Ccpa No. 1 v. County of Sonoma

• Decision Date: 14 October 2004
• Docket Number: No. A100714.,A100714.
• Citation: 19 Cal.Rptr.3d 713,122 Cal.App.4th 1614
• Court: California Court of Appeals Court of Appeals
• Parties: CCPA NO. 1, Plaintiff and Respondent, v. COUNTY OF SONOMA, Defendant and Appellant.

19 Cal.Rptr.3d 713

122 Cal.App.4th 1614

CCPA NO. 1, Plaintiff and Respondent, v. COUNTY OF SONOMA, Defendant and Appellant.

No. A100714.

Court of Appeal, First District, Division 3.

October 14, 2004.

Review Denied February 2, 2005.^*

Brett Lee Price, Bakersfield, for Defendant and Appellant.

Downey, Brand, Seymour & Rohwer and Ronald Franklyn Lipp and Barbara L. Berg, Sacramento, for Plaintiff and Respondent.

CORRIGAN, J.

The County of Sonoma (Sonoma) appeals from the judgment following a grant of summary adjudication in favor of the Central California Power Agency No. 1 (CCPA) on its complaint for refund of taxes. Sonoma contends both the State Board of Equalization (SBE) and the trial court employed an improper valuation method in applying section 11 of article XIII of the California Constitution (Section 11). We affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

At issue here are the taxation rules that apply when a local governmental agency owns property outside its jurisdictional boundaries (extraterritorial property). In this case the City of Santa Clara, the Modesto Irrigation District and the Sacramento Municipal Utility District joined to form CCPA as a joint powers agency. CCPA built the Coldwater Creek Geothermal Power Plant in Sonoma County and the plant began operations in 1988.¹

Four years later CCPA acquired leasehold interests in the Coldwater Creek Geothermal Steam Field, which provided fuel for the plant.² The leases were originally granted between 1967 and 1980 and were transferred several times among private companies before their acquisition by CCPA. These interests, in geothermal mineral rights, along with related personalty and improvements,³ are the property the taxation of which is contested. The County of Sonoma imposed property taxes that CCPA paid. CCPA then sought SBE review for the years 1993-1994 through 1997-1998, basing its claim for adjustment on Section 11, subdivision (g) and Revenue and Taxation Code section 1840.

Following bifurcated hearings on the 1993-1994 application, the SBE issued two separate decisions. In the first (SBE I), the Board determined that CCPA was not tax exempt but was a public agency entitled to be assessed under the provisions of Section 11. The SBE directed Sonoma to make an assessment on that basis. In SBE II, the Board decided that as a matter of law, Section 11 requires the Property to be valued at the lowest of (1) its current market value, (2) its value under article XIII A of the California Constitution (Proposition 13) [the Proposition 13 value], or (3) its restricted value as determined by the application of "the Phillips factor" to the 1967 assessed value, according to the formula prescribed by Section 11 [the Section 11 value].⁴

Relying on a methodology that included additional values for the subsequently discovered mineral reserves at issue, Sonoma had set the Section 11 value of the property at $215 million, the market value at $54 million and the Proposition 13 value at $48 million. Thus, under Sonoma's approach the Proposition 13 value was the lowest.

In SBE II the Board concluded that, as a matter of law, Sonoma improperly included additional value for the mineral rights in its Section 11 calculation. The rights were improperly added because a Section 11 valuation already includes all interests in land. The proper Section 11 calculation resulted in a $4.5 million figure, becoming the lowest value. The Board also applied its decision to CCPA's pending applications for tax years 1994-1995 through 1997-1998.

Based on the SBE's decisions, CCPA filed a claim for refund of taxes. After the County failed to act on the claim within six months, CCPA filed a complaint in San Francisco Superior Court, naming Sonoma and the SBE as defendants,⁵ and moved for summary adjudication on one of its three alternative claims for relief.⁶ The court granted summary adjudication in favor of CCPA. In doing so the court noted: "Section 11 appears to balance the interests of local government agencies like CCPA with those of taxing agencies like Sonoma by valuing land at its 1967 appraised value, adjusted as necessary by the factor provided by Revenue and Tax[ation] Code 401, and multiplied by the SBE-determined `Phillips factor' for the year in question." The court concluded that the SBE had properly determined the Section 11 value and applied that determination to the contested tax years. The court also concluded that although Sonoma had not had an opportunity to submit evidence in support of its valuations, it was not deprived of due process because valuation was decided as a matter of law, and Sonoma's method was legally incorrect. Finally, the court concluded its decision did not determine the obligations of, or grant any exemption from taxation to, any other party.

