Harmony Gold United Statesa., Inc. v. Cnty. of L. A.

• Decision Date: 03 January 2019
• Docket Number: B284436
• Citation: 31 Cal.App.5th 820,243 Cal.Rptr.3d 250
• Parties: HARMONY GOLD U.S.A., INC., Plaintiff and Appellant, v. COUNTY OF LOS ANGELES et al., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

31 Cal.App.5th 820

243 Cal.Rptr.3d 250

HARMONY GOLD U.S.A., INC., Plaintiff and Appellant,

v.COUNTY OF LOS ANGELES et al., Defendants and Respondents.

B284436

Court of Appeal, Second District, Division 1, California.

Filed January 3, 2019

Law Offices of Robert A. Pool and Robert A. Pool for Plaintiff and Appellant.

Mary C. Wickham, County Counsel, and Sangkee Peter Lee, Deputy County Counsel, for Defendants and Respondents County of Los Angeles, John Naimo, Los Angeles County Auditor-Controller, and Los Angeles County Board of Supervisors.

ROTHSCHILD, P. J.

This appeal requires us to consider two Revenue and Taxation Code¹ sections that address a real property's "base-year value" (base value), a core metric for assessing property taxes in California. Specifically, we must consider the interplay between section 51.5, subdivision (a), which removes any otherwise applicable time limits on the assessor's ability to correct base value errors that do not involve an exercise of judgment (so-called "nonjudgmental error"), and section 80, subdivision (a)(5), which limits the years for which a property owner is entitled to have a property's base value reassessed.

Appellant Harmony Gold, U.S.A., Inc. (Harmony) overpaid in property taxes as a result of the assessor's nonjudgmental error; specifically, an erroneous change-in-ownership determination that reset its property's base value. Los Angeles County (the County) refunded the taxes Harmony overpaid beginning in the year Harmony first challenged the erroneous base value, but not for prior years. In the action underlying Harmony's appeal, Harmony sought to recover tax overpayments for those prior years. It also sought a declaration and writ requiring the auditor-controller to correct the tax rolls for all affected years and a declaration interpreting certain portions of the Revenue and Taxation Code (the code).

The trial court sustained a demurrer without leave to amend and dismissed Harmony's complaint. We agree with the trial court.

FACTUAL AND PROCEDURAL SUMMARY

A. California Property Tax Calculation and Refund Actions

Because this case concerns the intricacies of California property tax law, some general background on the applicable statutory scheme is necessary to understand the record and issues on appeal.

Since the enactment of Proposition 13, the California Constitution limits property taxes to one percent of a property's base value compounded by an inflation factor. ( Cal. Const., art. XIII, §§ 1, subd. (a), 2, subd. (b).) "Base-year values are reestablished only if property is purchased, is newly constructed, or if there is a change in ownership." ( Osco Drug, Inc. v. County of Orange (1990) 221 Cal.App.3d 189, 192, 272 Cal.Rptr. 14 ( Osco ).)

If the assessor commits an error in calculating the base value, one or all of the following may occur: (1) the assessor may correct the error on the tax rolls; (2) the taxpayer may apply for a reduction in property taxes based on an erroneous base value; and/or (3) the taxpayer may request a refund of taxes paid as a result of base value error. ( Metropolitan Culinary Services, Inc. v. County of Los Angeles (1998) 61 Cal.App.4th 935, 943, 71 Cal.Rptr.2d 859 ( Metropolitan ); Osco, supra, 221 Cal.App.3d at p. 193, 272 Cal.Rptr. 14.)

Each of these processes serves a distinct purpose. First, because property taxes are calculated as a percentage of the base value (adjusted each year for inflation), correction of base value error on the tax rolls facilitates efficient and accurate property tax assessment. (See Kuperman v. San Diego County Assessment Appeals Bd. No. 1 (2006) 137 Cal.App.4th 918, 923-924, 40 Cal.Rptr.3d 703.) Correcting the base value is thus necessary, whether or not the taxpayer seeks a reduced property tax payment via an assessment application or a refund via a refund claim.

Applications for reduced assessment, by contrast, allow a taxpayer to contest base value calculations the taxpayer believes to be erroneous. This is a necessary first step in either correcting the amount of taxes paid in the future, or seeking a refund. ( Sea World, Inc. v. County of San Diego (1994) 27 Cal.App.4th 1390, 1404–1405, 33 Cal.Rptr.2d 194 ( Sea World ) ["a downward adjustment in base-year value as the result of an application for a reduction challenging an assessment ... is not the same thing as a correction based on an error or omission in the assessor's value judgment determined without the filing of an application for reduction [under section 51.5 ]"].)

