Bret Harte Inn, Inc. v. City and County of San Francisco

• Citation: 127 Cal.Rptr. 154,16 Cal.3d 14
• Decision Date: 03 February 1976
• Docket Number: S.F. 23263
• Court: United States State Supreme Court (California)
• Parties: , 544 P.2d 1354 BRET HARTE INN, INC., Plaintiff and Respondent, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.

Page 154

127 Cal.Rptr. 154

16 Cal.3d 14, 544 P.2d 1354

BRET HARTE INN, INC., Plaintiff and Respondent, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant and Appellant.

S.F. 23263.

Supreme Court of California,

In Bank.

Feb. 3, 1976.

As Modified on Denial of Rehearing March 10, 1976.

[544 P.2d 1355] Thomas M. O'Connor, City Atty., and George E. Baglin, Deputy City Atty., for defendant and appellant

Lowenthal & Lowenthal, Morris Lowenthal and Juliet Lowenthal, San Francisco, as amici curiae on behalf of defendant and appellant.

Athearn, Chandler & Hoffman, Theodore P. Lambros and Richard Harrington, San Francisco, for plaintiff and respondent.

SULLIVAN, Justice.

Defendant City and County of San Francisco appeals from a judgment granting recovery of certain personal property taxes paid under protest. The major question before us is whether an assessor, in determining full cash value pursuant to relevant constitutional and statutory provisions, may do so by simply discounting acquisition The facts, as substantially disclosed by the fully supported findings of the trial court, are as follows: Plaintiff, a California corporation, owned and operated the Hotel Stewart in San Francisco. In 1964, 1965 and 1966, within the time provided by law, it filed personal property tax returns and declarations relative to merchandise, equipment, and cash located in the hotel. The 1964 and 1965 returns did not disclose costs of merchandise and equipment, but defendant's auditors subsequently determined these costs by audit. The 1966 returns disclosed such costs according to plaintiff's books. Assessments were made for the three years in question in accordance with the aforesaid figures and plaintiff made timely payment of taxes based upon such assessments.

[544 P.2d 1356] cost by a uniform 50 percent 'depreciation factor.' We conclude that he may not; we affirm the judgment.

In 1966, following an extensive investigation by the grand jury relative to criminal misconduct in office by the former assessor, and in the context of a taxpayers' suit which sought to require official action addressed to the situation brought about by such misconduct, the superior court issued a writ of mandate directing defendant to undertake appropriate steps to recover taxes lost due to the misconduct of the former assessor. (Knoff v. City, etc., of San Francisco, affirmed (1969) 1 Cal.App.3d 184, 81 Cal.Rptr. 683.) Pursuant thereto, the assessments of plaintiff's personal property for 1964, 1965, and 1966 were audited by certified public accountants, and based upon the determinations so made, defendant in March of 1967 levied escape assessments of $1,975.03, $2,569.45, and $931.49 for the respective years in question. Timely applications to cancel these escape assessments were denied by the board of supervisors sitting as a board of equalization, and the assessments were paid under protest. This action for refund followed.

The evidence at trial showed that the assessor, in appraising business equipment, determined full cash value by taking the owner's original acquisition costs and defucting 50 percent for depreciation, regardless of the property's age or condition. After establishing the property's full cash value in this manner, the assessor applied the then prevailing assessment ratio to determine the assessed valuation. Property taxes were computed on the basis of the property tax rate per $100 of assessed valuation. The assessment ratio applied during the years 1964--1966 and in the course of the 're-auditing' and 're-appraisal' procedures undertaken pursuant to the mandate issued in the Knoff case (see Knoff v. City, etc., of San Francisco, supra, 1 Cal.App.3d 184, 194, 81 Cal.Rptr. 683) was 50 percent.

The uncontradicted testimony of two of plaintiff's witnesses, a vice-president of plaintiff and an auctioneer, indicated that the full cash value of the subject personal property during the relevant years--arrived at by actual on-site appraisal--was not only less than that indicated in the escape assessments but less than that reflected in the original assessments.

The trial court, concluding that the method of valuation was invalid, rendered judgment for the taxpayer in the amount of the taxes paid under protest pursuant to the escape assessments ($5,475.97) plus interest. This appeal followed.

