California Portland Cement Co. v. State Bd. of Equalization

• Citation: 432 P.2d 700,63 Cal.Rptr. 5,67 Cal.2d 578
• Court: California Supreme Court
• Decision Date: 30 October 1967
• Parties: , 432 P.2d 700 CALIFORNIA PORTLAND CEMENT COMPANY et al., Plaintiffs and Appellants, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. L.A. 29481.

Page 5

63 Cal.Rptr. 5

67 Cal.2d 578, 432 P.2d 700

CALIFORNIA PORTLAND CEMENT COMPANY et al., Plaintiffs and Appellants, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

L.A. 29481.

Supreme Court of California In Bank.

Oct. 30, 1967.

Wallace K. Downey, Los Angeles, for plaintiffs and appellants.

Thomas C. Lynch, Atty. Gen., Mario A. Roberti and Neal J. Gobar, Deputy Atty. Gen., for defendant and respondent.

Harold W. Kennedy, County Counsel, and A. R. Early, Asst. County Counsel, as amici curiae on behalf of defendant and respondent.

BURKE, Justice.

The trial court denied mandamus to quash a subpoena duces tecum by which the State Board of Equalization sought the production of certain business records of plaintiff corporation, which appeals. ¹ As will appear, we have concluded that the court was correct in its determination that no ground for relief has been shown, and that the judgment should be affirmed.

The Board, pursuant to its duty to equalize the valuation of taxable property in the several counties of the state (Cal.Const., art. XIII, § 9), is directed to make a periodic survey 'in each county to determine the total full cash value of all locally assessable tangible property,' and to consider data compiled by its appraisers to ascertain accurately the value of various properties selected at random as samples. (Rev. & Tax.Code, § 1815 et seq.) ² Among the properties selected for test purposes in 1965 was a parcel of desert land consisting of a limestone quarry and an adjacent cement mill in Kern County near Mojave (Mojave Plant), including improvements thereon and personal property used and processed therein, all owned and operated by plaintiff California Portland Cement Company, a California corporation, engaged in the manufacture and sale of portland cement and limestone products in southern California, Nevada and Arizona. Plaintiff also owns and operates a cement mill adjacent to a quarry in San Bernardino County near Colton, and in Pima County, Arizona, near Tucson. Limestone and other materials are mined and crushed at each quarry, and in the adjacent mill the crushed rock, mixed with other raw materials is manufactured into cement by calcining and grinding processes.

For valuation purposes the Board's appraiser obtained cerain data and information from plaintiff's records, but plaintiff was unwilling to make available certain other information requested by the appraiser, whereupon the subpoena here involved was served, requiring the production of all business records with respect to the Mojave Plant. ³

Plaintiff furnished the information described in items 4 and 5 of the subpoena, but refused to produce that listed in items 1, 2 and 3. ⁴ Threatened with contempt proceedings, plaintiff sought mandamus. At the hearing before the trial court the Board contended the withheld information was relevant to its determination of the 'full cash value' of the property, while plaintiff declared that it was not attempting to avoid taxation or fair assessment but objected to revealing information which it considered to be confidential and irrelevant to fair assessment of its property. No evidence was introduced. The court denied relief and this appeal followed.

Plaintiff does not question the Board's right to subpoena information in its equalization survey (see Redding Pine Mills v. State Board of Equalization (1958) 157 Cal.App.2d 40, 320 P.2d 25), if the information sought is 'reasonably relevant' to an accurate valuation of the property for tax purposes. (See Brovelli v. Superior Court (1961) 56 Cal.2d 524, 529(9), 15 Cal.Rptr. 630, 364 P.2d 462)

However, plaintiff contends that the Board is seeking irrelevant information consisting of plaintiff's 'sales of products manufactured in said Mojave Plant for 1962, 1963 and 1964, its cost of operation of said plant, and its profits from the products of said plant for each of said years.' Plaintiff states the issue to be whether the Board may require the production of information regarding the profitability of a manufacturing Business in the hands of a particular owner as evidence from which to determine the 'full cash value' of a part of the Property used by the owner in the conduct of that business.

