Grotenhuis v. County of Santa Barbara

Decision Date15 March 2010
Docket NumberNo. B212264.,B212264.
Citation182 Cal.App.4th 1158,105 Cal. Rptr. 3d 918
CourtCalifornia Court of Appeals Court of Appeals
PartiesDAVID W. GROTENHUIS, Individually and as Trustee, etc., et al., Plaintiffs and Respondents, v. COUNTY OF SANTA BARBARA, Defendant and Appellant.

Dennis A. Marshall, County Counsel, and Marie A. LaSala, Deputy County Counsel, for Defendant and Appellant.

Kristine Cazadd, Robert W. Lambert, Richard Sungjoo Moon and Jennifer B. Henning for California State Association of Counties as Amicus Curiae on behalf of Defendant and Appellant.

The Law Offices of John Derrick and John Derrick for Plaintiffs and Respondents.

Stephen H. Bennett as Amicus Curiae on behalf of Plaintiffs and Respondents.

OPINION

YEGAN, J.

County of Santa Barbara (County) appeals a tax refund judgment entered in favor of David W. Grotenhuis, as an individual and trustee of the Grotenhuis Family Living Trust (Grotenhuis) and Grotenhuis Investments, Inc., a closely held corporation (corporation). The trial court ruled that Grotenhuis, as the alter ego of corporation, can claim a homeowner's property tax exemption (Rev. & Tax. Code, § 218)1 and transfer the base year value of a former residence to a new residence of which corporation is the owner of record. (§ 69.5.) There is no statutory provision or precedent for this ruling and we reverse.

(1) Subject to certain conditions, a homeowner over the age of 55 may sell a principal residence that qualifies for a homeowner's property tax exemption (§ 218), purchase a replacement dwelling of equal or lesser value in the same county, and transfer the property tax basis of the principal residence to the replacement dwelling. (§ 69.5, subd. (a).) The Legislature calls this a "transfer of base year value." (§ 69.5, subds. (g)(2) & (j)(1).)2

(2) Unless the original residence and replacement residence qualify for a homeowner's property tax exemption, the tax basis of the original residence may not be transferred to the replacement residence. (§ 69.5, subd. (b)(2), (4).) Section 69.5, subdivision (a)(1) provides that a natural "person" (i.e., a person over the age of 55 years or a severely and permanently disabled person) may transfer the tax basis of his or her principal residence. "`Person' means any individual, but does not include any firm, partnership, association, corporation, company, or other legal entity or organization of any kind." (§ 69.5, subd. (g)(11).)

(3) Grotenhuis concedes that corporation is the owner of record of the replacement residence but contends that he is the true "owner" and qualifies for a homeowner's property tax exemption and a base year value transfer. We reject the contention. Grotenhuis did not sell the original principal residence, did not purchase the replacement residence, and rents the replacement residence from corporation.

Stipulated Facts

Grotenhuis and his wife purchased a lot and structure on Padaro Lane in Carpinteria in 1994. They tore down the existing shack and built a house that was used as their principal residence. In 1999, Grotenhuis conveyed title to corporation of which Grotenhuis is the sole shareholder. County granted a homeowner's exemption on the Padaro Lane property, which was a mistake because corporation was the owner of record.

In 2002 Grotenhuis refinanced the property, conveying title to himself and back to corporation. Grotenhuis notified County that the transfer was to refinance the property and that the property should not be reassessed for tax purposes. County continued the homeowner's exemption even though corporation was the owner of record.

In 2004, corporation sold the Padaro Lane property for $5.05 million and bought a replacement residence on Ten Acre Road, Montecito which has an assessed value of $3.35 million. After title was taken in the corporation's name, Grotenhuis signed a backdated lease to rent the residence.

On April 22, 2005, Grotenhuis filed a claim to transfer the base year value of the Padaro Lane property which would entitle him to a $24,000-a-year reduction in property taxes on the Montecito residence. County denied the claim because corporation was the owner of record of the original and replacement properties.

Appeals Board Decision

Grotenhuis alone appealed to the Santa Barbara County Appeals Board (Board) for an assessment reduction and tax refund. Grotenhuis offered imaginary deeds (corrective deeds) to show that he intended to qualify the Montecito residence for a base year value transfer. Grotenhuis, however, admitted that he was a tenant of the Padaro Lane property before it was sold. Grotenhuis also introduced evidence that he signed a 35-year lease on April 3, 2005, that was backdated to October 8, 2004 (the date the Montecito residence was purchased), to somehow show that the property was eligible for a homeowner's exemption.

