Olive Lane Indus. Park, LLC v. Cnty. of San Diego

• Decision Date: 18 July 2014
• Docket Number: D063337
• Citation: 174 Cal.Rptr.3d 577,227 Cal.App.4th 1480
• Court: California Court of Appeals Court of Appeals
• Parties: OLIVE LANE INDUSTRIAL PARK, LLC et al., Plaintiffs and Appellants, v. COUNTY OF SAN DIEGO, Defendant and Respondent.

227 Cal.App.4th 1480

174 Cal.Rptr.3d 577

OLIVE LANE INDUSTRIAL PARK, LLC et al., Plaintiffs and Appellants,

v.COUNTY OF SAN DIEGO, Defendant and Respondent.

D063337

Court of Appeal,

Fourth District, Division 1, California.

Filed July 18, 2014

See 9 Witkin, Summary of Cal. Law (10th ed. 2005) Taxation, § 151.

APPEAL from a judgment of the Superior Court of San Diego County, Joel R. Wohlfeil, Judge. Reversed and remanded for further proceedings. (Super. Ct. No. 37–2011–00071151–CU–MC–EC)

Law Offices of Andre Vanier and Andre Vanier; Kassouni Law and Timothy V. Kassouni, Sacramento, for Plaintiffs and Appellants.

Thomas E. Montgomery, County Counsel, Walter J. DeLorrell III, Senior Deputy County Counsel, for Defendant and Respondent.

HALLER, J.

Olive Lane Industrial Park (“Olive Lane”) owned real property that was taken by eminent domain. Within four years after the eminent domain order, Olive Lane acquired another parcel of property.¹ About five and one-half years after the eminent domain order, for purposes of calculating property taxes on its new property, Olive Lane filed a request with the San Diego County tax assessor (County) to transfer the condemned property's base year value to the replacement property, as permitted by California Constitution, article XIIIA (Article XIIIA). The County denied Olive Lane's request as untimely under Revenue and Taxation Code section 68.²

Article XIIIA, enacted through the adoption of Proposition 13, provided broad scale property tax relief by restructuring the manner in which property taxes are calculated. Proposition 13 “rolled back” the valuations of the property (the base year value) to the 1975–1976 tax year; placed a cap on the percentage of the base year value that was taxable; and then allowed increases in the base year value to the current market value only in certain situations, including when there is a “change in ownership” of the property. Following Proposition 13, the voters adopted several other propositions that extended the property tax relief by removing specific transactions from the change-in-ownership category that permits increases in base year value and ensuing increases in the property taxes. Among these additional propositions adopted by the voters, Proposition 3 amended Article XIIIA to provide that property acquired to replace property taken by eminent domain does not constitute a change in ownership that permits base year value reassessment.

The Legislature, in turn, enacted section 68 to set a time limit on the exercise of the Proposition 3 exclusion. Section 68 provides the taxpayer shall file a request for the transfer of the base year value to an eminent domain replacement property within four years after the eminent domain order, and allows for retroactive application of the transferred base year value based on the date of acquisition of the replacement property. Thus, section 68 addresses the situation where a taxpayer, within four years after the eminent domain order, both (1) acquires the replacement property, and (2) files a claim with the County for the transfer of the condemned property's base year value to the replacement property. However, section 68 is silent on whether a taxpayer, such as Olive Lane, may obtain prospective application of the base year value transfer in the event the replacement property is acquired within the four-year period, but the claim with the County is filed after the four-year period.

After evaluating the constitutional and statutory provisions as a whole, we conclude the Legislature did not intend to deprive a taxpayer who loses property through eminent domain of the right to obtain prospective application of the base year value transfer in the event the replacement property is acquired within the four-year period but the claim is filed after the four-year period. Accordingly, we reverse the judgment and remand the matter for further proceedings.

BACKGROUND

On July 8, 2003, a final condemnation order was recorded that relinquished Olive Lane's real property to the California Department of Transportation in eminent domain proceedings. On December 14, 2006 (about three and one-half years after the eminent domain order), Olive Lane purchased another parcel of land. Based on the 2006 purchase, the base year value for the land was assessed at $2,025,000. In 2008, Olive Lane completed new construction on the land. Thereafter, on December 18, 2008 (about five and one-half years after the eminent domain order), Olive Lane filed a claim with the County requesting that the property tax base year value of the condemned property be transferred to the land it acquired in 2006 as a replacement property. Olive Lane maintained that the base year value for the replacement property should be $651,810 (plus adjustments for inflation) instead of $2,025,000.³

On December 19, 2008, the County denied the request, stating it was untimely because it was not filed within four years of the July 8, 2003 eminent domain order as required by section 68. On November 30, 2009, Olive Lane appealed the denial of its claim to the County Assessment Appeals Board. At a hearing on February 15, 2011, the board denied the appeal.

