Morse Signal Devices v. County of Los Angeles

• Decision Date: 02 November 1984
• Citation: 161 Cal.App.3d 570,207 Cal.Rptr. 742
• Court: California Court of Appeals Court of Appeals
• Parties: MORSE SIGNAL DEVICES OF CALIFORNIA, INC., a California Corporation, Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, et al., Defendants and Respondents. 2d Civ. 67440.

Page 742

207 Cal.Rptr. 742

161 Cal.App.3d 570

MORSE SIGNAL DEVICES OF CALIFORNIA, INC., a California Corporation, Plaintiff and Appellant, v. COUNTY OF LOS ANGELES, et al., Defendants and Respondents.

2d Civ. 67440.

Court of Appeal, Second District, Division 3, California.

Nov. 2, 1984.

Murphy, Thornton, Hinerfeld & Cahill, Los Angeles, for plaintiff and appellant.

John H. Larson, County Counsel, Los Angeles, for defendants and respondents.

ARABIAN, Associate Justice.

INTRODUCTION

Plaintiff and appellant, Morse Signal Devices of California ("Morse"), appeals from that portion of a trial court judgment which held that it is not entitled to a refund of certain ad valorem ¹ property taxes paid under protest to defendant and respondent, the County of Los Angeles ("County"). We affirm the judgment of the trial court. ²

FACTS

Morse is engaged in the business of selling, installing, monitoring and servicing burglar alarm systems. The systems are of various types and include both central alarm systems, which are monitored by Morse through signals transmitted over public utility lines, and local alarm systems, which rely on an alarm bell and flashing lights, and are not centrally monitored. The local alarm systems are sold outright to Morse customers, are not Morse's property, and are not the subject of this appeal.

The installed central alarm system consists of (1) the major component parts--a transmitter, the bell box and electronic sensing devices--all of which are easily removed from the subscribers' premises and (2) the minor component parts--"foundational wiring," contacts and metallic tape (and the costs of labor for its installation)--which are difficult to remove from the subscribers' premises without damaging the property.

The installation of a centrally monitored alarm system is an elaborate undertaking. The major component parts of the system are connected to an extensive foundational wiring system which is affixed to the subscriber's premises by means of clamps, screws, bolts and other means of attachment. To prevent detection of the system, the foundational wiring is concealed in conduits and walls, under carpets, above and behind drop ceilings, and behind floor casings. A cable is suspended from the utility pole to the subscribers' premises in much the same fashion as a telephone cable. The cable is made to enter the subscribers' premises where it is connected with the major component parts of the system. A signal is transmitted through this cable to Morse's central station whenever a breach of the system occurs. When Morse receives the signal, it contacts the police or fire department and dispatches its personnel to the premises for investigative purposes.

Upon installation of the system, the subscriber pays an installation fee to Morse and then pays a monthly service fee for continued monitoring. The installation fee is shown as income on Morse's books and records and as an expense on the books of the Morse subscribers.

In March of 1977, County assessed personal property ad valorem taxes against Morse for the minor component parts of the burglar alarm systems Morse monitored in 1972 through 1975. The assessments were levied as escaped assessments for those years and penalties and interest were added to the taxes allegedly due. Morse appealed the assessments to the Assessment Appeals Board of Los Angeles County (Rev. & Tax Code, § 1603), which held that the minor component parts of the systems subject to the escaped assessments were fixtures permanently affixed to the premises of the Morse subscribers, that they were thus assessable as real property, and that they were assessable and taxable to Morse, rather than to the subscribers.

In March of 1978, County assessed the Morse burglar alarm systems as real property, included the minor component parts in the assessment, and levied the taxes against Morse. Morse was again unsuccessful in appealing the assessment. Morse paid the taxes, penalties and interest due for the years 1972 through 1975 and for the year 1978 under protest and, after exhausting its administrative remedies, brought the instant action for refund of taxes, penalties and interest paid on the minor component parts of the systems.

