Rand Corp. v. Los Angeles County

• Decision Date: 19 April 1966
• Citation: 241 Cal.App.2d 585,50 Cal.Rptr. 698
• Court: California Court of Appeals Court of Appeals
• Parties: The RAND CORPORATION, a California Corporation, Plaintiff and Appellant, v. The COUNTY OF LOS ANGELES, Defendant and Respondent. Civ. 28357.

Page 698

50 Cal.Rptr. 698

241 Cal.App.2d 585

The RAND CORPORATION, a California Corporation, Plaintiff and Appellant, v. The COUNTY OF LOS ANGELES, Defendant and Respondent.

Civ. 28357.

District Court of Appeal, Second District,

Division 3, California.

April 19, 1966.

Cooley, Crowley, Gaither, Godward, Castro & Huddleson, Thomas A. H. Hartwell and Michael Traynor, San Francisco, for appellant.

Harold W. Kennedy, County Counsel; A. R. Early, Deputy County Counsel, for respondent.

SHINN, Presiding Justice.

Rand Corporation is a nonprofit California corporation engaged in research and education for the United States of America relating to military preparation and effectiveness. The corporation owns a building on privately owned land in Santa Monica in Los Angeles County. In 1956 and 1957 the building contained a Johnniac computer which Rand had constructed for the government, a telephone network, an Ozalid Printmaster, motor generators and other equipment, all the property of the government. In 1956 and 1957 the County of Los Angeles made assessment of the possessory interest of Rand in and to the property of the government. A small amount of it was personal property, the remainder was permanently affixed to the land and was realty. Taxes were levied and were paid by Rand, a part being the share of the City of Santa Monica, a part the share of the City of Los Angeles, and the remainder being due to the county. Claiming the taxes were invalid Rand made demand upon the county for refund, which was denied. The present action is against the county and the two cities for refund.

The judgment awarded plaintiff the amount of the taxes paid upon the possessory interest in the personal property of the government, but denied recovery for the taxes upon the possesory interest of Rand in the remainder. Rand appeals.

The contract of Rand with the government was on a yearly basis and it is contended that the corporation did not have the exclusive possession of the property against the government and all others necessary to give it a taxable possessory interest. A second contention is that the taxes were invalid because a tax on a possessory interest in an improvement located on taxable land is not authorized, and a third contention is that the taxes were invalid because they were based upon a classification of the property as real property in conflict with federal law that government property shall not lose its identity as personalty by reason of affixation to any realty.

The initial reply of the county to all the arguments of Rand is that all the grounds of the attack upon the levy of taxes were considered and decided adversely to the contentions of Rand in Kaiser Co. v. Reid, 30 Cal.2d 610, 184 P.2d 879, in which the court upheld taxes upon the possessory interests of Kaiser in shipyards of the United States Government, one located upon land of the government and the other upon privately owned, leased land. In this action the United States was a plaintiff in intervention.

It is not questioned by respondents that in order to be taxable as a possessory interest the possession must be exclusive. Rand seeks to distinguish the holding in Kaiser upon the ground that Kaiser, under its contracts with the government, had exclusive possession of the government property which it was using, and that Rand did not have exclusive possession as against the government of the facilities it was using.

The services of each corporation were exclusively for the government, and while the respective contracts differed in their statements of the rights and duties of the contractors, we are not persuaded that these differences were fundamental, or that the possessory rights of Rand were materially less exclusive than those that belonged to Kaiser.

We consider first the rights of the two contractors with respect to the possession of the government property as expressed in their contracts. Kaiser was building ships for the government, and appellants say the government could terminate the contract 'Only if Kaiser did not diligently perform or was insolvent; in addition wartime conditions imposed practical limits on termination, 30 Cal.2d at 618--619 (184 P.2d 879),' and that the Rand contract could be terminated 'Whenever the Contracting Officer shall determine that such termination is in the best interests of the Government.' We believe the right to terminate was essentially the same under each contract. As stated in Kaiser, page 619, 184 P.2d, page 885, 'Likewise appropriate to the Government's purpose was the optional cancellation clause, permitting the commission (Maritime Commission) 'at any time prior to the completion of the work to be performed' to 'cancel' the contracts 'upon written notice to' plaintiff, * * *.' And the court also said 'Such provisions for cancellation and termination, however, did not establish plaintiff's right to use the shipyards as no more than a permit or license which could not be responsible for a 'property' tax.' The same, of course, is true of the government's right to cancel Rand's contract. The right to cancel 'in the best interests of the Government' did not destroy the exclusiveness of Rand's possession.