After unsuccessfully pursuing its administrative remedies, Olive Lane timely filed a complaint in superior court requesting that the County be ordered to grant its base year value transfer claim and to refund the excess property taxes it had paid. Olive Lane argued that section 68's time limitation was unconstitutional because it contradicted the provision in Article XIIIA that removed eminent domain replacement property from the change-in-ownership category that permits base year value reassessments. Alternatively, Olive Lane asserted that, given the constitutional provision, it was unreasonable to interpret section 68 in a manner that denied even prospective relief to eminent domain replacement property claims filed after the deadline. In opposition, the County argued section 68's time limitation was a reasonable regulation of the constitutional provision. Alternatively, the County asserted the property purchased in 2006 did not qualify as a replacement property because it was acquired by a different owner than the owner of the condemned property.

In October 2012, the trial court entered a judgment in favor of the County, ruling the Legislature has the power to set reasonable time limitations for the exercise of constitutional rights, and the four-year time limitation was reasonable. In its written ruling, the court stated: “I understand that given the particular facts and circumstances of this case that plaintiff may not perceive it to be reasonable, that from plaintiff's perspective, there were extenuating circumstances that should warrant the statute being extended or relief being given to estop the County from imposing a[s] short a time frame as four years upon plaintiff. [¶] But given the totality of the circumstances, generally speaking, the Court finds that four-year statute of limitations is reasonable.” Based on its ruling premised on the limitations period, the court declined to address the County's additional argument that Olive Lane was not entitled to relief because the owners of the condemned property and the replacement property were different.

DISCUSSION

On appeal, the parties reiterate the assertions they made before the trial court, with Olive Lane arguing that section 68's time limitation unconstitutionally conflicts with Article XIIIA, and the County asserting the time limitation is a reasonable regulation of the constitutional provision. We first summarize the relevant law, including the constitutional provision applicable to eminent domain takings, and the constitutional and statutory provisions that govern property taxation after the adoption of Proposition 13.

I. Overview of the Governing Law

When the government takes property by eminent domain, the property owner is constitutionally entitled to just compensation, which means the “ ‘owner shall be put in as good position pecuniarily as he would have been if his property had not been taken.’ ” (Redevelopment Agency v. Gilmore (1985) 38 Cal.3d 790, 797, 214 Cal.Rptr. 904, 700 P.2d 794, italics omitted; Cal. Const., art. I, § 19, subd. (a).) The constitutionally-required just compensation is generally determined by the fair market value of the property, and it does not typically include “losses or expenses which are merely consequential to displacement or relocation.” (Redevelopment Agency v. Gilmore, supra, at pp. 802–803, 214 Cal.Rptr. 904, 700 P.2d 794.) Recognizing that eminent domain just compensation awards might not include compensation for increased property taxes, in 1982 the voters approved Proposition 3, which amended the California Constitution to provide relief from increased property taxes on property acquired to replace property taken by eminent domain. (Ballot Pamp., Primary Elec. (June 8, 1982) analysis of Prop. 3 by the Legislative Analyst, p. 12 [“[T]he amount of compensation provided property owners displaced by governmental action is limited to the fair market value of the property plus certain other amounts, including relocation expenses. This amount of compensation [under prior law], however, does not include any amount for increased property taxes that the owner must pay on a replacement property.”].) ⁴

Proposition 3, along with a number of other propositions, was adopted in the aftermath of Proposition 13's constitutional enactment providing broad-scale real property tax relief. The changes accomplished by Proposition 13 and the ensuing propositions are set forth in Article XIIIA. Under Proposition 13, real property taxes are limited to a maximum of 1 percent of the base year value, with a maximum 2 percent annual increase for inflation. (Art. XIIIA, §§ 1, subd. (a), 2, subd. (b); Strong v. State Bd. of Equalization (2007) 155 Cal.App.4th 1182, 1186–1187, 66 Cal.Rptr.3d 657; Duea v. County of San Diego (2...