Allstate Ins. Co. v. County of Los Angeles

• Decision Date: 15 November 1984
• Citation: 161 Cal.App.3d 877,207 Cal.Rptr. 888
• Parties: ALLSTATE INSURANCE COMPANY, an Illinois corporation, Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, et al., Defendants and Respondents. SECURITY PACIFIC NATIONAL BANK, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES, et al., Defendants and Appellants. Civ. 69205, Civ. B003245.
• Court: California Court of Appeals Court of Appeals

Page 888

207 Cal.Rptr. 888

161 Cal.App.3d 877

ALLSTATE INSURANCE COMPANY, an Illinois corporation, Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, et al., Defendants and Respondents.

SECURITY PACIFIC NATIONAL BANK, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES, et al., Defendants and Appellants.

Civ. 69205, Civ. B003245.

Court of Appeal, Second District, Division 5, California.

Nov. 15, 1984.

As Modified Dec. 10, 1984.

Hearing Denied Jan. 23, 1985.

Ehrman, Flavin, Devine & Baker, Inc. and Sean Flavin, Monterey, for plaintiff and respondent, Security Pacific Nat. Bank.

DeWitt W. Clinton, County Counsel and Mary F. Wawro, Deputy County Counsel and Edward G. Pozorski, Sr. Deputy County

Counsel, Los Angeles, for defendant, respondent and appellant, Los Angeles County.

FEINERMAN, Presiding Justice.

We have before us two separate appeals which we have consolidated for decision. They present a single legal issue: Are certain office computer systems to be classified as realty or as personalty for purposes of property taxation? The distinction is crucial because in both cases the taxpayer is exempt from taxation of personal property. ¹

In each of these cases the taxing authorities classified the property as fixtures to realty and assessed property tax accordingly. The taxpayers paid the taxes under protest and sought refunds via actions in the superior court. In 2d Civil No. 69205, judgment was entered against the plaintiff, Allstate Insurance Company (Allstate), and in favor of defendants County of Los Angeles and City of Pasadena. In B003245, judgment was in favor of plaintiff, Security Pacific National Bank (Security) and against defendants County of Los Angeles, City of Los Angeles and City of Glendale. ² Despite the contrary rulings below, ³ we find the operative facts of the two cases to be legally indistinguishable.

ALLSTATE

The computers in the Allstate matter are located in Allstate's regional office in Pasadena, a single story general purpose office building consisting of 106,000 square feet, of which approximately 3,000 square feet are devoted to a computer room. The building is occupied exclusively by Allstate and serves as its record keeping and information storage center for the Los Angeles County area. The computer equipment which serves as the subject of this appeal is located in a specially built computer room. The room was constructed by the use of prefabricated easily movable partitions which are affixed to the floor with screws and which fit into tracks which are in turn affixed to the ceiling by screws. The room contains a raised floor composed of two-foot square panels which rest upon jacks. The jacks are attached to the floor with adhesive, but are easily removable. The purpose of the raised floor is to conceal the wires and cables of the computers, for safety and esthetic reasons. The raised floor also serves as an air duct for the air conditioning system which serves the room. The building itself was constructed in 1955. Computers were first installed in it in 1957. The building was not specially designed to house computers nor were there any modifications to its structure to accommodate the computers other than the partitions and raised floor.

Allstate has had three different computer systems since commencing computer operations in 1957. The system in operation in 1974, the first year for which the disputed taxes were assessed, included an IBM system 370 central processing unit, a card reader punch, several printers, an IBM 2821 controller, multiple interpreters and control units, numerous disk drives and tape drives, as well as a number of modems which make possible the transmission of information from the computer to terminals outside the computer room and outside the regional office building by means of telephone hookups. In addition, the computer room contained two free standing air conditioning units which supplemented the air conditioning which services the remainder of the building. Supplementary air conditioning was necessary because of the high level of heat generated by the computers. The supplemental air conditioners The Allstate computer system was classified as a medium size system. Although the computer component comprising the central processing unit weighed three-quarters of a ton, and the aggregate weight of all of the computer equipment in the computer room was 16 tons, each of the individual components was on wheels and readily movable. There was, however, considerable inconvenience associated with moving the machines because they operated as a unit and disconnection of any one of the components would disrupt the operation of the system and interfere with the regular transmission of information. Nonetheless, Allstate had completely disassembled and relocated its computer room from one section of the building to another in 1979. ⁴ Although many months in the planning, the move was accomplished over a single weekend. The total cost of the move was approximately $3,500.

were hooked up to the building's existing water supply. Only one was in regular use, however. The second was a standby unit.