The contract provided that the property in use by Rand could be removed if 'the Contracting Officer determines that the interests of the Government require removal of such property.' If the right to terminate the contract in the interests of the government did not reduce Rand's possession to that of a mere licensee, neither did the right of the government to remove all or part of its property. It is not questioned that Rand constructed the Johnniac computer for the government in 1952 and has had exclusive use of it ever since that time. Since it had possession of the government's property when it was assessed in 1956 and 1957, the fact that the property could have been removed previously is immaterial.

Certain other provisions of the contract are said by Rand to be inconsistent with its right to exclusive possession; these are 'The Government shall at all reasonable times have access to the premises where any of the Government property is located,' and that subject to the right of removal, 'The Government property shall remain in the possession of the Contractor for such period of time as is required for the performance of the contract.' Rand's permission to use the government property was not transferable without the consent of the government, it could be used only in the work for the government, was required to be earmarked as government property and maintained as required by the contracting officer, and Rand was required to pay no rent for the use of the government property. We cannot see how these provisions could have detracted from the exclusiveness of Rand's possession.

Continuing its argument that the opinion in Kaiser is not controlling with respect to the exclusiveness of its possession of the government property, Rand relies heavily upon Thiokol Chem. Corp. v. Morris County Board of Taxation, 41 N.J. 405, 197 A.2d 176, in which a tax upon Thiokol's possessory interest in government property was annulled. Under the laws of New Jersey the possessory right to Thiokol was not subject to taxation unless the property was occupied under a lease. There was no lease. There was, however, a contract with the government which defined the rights of the contractor with respect to possession and use of the government property. The court construed the taxing statute as intended to relate to to a conventional leasehold, one for a definite term and requiring the payment of rental. The government maintained a staff of about ten inspectors on the premises and they exercised a high degree of control, which was considered as having an important bearing on the extent of Thiokol's possessory rights. After the receipt of evidence and statements on behalf of Thiokol and the government, the court concluded that it was not the intention of the parties to enter into a lease and that since nothing short of a leasehold interest was taxable the tax levied against Thiokol was void.

A critical comparison of the possessory rights of Thiokol with those of Kaiser is not required. Whether they differed in substantial respects, or were essentially the same, the conclusion reached in Kaiser upon that point is controlling here, since in all important particulars the possessory rights of Rand were equal to those of Kaiser.

Rand has also furnished copies of the findings and judgment in California Institute of Technology (United States of America, Plaintiff-Intervenor) v. County of Los Angeles, (No. 614847), in which the plaintiff was given judgment for refund of taxes upon its possessory interest in government property. The question was whether Cal Tech had exclusive possession as against the government. Cal Tech occupied buildings and equipment of the government located upon a government reservation. The court found 'In the performance under the agreement between the United States and Cal Tech, the United States exercised extensive supervision and control over the maintenance of equipment used and the overall services and work performed by Cal Tech * * * and directed the nature of the work done and exercised supervision and control whenever and wherever it deemed it to be appropriate.' The case was decided March 4, 1959; Kaiser was decided in September 1947. Since opposite results were reached in the two cases it must be assumed that the evidence proved that the possessory rights of Cal Tech were not substantially equal to those of Kaiser.

It is suggested rather than argued that Rand's status as a nonprofit corporation would excuse it from taxability upon its possessory rights. No authority is cited to that effect and we see no merit in the suggestion. The people who compose Rand have a purpose in making use of government property and the opportunity to accomplish that purpose could well be worth more to them...