Board denied the application for changed assessment and tax refund, rejecting Grotenhuis's mistake and estoppel arguments. It found that Grotenhuis was "sophisticated enough to know that corporate transfers of real property did not qualify for transfers of base year value ... and that [he] did not inform the Assessor of this fact even though the corporation enjoyed the benefit of the homeowners exemption for about 6 to 7 years. Instead of supporting [his] claim for equitable relief, [his] continued enjoyment of the homeowners exemption when [he was] not entitled to it ... undercut [his] claim for equitable relief."

Tax Refund Complaint

Grotenhuis and corporation filed a complaint for a tax refund and asked the trial court to consider the administrative record and a joint statement of stipulated facts. (See § 5140.) The trial court ruled that Grotenhuis was the alter ego of corporation and entitled to section 69.5 property tax relief. County was ordered to refund excess property taxes paid after October 8, 2004, but only if title to the Montecito residence is transferred to Grotenhuis. It also ordered that Grotenhuis is "entitled to receive continuing relief under Revenue & Taxation Code § 69.5 ... providing the title remains in his name individually or as trustee." The trial court's theories, premised upon equitable considerations, are inapposite in the property tax context.

Failure to Exhaust Administrative Remedies/Alter Ego Standing

(4) "Ordinarily a taxpayer seeking relief from an erroneous assessment must exhaust available administrative remedies before resorting to the courts. [Citations.]" (Stenocord Corp. v. City etc. of San Francisco (1970) 2 Cal.3d 984, 987 [88 Cal.Rptr. 166, 471 P.2d 966].) It is uncontroverted that corporation did not file a tax refund claim and was not identified as an applicant in the administrative proceedings. The Board only reviewed Grotenhuis's claim as an individual. The trial court, however, found that Grotenhuis "is Grotenhuis Investments, Incorporated" and as "its president and sole owner, ... represented himself and the company" in the administrative proceeding.

(5) The trial court erred in relying on a corporate alter ego theory to confer standing. Grotenhuis's imaginative alter ego theory cannot be sustained. "The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff's interests. [Citation.]" (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300 [216 Cal.Rptr. 443, 702 P.2d 601].) Grotenhuis has come to court claiming that the very corporation he formed should have its veil pierced so that he, as an individual, can obtain a tax advantage. "The essence of the alter ego doctrine is that justice be done." (Id., at p. 301.) There is no injustice here. Grotenhuis's tax predicament was self-created by Grotenhuis.

(6) Grotenhuis elected the corporate form for business reasons unrelated to tax. "He who takes the benefit must bear the burden." (Civ. Code, § 3521.) Grotenhuis should not be able to weave in and out of corporate status when it suits the business objective of the day. The laudatory goal of section 69.5 does not afford property tax relief to an individual who has made a business decision to transfer a residence to a corporation.

(7) Section 5140 provides that a tax refund action may only be brought by the "person who paid the tax" and who exhausts his or her administrative remedies. The statutory limitation on standing in tax refund actions has existed since 1919. (IBM Personal Pension Plan v. City and County of San Francisco (2005) 131 Cal.App.4th 1291, 1302 .) "The statutory provisions could not be more clear: `No other person may bring such an action; but if another should do so, judgment shall not be rendered for the plaintiff.' (§ 5140.)" (Id., at p. 1304.)

(8) Grotenhuis paid some of the property tax installments (approximately $17,500) and corporation paid other property tax installments (approximately $35,000). There is no evidence that corporation paid property taxes as the alter ego of Grotenhuis or that County invoked section 5140 to ignore what happened before the Board. (See, e.g., CAT Partnership v. County of Santa Cruz (1998) 63 Cal.App.4th 1071, 1081 [§ 5140 not a bar where administrative decision listed and referred to corporate partner as applicant for tax relief].) "[W]here an administrative remedy is provided by statute, relief must be sought from the administrative body and this remedy exhausted before the courts will act." (Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 292 .)

Stated another way, Grotenhuis may not sue to recover excess property taxes paid by someone else, such as his landlord, who pays the tax by design or mistake. (See, e.g., Easton v. County of Alameda (1937) 9 Cal.2d 301, 303 [no standing where tenant paid property taxes on behalf of owner].) The plain language of section 5140 compels the conclusion that Grotenhuis lacked standing to seek the refund of taxes paid by corporation. (IBM Personal Pension Plan v. City and...

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