Each of the computer components was a standardized piece of equipment not specially designed for Allstate or for the insurance business per se. The various components were attached to each other by means of standardized off-the-shelf cable. Allstate regularly upgraded and replaced its computer components as needed. It should also be noted that Allstate leased some of its computer equipment. This policy was initiated because rapid technological advances made it financially advisable to do so. ⁵

The factors which the trial court decided were crucial in determining that the computers owned by Allstate were fixtures and taxable as such were as follows: The court found that the computers had become affixed to the premises by virtue of their great total weight and through the use of the extensive heavy cables which interconnected the components and connected them individually to the 220-volt power line which serviced the computer room. The court further found that because of the raised floor, the internal partitions, the 220-volt wiring and the supplemental air conditioning, the computer room constituted a special purpose building within a building which served no function except to facilitate the use of the computer system. The components of the system in turn operated together as a unit rather than individually and formed a synergistic system. Finally, the court found that there had been an intention to affix the computers to the realty because Allstate could not do business without the use of a computer system and therefore it intended the system to remain in place permanently.

SECURITY

The computers owned by Security were located in three separate buildings, one in downtown Los Angeles, one in Woodland Hills, a part of the City of Los Angeles, and one in Glendale. The downtown Los Angeles location was a 55-story general purpose office building which serves as the bank's main headquarters. The building contains a total of 1,300,000 square feet, about 3,200 square feet of which was devoted to the use of computers. These computers, like Allstate's, were situated on a raised movable floor composed of two-foot square tiles which rested on free-standing jacks. The jacks were held to the floor by an adhesive which kept them from slipping during installation. The raised flooring could be removed without damage to the building or to itself. Two free-standing air conditioning units were installed in the area and attached to the building's main water system. The computer components were not bolted or attached to the floors or walls in any way, but were connected to a 220-volt power source and to other components by flexible electric cable. All of the components were on wheels which could be raised into the body of the component. The components could be detached from each other and from the power source by means of pulling complementary plugs.

A second set of computers was housed in a building in Woodland Hills which was leased by the bank. The bank's lease will expire in 1985, and Security intends then to move all of the computer components in that building to another building. Certain optical scanning equipment that was located in the Woodland Hills building was sold to another company in 1980 and not replaced. The computer work area in the Woodland Hills building occupies about 2,000 square feet out of a total of 63,000 square feet leased by Security. The Woodland Hills computers are also located on a raised floor similar to that in Security's headquarters building. The flooring in Woodland Hills was purchased second-hand by Security. There was a free-standing air conditioning unit in Woodland Hills which had been brought in from another bank installation. The computer components in Woodland Hills also were on wheels. Certain of the computer components operated on a 220-volt power supply which was part of the building's regular power system. There were two optical scanners in Woodland Hills that plugged into an electrical outlet supplying 110-volt power.

The third Security building involved was located in Glendale. It was a 14-story office building, two stories of which, the ninth and tenth floors, were devoted to use of computers. The building was constructed by Security as an operations center. The total building area was 405,000 square feet; the area devoted to computer use was a total of approximately 43,000 square feet. Ironically, in light of the results reached below, this system was significantly larger than the Allstate system. The computers on the ninth and tenth floors were situated on raised flooring similar to that of the other two buildings. They were not bolted or otherwise attached to the flooring and walls. There was, in addition, an IBM 1401 processor on the 14th floor of the Glendale building. It did not sit on raised flooring.

All of the computer...