Morse did not challenge the taxes levied on the major component parts of its burglar alarm systems. It challenged only the assessments for the minor component parts of the systems which were permanently affixed to its subscribers' premises. ³ The Since Morse revised its installation and service agreement in 1977, the trial court noted in its "Statement of Decision" that it was necessary to consider separately Morse's tax liability for the years 1972 through 1975, when the "First Contract" was in effect, and the year 1978, when the "Second Contract" was in force. The trial court described the first and second installation and service agreements in its Statement of Decision as follows:

amount of assessments for the minor component parts was determined mainly by the cost of the labor for its installation, since the cost of the wire, foil and other minor parts was relatively insignificant.

"1. First Contract

"The First Contract, which was utilized by Morse for all installations made during the tax years 1972 through 1975, was a standard contractual agreement for the installation and servicing of alarm systems. In order to protect the system from destruction or tampering by the subscriber and to assure its operability to the benefit of the subscriber, Morse inserted in the First Contract a clause which provided that all portions of the system would technically remain the property of Morse. The subscriber, however, agreed to protect the property and bore the risk of loss or damage thereto. ⁴ Although the First Contract provided that upon termination of the service agreement Morse had the right to remove all parts of the installed system, Morse never removed any part of the system from the subscriber's premises, other than, on occasion, the major component parts, and even then such action was taken only with the consent of the subscriber. At no time did Morse ever remove the foundational wiring system once it was installed on the premises of the subscriber. Upon installation, that wiring became permanently affixed to the real property of the subscriber, and upon termination of the service agreement, it remained on the subscriber's premises and could be utilized by him in any manner which he so desired.

"2. Second Contract

"In 1977, Morse revised its standard installation and service contract to make explicit what had been Morse's policy all along: ownership of the installed alarm system, with the exception of the major component parts, vested in the subscriber upon completion of installation into the subscriber's premises. Again, the subscriber was responsible for protecting the property and bore the risk of loss or damage thereto. [p] Under the Second Contract, Morse had no right to remove any portion of the permanently installed [minor component parts] upon termination of the service agreement, and the subscriber was entitled to utilize that system in any manner he saw fit following such termination." ⁵ After describing the two contracts, the trial court determined that, inasmuch as the minor component parts of the Morse Burglar Alarm Systems are never removed once installed, they are properly classified as permanent fixtures on the subscriber's property; that under the First Contract Morse retained a right of removal and title to the minor and major component parts; that under the Second Contract title to the minor component parts transferred specifically to the subscriber upon installation, but Morse retained title to the major component parts. The court concluded that both portions of the system could not operate without being connected together, and since Morse conceded it is taxable on the major component parts, each system must be considered in its entirety. Therefore, the trial court held that because Morse retained title to a "segment of the operating system" under the terms of either the First Contract or the Second Contract, both the major and minor parts of the Morse burglar alarm systems are taxable to Morse.

The trial court determined, however, that Morse was entitled to a refund from County of the penalty assessments collected for the years 1972 through 1975. Morse, therefore appeals only from that part of the trial court's judgment which held that the minor component parts of its burglar alarm systems are taxable to it for the years 1972 through 1975 and for the year 1978.

ISSUES

1. Whether the minor component parts of the Morse burglar alarm systems, which the trial court determined are "fixtures" permanently attached to the subscribers' real property, may properly be assessed and taxed against Morse, rather than the subscribers.

2. Whether the assessment to Morse of the entire value of the burglar alarm systems was arbitrary and discriminatory in light of the fact that essentially identical permanently installed Morse fire alarm systems were assessed to the subscribers.

3. Whether the trial court erred in finding the assessment to Morse of the minor component parts of the Morse burglar alarm systems does not constitutes illegal double taxation.

DISCUSSION

The minor component parts of the Morse burglar alarm systems, which the trial court determined are "fixtures" permanently attached to the subscribers' real property, may properly be taxed against Morse.

Under the State Constitution and the Revenue and Taxation Code, all property in California that is not free from taxation under federal or California law is subject to taxation in proportion to its value. (Cal. Const., art. III; § 1, Rev. & Tax Code, § 201.) The word "property" as used in the Constitution is construed in its ordinary and popular sense. (See Cottle v. Spitzer (1884) 65 Cal. 456, 461, 4 P. 435.) The Revenue and Taxation Code defines property...