General Dynamics Corp. v. Los Angeles County

• Decision Date: 24 October 1958
• Docket Number: AEROJET-GENERAL
• Citation: 51 Cal.2d 59,330 P.2d 794
• Court: California Supreme Court
• Parties: GENERAL DYNAMICS CORPORATION, a Corporation, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES et al., Defendants and Appellants, United States of America, Intervener and Respondent.CORPORATION, a Corporation, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES et al., Defendants and Appellants, United States of America, Intervener and Respondent. L. A. 24818, 24819.

Page 794

330 P.2d 794

51 Cal.2d 59

GENERAL DYNAMICS CORPORATION, a Corporation, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES et al., Defendants and Appellants, United States of America, Intervener and Respondent.

AEROJET-GENERAL CORPORATION, a Corporation, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES et al., Defendants and Appellants, United States of America, Intervener and Respondent.

L. A. 24818, 24819.

Supreme Court of California, In Bank.

Oct. 24, 1958.

Rehearing Denied Nov. 19, 1958.

Harold W. Kennedy, County Counsel, Gordon Boller, Asst. County Counsel, and Alfred Charles DeFlon, Deputy County Counsel, Los Angeles, for appllants.

Robert B. Watts, John Conway McDevitt, Gray, Gary, Ames & Frye, John M. Cranston, Ward W. Waddell, Jr., San Diego, William J. Donahue, Pasadena, Hill, Farrer & Burrill, Carl A. Stutsman, Jr., Mark E. True and Vincent C. Page, Los Angeles, for plaintiffs and respondents.

Charles K. Rice, Asst. Atty. Gen., Joseph F. Goetten, A. F. Prescott and H. Eugene Heine, Jr., U. S. Attorneys, Dept. of Justice, Washington, D. C., Laughlin E. Waters, U. S. Atty., and Edward R. McHale, Asst. U. S. Atty., Los Angeles, for intervener and respondent.

TRAYNOR, Justice.

Plaintiffs, General Dynamics Corporation and Aerojet-General Corporation, brought these actions to recover county and city ad valorem personal property taxes for the fiscal year 1953-1954. They assert that they had no taxable interest in the property. The United States intervened and alleged that the property assessed belonged to it and that it was obligated by contract to reimburse plaintiffs for the taxes paid. The trial court entered judgments for plaintiffs and intervener, and defendants appeal.

On the first Monday in March, 1953, plaintiffs were performing various research and production contracts relating to national defense. Some were prime contracts with the armed services, and others were subcontracts. Some were fixed-price contracts, and others were cost-plus-a-fixed-fee contracts. Aerojet operated its own plant, and General Dynamics operated a plant owned by the United States Navy. The tax on General Dynamics' possessory interest in this real property is not in issue here.

Under the terms of the contracts, title to all of the personal property involved was in the United States on tax day. It comprised tools and equipment used in producing goods or carrying out research for the armed forces, materials being fabricated into products to be delivered to the armed forces, and property held on a stand-by basis for use in the event of increased defense research or production.

Defendants contend that plaintiffs had taxable possessory interests in this government-owned personal property. They now concede, however, that the method of evaluation adopted by the assessor was erroneous and therefore seek a reversal of the judgment with appropriate directions for correctly evaluating and taxing plaintiffs' interests.

It is now settled that a private contractor's right to use government property may be made the subject of nondiscriminatory tax measured by the value of the property used even though the economic burden of the tax falls on the United States. (City of Detroit v. Murray Corporation of America, 355 U.S. 489, 78 S.Ct. 458, 2 L.Ed.2d 441; United States v. City of Detroit, 335 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424; United States v. Township of Muskegon, 355 U.S. 484, 78 S.Ct. 483, 2 L.Ed.2d 436.) A fortiori, a state may stop short of imposing such a tax and impose a tax on a privately held possessory interest in tax exempt property measured by the value of that interest. Kaiser Co. v. Reid, 30 Cal.2d 610, 184 P.2d 879. The first question in these cases is whether the state has done so.