In September 1999, based on a joint motion and stipulation for entry of judgment among all the parties, the court entered its separate judgment, agreeing with the SBE regarding the appropriate methodology for calculating the Property's value under Section 11. CCPA waived certain claims and rights, and agreed to dismiss all other claims if the ruling on its primary claim was upheld.

Sonoma filed a timely notice of appeal in A089147, and CCPA filed a protective cross-appeal. Having raised the issue of our jurisdiction sua sponte, and having received supplemental briefing on that issue from both parties, we dismissed the purported appeal and cross-appeal for lack of a final judgment.

Following issuance of the remittitur, and pursuant to the parties' subsequent joint motion and stipulation for entry of judgment in the trial court, judgment was entered against CCPA on the remaining claims in its complaint. This timely appeal followed.⁷

DISCUSSION

Sonoma contends the SBE and the trial court misinterpreted Section 11, and failed to properly value the mineral rights at issue here. Sonoma also argues the SBE procedure deprived Sonoma of a proper evidentiary hearing, and resulted in an improper exemption from taxation for private holders of royalty rights.

I. Section 11 and Its History

"Before 1914, land owned by a local government and located outside of its jurisdictional boundaries was constitutionally exempt from taxation by the local government within whose boundaries the land was located. (Former art. XIII, § 1.)" (San Francisco, supra, 10 Cal.4th at p. 559, 41 Cal.Rptr.2d 888, 896 P.2d 181.) "The adverse effect on the tax bases of [counties in which urban governments had acquired lands for their water rights] led in 1914 to the amendment of article XIII, section 1 ... to permit the taxation of land owned by local governments and located outside their jurisdictional boundaries." (Ibid.)

"In 1968, the California Constitution was amended by the voters to limit the maximum valuation by the taxing counties of taxable land owned by a local government and located outside of its boundaries. (Former article XIII, §§ 1.60 to 1.69.)[⁸] In 1974, these valuation limitations were moved to article XIII, section 11. Section 11 limits the taxation of [extraterritorial land] by restricting the maximum valuation of that land. (Art. XIII, § 11, subd. (b).)" (San Francisco, supra, 10 Cal.4th at p. 560, 41 Cal.Rptr.2d 888, 896 P.2d 181.) "[Former section] 1.60 imposed valuation limitations on extraterritorial lands to prevent the taxing county from manipulating fair market value while insuring that the valuation of extraterritorial lands would continue to grow in line with the general statewide appreciation of land values in California. [¶] Section 11, adopted by the voters in 1974, continued these principles unchanged."[⁹] (San Francisco, supra, at p. 569, 41 Cal.Rptr.2d 888, 896 P.2d 181.)

Section 11 provides, in pertinent part: "(a) Lands owned by a local government that are outside its boundaries, including rights to use or divert water from surface or underground sources and any other interests in lands, are taxable if ... (2) they are located outside Inyo or Mono County and were taxable when acquired by the local government .... [¶] (b) ... Taxable land belonging to a local government and located outside of Inyo and Mono counties shall be assessed at the place where located and in an amount that does not exceed the lower of (1) its fair market value times the prevailing percentage of fair market value at which other lands are assessed and (2) a figure derived [by multiplying the 1967 assessed value by the ratio of the statewide per capita assessed value of land as of the last lien date prior to the current lien date to $856]." (Italics added.)

The ratio prescribed by the statute is known as "the Phillips factor," that reflects the statewide increase in land values since 1967. (San Francisco, supra, 10 Cal.4th at p. 561, 41 Cal.Rptr.2d 888, 896 P.2d 181.) Justice Mosk noted in his concurrence: "As the language of the ballot argument suggests, section 11 represents an effort to reconcile the competing needs of taxed and taxing local jurisdictions." (Id. at p. 575, 41 Cal.Rptr.2d 888, 896 P.2d 181.) "Section 11 represents a constitutional compromise based on the then-existent property tax scheme; it was, in effect, a form of tax relief for local government entities that owned extraterritorial property. [Citation.]" (Id. at p. 576, 41 Cal. Rptr.2d 888, 896 P.2d 181, italics added.)

The superior court concluded the SBE had correctly determined the Section 11 value of the Property by multiplying the 1967 assessment by the Phillips factor, and adding the value of improvements.¹⁰ Sonoma protests that this interpretation "effectively exempts the entirety of [CCPA's] interest from taxation" because only surface grazing rights, but not the mineral rights were assessed in 1967. The argument fails. The use to which the Property may have been put in 1967 does not affect the Section 11 valuation, because that section specifically applies to all interests in property.

The legislative history of ...