Forster Shipbuilding Co. v. Los Angeles County

• Decision Date: 08 July 1960
• Citation: 54 Cal.2d 450,6 Cal.Rptr. 24,353 P.2d 736
• Parties: , 353 P.2d 736 FORSTER SHIPBUILDING CO., Inc. (a Corporation) et al., Appellants, v. COUNTY OF LOS ANGELES et al., Respondents. L. A. 25668.
• Court: California Supreme Court

Page 24

6 Cal.Rptr. 24

54 Cal.2d 450, 353 P.2d 736

FORSTER SHIPBUILDING CO., Inc. (a Corporation) et al., Appellants, v. COUNTY OF LOS ANGELES et al., Respondents.

L. A. 25668.

Supreme Court of California, In Bank.

July 8, 1960.

Holbrook, Tarr & O'Neill, W. Sumner Holbrook, Jr., Francis H. O'Neill, O'Melveny & Myers, George F. Elmendorf, Bennett W. Priest, Lillick, Geary, McHose, Roethke & Myers, Los Angeles, John C. McHose, Hollywood, John F. O'Hara, Los Angeles, Luce, Forward, Hamilton & Scripps, James O. Hewitt, San Diego, Ralph D. Sweeney, Los Angeles, Howard H. Taylor, San Diego, J. Kerwin Rooney, Port Atty., Oakland, and Robert G. Cockins, City Atty., Santa Monica, for appellants.

Harold W. Kennedy, County Counsel, and Alfred Charles DeFlon, Deputy County Counsel, Los Angeles, for respondents.

Stanley Mosk, Atty. Gen., James E. Sabine and Dan Kauffmann, Asst. Attys. Gen., and Ernest P. Goodman, Deputy Atty. Gen., as amici curiae on behalf of respondents.

TRAYNOR, Justice.

This appeal tests the constitutionality of section 107.1 of the Revenue and Taxation Code, which prescribes methods for evaluating the possessory interests of lessees of tax-exempt property. Blinn Lbr. Co. v. County of Los Angeles, 216 Cal. 474, 14 P. 2d 512, 84 A.L.R. 1304, held that when such interests are evaluated by the capitalization of income method, deductions should be made from gross income for rentals to become due under the lease and for amortization of the cost of improvements by the lessee that would revert to the lessor. De Luz Homes, Inc. v. County of San Diego, 45 Cal.2d 546, 290 P.2d 544, overruled the Blinn case and held that under the capitalization of income method there can be no deductions for rental or amortization. Private lessees of government property under leases made prior to the De Luz decision complained that it was inequitable to apply the De Luz rule to them, since their rentals were fixed on the assumption that the rental value of the property would not be taxed. Apparently in response to such complaints the Legislature in 1957 adopted section 107.1 of the Revenue and Taxation Code, which provides:

'A possessory interest, when arising out of a lease of exempt property, consists of the lessee's interest under such lease and is hereby declared to be personal property within the meaning of Section 14 of Article XIII of the Constitution of the State of California.

'The full cash value of such possessory interest is the excess, if any, of the value of the lease on the open market, as determined by the formula contained in the case of De Luz Homes, Inc. v. County of San Diego (1955), 45 Cal.2d 546, 290 P.2d 544, over the present worth of the rentals under said lease for the unexpired term thereof.

'A possessory interest taxable under the provisions of this section shall be assessed to the lessee on the same basis or percentage of valuation employed as to other tangible property on the same roll.

'This section applies only to possessory interests created prior to the date on which the decision of the California Supreme Court in De Luz Homes Inc. v. County of San Diego (1955), 45 Cal.2d 546, (290 P.2d 544,) became final. It does not, however, apply to any of such interests created prior to that date that thereafter have been, or may hereafter be, extended or renewed, irrespective of whether the renewal or extension is provided for in the instrument creating the insterest.

'This section does not apply to leasehold estates for the production of gas, petroleum and other hydrocarbon substances from beneath the surface of the earth, and other rights relating to such substances which constitute incorporeal hereditaments or profits a prendre.'

Plaintiffs are lessees of certain lands and improvements owned by the City of Los Angeles and located within its boundaries. Their leases were made prior to the date on which our decision in the De Luz case became final and were not extended or renewed thereafter. Nonetheless the assessor of Los Angeles County assessed their leasehold interests without deducting the present worth of rentals for the unexpired terms, on the ground that section 107.1 is void because inconsistent with section 1 of article XIII and section 12 of article XI of the California Constitution.