Defendants contend that there is no logical distinction between possessory interests in real and personal property. They point out that possessory interests in real property are taxable (De Luz Homes, Inc., v. County of San Diego, 45 Cal.2d 546, 290 P.2d 544; Kaiser Co. v. Reid, 30 Cal.2d 610, 184 P.2d 879; Rev. and Tax.Code, § 104) and invoke section 1 of Article XIII of the California Constitution and Revenue and Taxation Code, section 201 as establishing the same rule with respect to personal property.

Section 1 of Article XIII provides that 'All property in the State except as otherwise in this Constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law, or as hereinafter provided. The word 'property,' as used in this article and section, is hereby declared to include moneys, credits, bonds, stocks, dues franchises, and all other matters and things, real, personal, and mixed, capable of private ownership * * *.' Section 201 provides that 'All property in this State, not exempt under the laws of the United States or of this State, is subject to taxation under this code.' With respect to personal property, however, these general provisions are controlled by other constitutional and statutory provisions dealing expressly with the taxation of personal property and interests therein.

Section 14 of Article XIII provides in part that '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 reates, 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 assessement 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.'

Under these provisions the Legislature may provide for the taxation of 'all forms of tangible personal property' and 'any legal or equitable interest therein.' We have concluded, however, that the Legislature has not provided for the taxation of limited interests in tangible personal property. It has not defined personal property as including a right to its possession as it has real property (see, Rev. and Tax.Code, §§ 104, 107), and this omission reflects and merely a lack of detail, but a consistent pattern of taxing tangible personal property as an entity or not at all.

Although taxable property may be assessed to a mere possessor (Rev. and Tax.Code, § 405; S. & G. Gump Co. v. San Francisco, 18 Cal.2d 129, 131, 114 P.2d 346, 135 A.L.R. 595) and such a possessor is required to file a statement of his possession (Rev. and Tax.Code, § 442), the property is assessed at 'its full cash value' (Rev. and Tax.Code, § 401) and is listed on the assessment roll as personal property and not as a possessory interest therein. ^* No provision is made for declaring or assessing a possessory interest in tax exempt personal property. Moreover, section 612 provides that when 'a person is assesser as agent, trustee, bailee, guardian, executor, or administrator, his representative designation shall be added to his name, and the assessment entered separately from his individual assessment.' (Italics added.) The assessee is liable for taxes assessed against him under this section only in his representative capacity. County of Los Angeles v. Morrison, 15 Cal.2d 368, 371-373, 101 P.2d 470, 129 A.L.R. 443. Accordingly, if the property held in such capacity is tax exempt, any assessment of it would necessarily be self-defeating for the tax could not be enforced against the property or its possessor personally, at least in cases such as these, where the bailee's interest in the property could not be transferred.

It is true that from an economic viewpoint a bailee's right to use tax exempt personal property may be as valuable as the right to use tax exempt real property. In construing ad valorem tax legislation, however, we cannot overlook the historical distinction between real and personal property that is reflected not only in the statutory provisions but in common understanding of what sort of interest in property is necessary to qualify as property itself within the meaning of tax statutes. The distinction was recognized in Kaiser Co. v. Reid, 30 Cal.2d 610, 184 P.2d 879, and it was held in both Douglas Aircraft Co. v. Byram, 57 Cal.App.2d 311, 134 P.2d 15, and C. C. Moore & Co., Engineers v. Quinn, 149 Cal.App.2d 666, 308 P.2d 781, that possessory interests in tangible personal property were not taxable property. Timm Aircraft Corp. v. Byram, 34 Cal.2d 632, 213 P.2d 715, is not to the contrary for in that case the court concluded that the taxpayer was in fact the owner of the funds involved. The Timm case is consistent with the theory that it is the property rather than interests therein that is the subject of the tax, for the tax was sustained on the ground that the property was owned by the taxpayer, not the United States.

The right to obtain an economic benefit from the use of possession of property may be a relevant consideration in determining who is actually its owner for tax purposes in doubtful cases (Timm Aircraft Corp. v. Byram, 34 Cal.2d 632, 638, 213 P.2d 715; Kaiser Co. v. Reid, 30 Cal.2d 610, 621, 184 P.2d 879), but the existence of such right is not controlling. No one would contend that a warehouseman was the owner of government property stored with him, or that a repair shop proprietor was the owner of government automobiles brought to him for repairs, even though their possessory interests in such government property were profitable to them. In accord with such common understanding, the assessor himself in the...