Metropolitan Culinary Services, Inc. v. County of Los Angeles

• Decision Date: 25 February 1998
• Docket Number: No. B110862,B110862
• Citation: 71 Cal.Rptr.2d 859,61 Cal.App.4th 935
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 1382, 98 Daily Journal D.A.R. 1863 METROPOLITAN CULINARY SERVICES, INC., Plaintiff and Appellant, v. COUNTY OF LOS ANGELES et al., Defendants and Respondents.

Page 859

71 Cal.Rptr.2d 859

61 Cal.App.4th 935, 98 Cal. Daily Op. Serv. 1382,

98 Daily Journal D.A.R. 1863

METROPOLITAN CULINARY SERVICES, INC., Plaintiff and Appellant, v. COUNTY OF LOS ANGELES et al., Defendants and Respondents.

No. B110862.

Court of Appeal, Second District, Division 2, California.

Feb. 25, 1998.

Weisman & Rosen, Peter K. Rosen and Kenneth G. Ruttenberg, Los Angeles, for Plaintiff and Appellant.

De Witt W. Clinton, Los Angeles County Counsel, and Albert Ramseyer, Senior Deputy County Counsel, for Defendant and Respondent County of Los Angeles.

NOTT, Associate Justice.

This appeal involves reassessment of possessory interest taxes. The paramount issue presented is: When the base year value of property (for possessory interest) has been overassessed, for how many years may a taxpayer receive a refund for taxes previously paid under the faulty assessment?

FACTS AND PROCEDURAL HISTORY

Metropolitan Culinary Services, Inc. ("MCS") appeals from a judgment entered in favor of respondent County of Los Angeles ("the County") following the grant of a motion for summary judgment. We therefore review the record and determine this appeal in accordance with the customary rules of appellate review for a summary judgment. In sum, we will determine de novo whether, under Code of Civil Procedure section 437c, the County proved that it was entitled to summary judgment as a matter of law. (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1594-1602, 50 Cal.Rptr.2d 431; AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064-1065, 225 Cal.Rptr. 203.)

The basic facts are not in dispute. In October of 1992, MCS became the food and non-alcoholic beverage concessionaire at the Burbank airport. The County levied a possessory interest tax assessment against MCS for the fiscal years of 1992-1993 and 1993-1994. ¹ When those assessments remained unpaid, the County seized the amount from the bank account of MCS.

In May of 1996, MCS informally met with the County to discuss the situation regarding possessory interest taxes. MCS contended that the County had incorrectly computed the base year value for 1992-1993, and that error had resulted in overtaxation for 1992-1993 and all subsequent years. According to MCS, the County agreed that there had been an overassessment, and corrected the method of calculation effective for the 1995-1996 assessment, but not as to the 1992-1993 or 1993-1994 assessments. ²

On June 27, 1996, MCS filed applications for reductions of the 1992-1993 and 1993-1994 assessments and claims for refunds for both of those years. ³ The County denied the applications and the claims for refunds the next day.

On the day of the denial, June 28, 1996, MCS filed a complaint for refund of taxes. The basis of the complaint was that the County used an improper method of valuing the possessory interest of MCS, resulting in an overcharge of taxes for 1992-1993 and 1993-1994. The County filed an answer which set forth several defenses, including the defense that MCS had failed to exhaust its administrative remedies.

The County's first motion for summary judgment was denied without prejudice. The second one was granted on the basis that by failing to make a timely claim for refund, MCS failed to exhaust its administrative remedies before the Assessment Appeals Board, and was thus precluded from maintaining an action on the claims.

DISCUSSION

1. The Pertinent Statutes

Before proceeding to the analysis of the various contentions of the parties, it will be helpful to first set forth the relevant statutes and case law regarding reassessment of property taxes.

In 1978, the California electorate enacted Proposition 13 (Cal. Const., art. XIIIA) in an effort to place a brake on what was becoming an unaffordable annual upward spiral in property tax assessment.

Article XIIIA resulted in ad valorem property taxes (including possessory interest taxes) being mandatorily reassessed at the lower of fair market value or "base year value." ⁴ "Base year value" is defined as the county assessor's valuation as of the 1975-1976 tax year. Any inflationary increase in value is limited to a maximum of two percent per year. (Montgomery Ward & Co. v. County of Santa Clara (1996) 47 Cal.App.4th 1122, 1129, 55 Cal.Rptr.2d 261.)

Using the base year value as a starting point, under REVENUE AND TAXATION CODE SECTION 51⁵, the taxable value of real property is annually adjusted upward or downward, depending on market conditions.