Plaintiffs appeared before the Los Angeles County Board of Equalizaion and applied for reduction of their assessments by such amounts as would result from the deduction of rentals pursuant to section 107.1. Upon denial of their application they paid under protest the taxes levied for 1958 and instituted the present suit to recover the disputed amounts. The trial court found that section 107.1 is unconstitutional and entered judgment for the defendants.

Section 1 of article XIII of the California Constitution provides: 'All property in the State except as otherwise in this Constitution provided * * * shall be taxed in proportion to its value, to be ascertained as provided by law * * *.' Section 12 of article XI provides: 'All property subject to taxation shall be assessed for taxation at its full cash value.' Plaintiffs contend that the foregoing provisions are not applicable to leasehold interests in tax-exempt property. They rely on the first paragraph of section 107.1, which declares that such interests are 'personal property' within the meaning of section 14 of article XIII, Section 14 provides:

'The Legislature shall have the power to provide for the assessment, levy and collection of taxes upon all forms of tangible personal property, all notes, debentures, shares of capital stock, bonds, solvent credits, deeds of trust, mortgages, and any legal or equitable interest therein, not exempt from taxation under the provisions of this Constitution, in such manner, and at such rates, as may be provided by law, and in pursuance of the exercise of such power the Legislature, two-thirds of all of the members elected to each of the two houses voting in favor thereof, may classify any and all kinds of personal property for the purposes of assessment and taxation in a manner and at a rate or rates in proportion to value different from any other property in this State subject to taxation and may exempt entirely from taxation any or all forms, types or classes of personal property.'

Plaintiffs contend that section 107.1 simply exercises the Legislature's power to classify 'personal property' for the purposes of assessment and taxation in manner and at a rate or rates different from other taxable property.

Leasehold interests in tax-exempt land, however, are not 'personal property' within the meaning of section 14 of article XIII. The relevant paragraph of section 14 was added to the California Constitution in 1933. At that time section 3617 of the Political Code provided: 'The term 'personal property' includes everything which is the subject of ownership not included within the meaning of the term 'real estate' or 'improvements'.' The same section provided: 'The term 'real estate' includes: 1. The possession of, claim to, ownership of, or right to the possession of land * * *.' Possessory interests in land had been legislatively defined as 'real estate' or 'real property' for purposes of taxation since 1872 and are still so defined today. Rev. & Tex.Code, §§ 104, 106. This court prior to 1933 had specifically recognized that possessory interests in tax-exempt land are real property for purposes of taxation. San Pedro, L. A. & S. L. R. R. Co. v. City of Los Angeles, 180 Cal. 18, 20-21, 179 P. 393; see Bakersfield & Fresno Oil Co. v. Kern County, 144 Cal. 148, 152-153, 77 P. 892. Thus at the time section 14 of article XIII was adopted possessory interests in land, including leasehold interests in tax-exempt land, had long been expressly classified by both statute and judicial decision as real property for purposes of taxation. Terms used in a constitutional amendment 'must be construed in the light of their meaning at the time of the adoption of the amendment, and cannot be extended by legislative definition, for such extension would, in effect, be an amendment of the constitution, if accepted as authoritative.' Pacific G. & E. Co. v. Industrial Acc. Comm., 180 Cal. 497, 500, 181 P. 788, 790.

The interpretation given to the term 'personal property' as used in section 9a of article XIII supports the conclusion that possessory interests in land are real property for purposes of taxation. That section originally read: 'The taxes levied upon personal property for any current tax year where the same is not secured by real estate shall be based * * *.' In 1936 the section was amended to read: 'The taxes levied for any current tax year upon personal property and assessments upon possession of, claim to, or right to the posession of land and upon taxable improvements located on land exempt from taxation, which are not a lien upon land sufficient in value to secure their payment, shall be based * * *.' (Italics added.) The insertion of the new phrases indicates a change in the law (Hyatt v. Allen, 54 Cal. 353, 356; Hammond v. McDonald, 49 Cal. App.2d 671, 681, 122 P.2d 332) and sugests that the newly specified interests were not within the purview of 'personal property' as used in the original provision. Moreover, the argument submitted to the voters in favor of the amendment stated that it would 'simplify the collection of taxes on these property rights which the law says are real property but which are not land * * *.' (Italics added.) As used in section 9a of article XIII, therefore, the term 'personal property' does not include possessory interests in land. The same term has the same meaning in section 14 of article XIII, since the two sections are in pari materia.

textual analysis of section 14 suggests the same result. The Legislature is authorized to classify personal property 'in pursuance of the exercise of' its power to provide for the assessment, levy, and collection of taxes upon all forms of...