Finally, refund actions allow taxpayers to seek those erroneous tax payments the code deems to be refundable. " ‘There is a distinction between the reduction in a base-year value and a right to a refund of taxes. The base-year value is a control figure from which an assessment is determined. The correction of the base-year value allows the assessor to determine whether there has been an overassessment or an underassessment.’ " ( Sunrise Retirement Villa v. Dear (1997) 58 Cal.App.4th 948, 956, 68 Cal.Rptr.2d 416 ( Sunrise ); see Osco, supra, 221 Cal.App.3d at p. 193, 272 Cal.Rptr. 14 [only after determining, via an application for reduction, when a reduction of the base value becomes effective can the county "examine whether [plaintiff] has a right to a refund and, if so, if it timely filed its claim"].)

Consistent with their distinct purposes, error correction, applications for reassessment, and refunds are separate and distinct under the code as well. Each is governed by a different set of time limitations and procedures. With these important distinctions in mind, we briefly outline below the limits and procedures most relevant to reviewing Harmony's claims.

1. Base Value Error Corrections

The assessor is obligated to correct an error involving "the exercise of an assessor's judgment as to value" (so-called "judgmental error"), if the assessor discovers it within four years of the erroneous assessment. ( § 51.5, subd. (b) ; see § 4837; Sunrise, supra, 58 Cal.App.4th at p. 953, 68 Cal.Rptr.2d 416 [coining the terms "judgmental error" and "nonjudgmental error" in the context of § 51.5 ].) The assessor also must correct all other types of base value error upon discovering them, regardless of how much time has passed since the errors occurred. ( § 51.5, subd. (a) ; Sunrise, supra , 58 Cal.App.4th at p. 953, 68 Cal.Rptr.2d 416.) Examples of nonjudgmental error include failing to identify any base value at all and incorrectly concluding a change of ownership took place. ( § 51.5, subd. (a) ; Sunrise, supra , at p. 957, 68 Cal.Rptr.2d 416.)

2. Applications for Changed Assessments

Property owners may challenge whether a base value was calculated correctly, or whether a "change in ownership" warranting recalculation has occurred, via an "application for reduction in the base-year value" filed with the local assessment appeals board. ( § 80, subd. (a)(3) ; see §§ 1603, 1605.5, subd. (a).) In Los Angeles, this board is the County of Los Angeles Assessment Appeals Board (AAB). Two types of time limitations apply to such applications. First, the application must be filed within four years of the contested base value determination. ( §§ 80, subd. (a)(3), 1603.) Second, where the application results in a reduced base value assessment, the "reduction in assessment ... shall apply for the assessment year in which the appeal is taken and prospectively thereafter." ( § 80, subd. (a)(5).)

3. Tax Refund Claims

The code permits tax refunds on several bases, including where taxes are "[e]rroneously or illegally collected." (§ 5096, subd. (b) [addressing grounds for refund].) Thus, when the assessor reduces the base value for a property—whether as a result of an application for changed assessment or a sua sponte assessor correction—the property owner may seek a refund of taxes paid for the years to which the reduced base value assessment applies under the code. ( §§ 51.5, subd. (d), 5096, subd. (b), 5097, 5097.2 ; see § 80, subd. (a)(5).) The years to which a reduced base value assessment applies for the purposes of a refund action based on nonjudgmental error is the subject of this appeal.

Various sections in division 1 of the code establish procedural requirements for tax refund actions. (See, e.g., §§ 5096, 5097, 5142 ; see also § 80.) Filing an application for changed assessment with the AAB is a prerequisite for bringing a refund claim, unless the parties stipulate that the dispute does not involve any valuation issues, and the AAB accepts that stipulation.² (See § 5142, subd. (b) [describing "requirement that the person affected file and prosecute an application for reduction ... in order to exhaust administrative remedies," deemed satisfied when AAB accepts a stipulation that no valuation issues were presented]; see also § 5097.)

Once the AAB determines the base value should be reduced or accepts a stipulation regarding an assessor's correction of the rolls that reduces the base value, a taxpayer may make an initial claim for a refund based thereon. ( §§ 5097, 5142.) This initial application must be verified and directed at the county. ( §§ 5097, 5142.) Section 5097 lays out the timeline on which such a verified claim for a refund must be made. (See § 5097.) Section 5097 does not, however, address the years for which a taxpayer may obtain a refund by timely filing such a refund claim. (See ibid. ) Only after the county denies such a claim has the taxpayer fully exhausted administrative remedies and may seek refund relief in court. ( § 5142.) The taxpayer's " ‘claim for refund delineates and restricts the issues to be considered in a taxpayer's refund action.’ " ( Mission Housing Development Co. v. City and County of San Francisco (2000) 81 Cal.App.4th 522, 527, 97 Cal.Rptr.2d 8.)

B. Harmony's 2011 Application for Changed Assessment

Harmony owns a property at 962 La Cienega Boulevard, Los Angeles (the property).³ In 2006, the Los Angeles County Assessor incorrectly determined that the property had...