I THE AVAILABILITY OF REVIEW

We reject at the outset the contention of amicus curiae that plaintiff is foreclosed by principles of res judicata from raising any objection to the method of valuation in this proceeding. The argument, as we understand it, is that because the Knoff mandate, as upheld in Knoff v. City etc. of San Francisco, supra, 1 Cal.App.3d 184, 81 Cal.Rptr. 683, concerned itself not with valuation practices but with a uniform application of the appropriate assessment Ratio, all persons subject to that mandate, in contesting any tax subsequently levied pursuant to it, were limited to challenges

relating to ratio. This argument fails on two grounds. In the first place, plaintiff was not a party to the Knoff proceeding, and the interests of all parties to that proceeding were adverse to those of plaintiff, a taxpayer resisting the imposition of further taxes. In these circumstances plaintiff could in no way be bound by the determinations made in that case. (See Hansberry v. Lee (1940) 311 U.S. 32, 45, 61 S.Ct. 115, 85 L.Ed. 22.) Secondly, we do not read the Knoff mandate as narrowly as amicus curiae would have us. The Court [16 Cal.3d 20] of Appeal, in accurately characterizing and summarizing the writ, ¹ made it quite clear that the mandate contemplated a complete reexamination of the issue of taxes legally owed by the taxpayers in question. Moreover, it indicated that matters of abuse of powers under the writ were 'to be resolved between them and the affected taxpayers at that time (i.e., in the course of normal proceedings for the challenge of escape assessments made).' (Knoff, supra, at p. 202, 81 Cal.Rptr. at p. 695.) Plaintiff has undertaken such proceedings, and the question it seeks to raise is now properly before us.

II THE PROPER STANDARD OF REVIEW

At the time of the escape assessments here in question the California Constitution required, in article XI, section 12, that '(a)ll property subject to taxation . . . be assessed for taxation at its full cash value.' ² Section 401 of the Revenue and Taxation Code set forth the same requirement; ³ section 110 of the same code defined full cash value as 'the amount at which property would be taken in payment of a just debt from a solvent debtor.' In De Luz Homes, Inc. v. County of San Diego (1955) 45 Cal.2d 546, 561--562, 290 P.2d 544, 554, this court interpreted section 110 as providing for assessment 'at the price that property would bring to its owner if it were offered for sale on an open market under conditions in which neither buyer nor seller could take advantage of the exigencies of the other.' ⁴

In passing upon various methods of valuation, the courts have shown an understandable reluctance to declare a particular method of valuation invalid under these provisions and thereby jeopardize a major portion of a county's assessment roll. (Rittersbacher v. Board of Supervisors (1934) 220 Cal. 535, 542, 32 P.2d 135.) Consequently, they have presumed the regularity and correctness of the assessor's determinations (Utah Constr. Co. v. Richardson (1921) 187 Cal. 649, 654, 203 P. 401; Hunt-Wesson Foods, Inc. v. County of Alameda (1974) 41 Cal.App.3d 163, 179--180, 116 Cal.Rptr. 160; Red Bluff Developers v. County of Tehama (1968) 258 Cal.App.2d 668, 673, 66 Cal.Rptr. 229; see generally Charleston Federal S. & L. Ass'n v. Alderson (1945) 324 U.S. 182, 191, 65 S.Ct. 624, 89 L.Ed. 857), and, since until recently the law has specified no particular method for determining full cash value, ⁵ have recognized a wide discretion invested in the assessor to devise an appropriate scheme. (De Luz Homes, Inc. v. County of San Diego, supra, 45 Cal.2d 546, 564, 290 P.2d 544; Utah Constr. Co. v. Richardson, supra, 187 Cal. 649, 652--653, 203 P. 401.)

The standard of review applied in the early cases challenging the valuation methods of the assessing authority was quite limited. Thus, in Los Angeles G. & Elec. Co. v. County of Los Angeles (1912) 162 Cal. 164, 121 P. 384, the trial court had found that the extreme disparity between the valuation of plaintiff's property and that of his competitors' resulted from 'a design on the party of the assessor to discriminate against plaintiff, and the adoption and use by said assessor of an intentionally radical (sic) different method in arriving at the value of plaintiff's property from that used in all other cases . . ..' Nevertheless, the court, determining whether the assessment amounted to fraud or 'something equivalent to fraud in the making of the assessment, producing such effect,' held that the Board of Equalization's approval of the assessment cured any wrongdoing on the assessor's part even though the trial court had also found the board's approval 'merely perfunctory in character and hardly more than a mere form . . ..'

In Southern Pacific Land Co. v. San Diego (1920) 183 Cal. 543, 191 P. 931, the court, citing Los Angeles G. & Elec. Co., supra, held that when a complaint alleged that the Board of Equalization approved an assessment in excess of the actual value of the plaintiff's land with knowledge that the assessor had assessed the rest of the county at less than 25 percent of true value, the complaint stated a cause of action and showed 'something equivalent to fraud.' In Mahoney v. City of San Diego (1926) 198 Cal. 388, 245 P. 189, the trial court had found that the assessor assessed all land in the city at 80 to 100 percent of full cash value but assessed all improvements and personal property at 25 percent or less. The court arrirmed a judgment for the plaintiff on the ground that the assessment pattern implied fraud or ...