Absent certain limited exceptions not applicable here, a change in base year value will occur upon the transfer of property ownership. Such a transfer requires a reassessment. The assessor will then issue a supplemental tax assessment, which could have the effect of either increasing or decreasing future property taxes, and could also set the stage for a refund to the taxpayer or an additional tax bill (i.e., "escape assessment""). (Montgomery Ward & Co. v. County of Santa Clara, supra, at p. 1129, 55 Cal.Rptr.2d 261.) Thus, while property is assessed each year, there is only one year in which a base year is established. (Id., at p. 1136, 55 Cal.Rptr.2d 261.)

Prior to 1988, if an assessor found that property had been overassessed or underassessed, the assessor could provide for a refund (in the case of an overassessment) or for an escape assessment (in the case of an underassessment). (Blackwell Homes v. County of Santa Clara (1991) 226 Cal.App.3d 1009, 1013, 277 Cal.Rptr. 251.) Under sections 532 and 4831, an escape assessment could generally be issued for the past four tax years. (Blackwell Homes v. County of Santa Clara, supra, at p. 1013, 277 Cal.Rptr. 251.) However, after the advent of Proposition 13, a question arose as to exactly what event triggered the commencement of the four-year period of limitation.

The answer came in the case of Dreyer's Grand Ice Cream, Inc. v. County of Alameda (1986) 178 Cal.App.3d 1174, 224 Cal.Rptr. 285. In Dreyer's, Division Four of the First Appellate District held that the triggering event was the lien date of the year the base year was established, rather than of a subsequent assessment year. (Id., p. 1179, 224 Cal.Rptr. 285.)

In a response to Dreyer's, the Legislature enacted section 51.5 in 1988. ⁶ (Blackwell, supra, at p. 1015, 277 Cal.Rptr. 251.) Section 51.5 provided specific authority for reassessment where it was found that the base year value was inaccurately or inappropriately calculated, or where the property had 1. Under subdivision (a), reassessment of the base year value where there has been an error or omission that was not based on an assessor's judgment, e.g., taxpayer fraud or clerical error. There is no limitation period for reassessment under subdivision (a).

escaped any valuation at all. In sum, section 51.5 allows:

2. Under subdivision (b), reassessment of the base year value where there is an error or omission which does involve the exercise of an assessor's judgment. There is a limitation period of four years from July 1 of the year the base value was originally established.

3. Under subdivision (d), if a correction under subdivision (a) or subdivision (b) results in a reduction of base year value, the taxpayer is entitled to refunds. Conversely, if the correction increases the base year value, escape assessments are required to be issued.

The present case apparently involves a situation under section 51.5, subdivision (b), in that an assessor exercised discretion in initially setting the base year value for MCS. Therefore, under that statute, MCS had four years from July 1 of 1992, to request correction of the base year value. It did so, by making its request before July 1 of 1996. However, a revaluation for the base year does not end the problem. Still left to be resolved is whether MCS can receive a refund or refunds.

The County says no, in that under section 1603, MCS was required to file its request for a refund for the 1992-1993 year by September 15, 1992, and for the 1993-1994 year by September 15, 1993. ⁷

However, we do not believe section 1603 is controlling. That section deals in general with applications for reductions in assessment. Rather, the applicable statute is section 80, which specifically deals with reductions in base year value. ⁸

In 1988, at the same time section 51.5 was enacted, section 80 was amended to add a four-year limitation period in which to apply for a revision of base year value under section 51.5. Significantly, however, the Legislature left standing subdivision (a)(5), which provides that "[a]ny reduction in assessment made as the result of an appeal under this section shall apply for the assessment year in which the appeal is taken and prospectively thereafter.""

It therefore appears that even though a taxpayer has four years to challenge a base year value, the taxpayer can only receive a refund for the year in which the appeal is made, and thereafter. Virtually the same scenario was before the appellate court in Sea World, Inc. v. County of San Diego (1994) 27 Cal.App.4th 1390, 33 Cal.Rptr.2d 194 (hereafter "Sea World""), which we now examine.

2. The Sea World Case

In November of 1989, the ownership of Sea World changed hands, triggering a reassessment under Proposition 13. On June 22, 1990, the assessor notified Sea World of the new base year value. In September of 1990, the assessor mailed Sea World a supplemental tax bill for 1989. On September 24, 1990 On June 29, 1990, the assessor sent out an annual assessment for 1990. On September 14, 1990, Sea World filed an application for equalization and refund.

Sea World filed an application for equalization and refund.

The Assessment Appeals Board (AAB) rejected Sea World's 1989 claim as untimely, but granted a reduction in the base year value for 1990 and a partial refund of taxes for that year. The trial court affirmed the AAB's decision, and the appellate court affirmed the trial court.

The key ruling of Sea...