was best “characterized as a
    teardown” because it was marketed in part as a “huge lot for future
    building purposes.” However, the listing submitted by the County is
    from a 2008 sale of the property, six years before the Greenspans
    purchased it, states the property is a 2,476-square-foot home with four
    bedrooms and two baths and adds: “Huge possibilities for this
    property, single family, income or future building site for that
    incredible estate home.”
    26
    assessment”].) In reconsidering the Greenspans’ reallocation
    appeal, however, the Board must recognize the County’s
    automatic reallocation of removed improvements to land is
    contrary to law. To the extent the County argues the original-
    land and improvement-value allocation was an error in judgment,
    an error should be shown.15 We otherwise express no opinion on
    the merits of any such appeal. (Id. at pp. 685–686; cf. Georgia-
    Pacific Corp. v. County of Butte (1974) 
    37 Cal.App.3d 461
    , 477–
    478.)
    15     We note the County also argues that under Property Tax rule
    321, the taxpayer has the burden of proving the property was
    improperly assessed. However, Rule 321 states that in any hearing
    involving an escape assessment, the presumption affecting the burden
    of proof is in favor of an applicant. (Cal. Code Regs., tit. 18, § 321,
    subd. (d); see also Fisher, supra, 82 Cal.App.5th at p. 60.) An “escape
    assessment” includes a correction of a base-year value under
    section 51.5, such as the assessment that the Greenspans appealed
    here. (Sunrise Retirement Villa v. Dear (1997) 
    58 Cal.App.4th 948
    ,
    956–957; see also Prang v. Los Angeles County Assessment Appeals Bd.
    No. 2 (2020) 
    54 Cal.App.5th 1
    , 14–17.)
    27
    DISPOSITION
    The judgment of the trial court is reversed. The trial court
    is directed to enter a new judgment vacating the decision of the
    Board and remanding the matter to the assessment appeals
    board for a new hearing. Appellants are awarded their costs on
    appeal.
    MORI, J.
    We concur:
    COLLINS, Acting P. J.
    ZUKIN, J.
    28
    

Document Info

Docket Number: B323864

Filed Date: 12/21/2023

Precedential Status: Precedential

Modified Date: 12/21/2023