The Board in its answer to the petition for mandate alleged Inter alia, and the trial court found: ⁵ There are three basic approaches used in appraisal of property, which are (1) comparable sales, (2) capitalized earning ability, and (3) replacement costs less depreciation. It is desirable to use these methods in combination wherever possible, to obtain more accurate results, rather than relying on only one of the methods. The Board does not have sufficient data on comparable sales of cement plants to use this approach in appraising plaintiff's property. The capitalized earning ability approach, which reflects the price that a purchaser of the property could pay and recover a reasonable return on his investment, is the primary appraisal method used by the Board in valuing petroleum and mining properties, including limestone quarries and cement plants. Earnings data for the past several years is useful and used to assist an appraiser in projecting and determining future net income and earning ability, and is needed and used to determine a trend and help avoid error which could be caused from examining a short, possibly abnormal, period. Production volume is useful and used to determine the portion of capacity at which the plant was operating and relate earnings, income and costs to units of production. The costs breakdowns requested are useful and used with production volume to determine unit costs; to check for unusual or abnormal costs which would not be typical or normal; and to determine costs attributable to mining, to determine a portion of net income allocable to the mining operation to be used in determining a value for the quarry. The sales volumes and income figures are useful and used in conjunction with cost figures to determine net return and earnings to the property owner. The information sought in the subpoena herein has been made available and used in all appraisals by the Board of similar properties for the past three years or longer, in determining past earnings. Such past earnings have uniformly been considered in determining expected future net income in all appraisals of similar properties for the past three years, except where there were no past operations. Such information is needed here to help insure uniformity in approach to the appraisal of plaintiff's property. The information, when compared with similar information obtained in other similar appraisals, will help the appraiser to determine more accurately what receipts, expenses and net income a purchaser of the property being appraised could reasonably expect to earn from future operations. Such anticipated income is the basis for an estimate of property value under the capitalized earning ability approach.

The Board alleged and the court found, further, that the information obtained by the Board is confidentially retained by it, and will not be disclosed to plaintiff's business competitors.

The 'full cash value' which the statute directs the Board to determine (§ 1815, see also § 401) means 'the amount at which property would be taken in payment of a just debt from a solvent debtor' (§ 110), or, as stated in De .luz Homes, Inc. v. County of San Diego (1955) 45 Cal.2d 546, 562(6), 290 P.2d 544, 554, '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.'

When, as in the present case, it appears that insufficient market data is available to ascertain the 'actual market' of the particular type of property, other factors such as replacement costs and income analyses may be employed in determining valuation. (Kaiser Co. v. Reid (1947) 30 Cal.2d 610, 623, 184 P.2d 879; see also De Luz Homes, Inc., supra, pp. 563--564(15) of 45 Cal.2d, 290 P.2d 544; 51 Am.Jur., Taxation, p. 650, § 698; Cooley, Taxation (4th ed.) p. 2308 § 1145.) Thus, the capitalization of income method is a generally accepted method of valuing property from which income is or may be derived (De Luz Homes, Inc. v. County of San Diego, supra, 45 Cal.2d at p. 564(17), 290 P.2d 544; see also El Tejon Cattle Co. v. County of San Diego (1966) 64 Cal.2d 428, 430, 50 Cal.Rptr. 546, 413 P.2d 146) and has been approved by the courts for the valuing of producing mineral properties. (See Birch v. County of Orange (1922) 59 Cal.App. 133, 137, 139, 210 P. 57; South Utah Mines v. Beaver County (1923) 262 U.S. 325, 330--332, 43 S.Ct. 577, 67 L.Ed. 1004; Cal-Bay Corp. v. United States (9 Cir. 1948) 169 F.2d 15, 18(4), cert. den. 335 U.S. 859, 69 S.Ct. 134, 93 L.Ed. 406.) Further, it is settled that earnings of property may be taken into account in determining valuations, whether or not the capitalization of income method, as such, is employed. (See Roehm v. County of Orange (1948) 32 Cal.2d 280, 285--286, 196 P.2d 550, and authorities there cited.)

However, when earnings are taken into account or the capitalization of income method is employed, the profitableness of property to its present owner does not provide a standard by which to arrive at its 'full cash value'; rather, the net earnings to be considered or capitalized are those that would be anticipated by a prospective purchaser. (County of Riverside v. Palm-Ramon Development Co., (1965) 63 Cal.2d 534, 539(3), 47 Cal.Rptr. 377, 407 P.2d 289, quoting from De Luz, supra, p. 566(20, 21) of 45 Cal.2d, 290 P.2d 544; Victor Valley v. County of San Bernardino (1955) 45 Cal.2d 580, 585(4), 290 P.2d 565; Texas Co. v. County of Los Angeles (1959) 52 Cal.2d 55, 61--62(3), 338 P.2d 440; County of Tuolumne v. State Board of Equalization (1962) 206 Cal.App.2d 352, 368--369(21), 24...