Scott-Free River Expeditions, Inc. v. County of El Dorado

• Decision Date: 12 August 1988
• Docket Number: SCOTT-FREE
• Citation: 250 Cal.Rptr. 504,203 Cal.App.3d 896
• Court: California Court of Appeals Court of Appeals
• Parties: RIVER EXPEDITIONS, INC. et al., Plaintiffs and Appellants, v. COUNTY OF EL DORADO et al., Defendants and Respondents. Civ. COOO48O.

Page 504

250 Cal.Rptr. 504

203 Cal.App.3d 896

SCOTT-FREE RIVER EXPEDITIONS, INC. et al., Plaintiffs and Appellants, v. COUNTY OF EL DORADO et al., Defendants and Respondents.

Civ. COOO48O.

Court of Appeal, Third District, California.

Aug. 12, 1988.

Review Denied Nov. 9, 1988.

J. Mark Nielsen and Karen Tustin, Placerville, for plaintiffs and appellants.

David E. Whittington, County Counsel, and William M. Wright, Asst. County Counsel, Placerville, for defendants and respondents.

PUGLIA, Presiding Justice.

In this case we reject a challenge to the El Dorado County Assessor's determination that appellants' exclusive and profitable use of the South Fork of the American River (river) for commercial rafting constitutes a taxable possessory interest.

Appellants (plaintiffs) are commercial rafting outfitters who operate on the river. Prior to 1981, defendant County of El Dorado (County) became concerned about the increasing use of the river by rafters, both commercial and noncommercial. (See People ex rel. Younger v. County of El Dorado (1979) 96 Cal.App.3d 403, 405-407, 157 Cal.Rptr. 815.) In January 1981, County established a use permit process to regulate the commercial use of the river. The permit system created a special class of users for profit who enjoy exclusive commercial use of the river. Plaintiffs are the members of that class.

When County first began to regulate the use of the river, it limited commercial use to those who could demonstrate previous, commercial use of the river. Only those rafting outfitters who were qualified received permits, valid for one year but renewable annually. Since 1981 when the original permits were issued, plaintiffs' permits have been renewed each year. Since that time, no new permits have been issued.

In 1982, the El Dorado County Assessor determined plaintiffs' commercial use of the river for profit constituted a taxable possessory interest. (Rev. & Tax.Code, § 107.) Plaintiffs paid the taxes under protest and then instituted the underlying action against County, claiming there was no basis for assessing or collecting the taxes. (Rev. & Tax.Code, §§ 5097, 5140.) The trial court rendered a statement of decision which included the following findings and conclusions:

1. Plaintiffs' use of the river for commercial purposes constitutes a valid property right subject to taxation;

2. Plaintiffs' commercial use of the river is not a constitutionally protected right free from taxation;

3. The 1850 Act of Congress admitting California to the union as a state does not prohibit the imposition of a possessory interest tax;

4. Article X, section 4 of the California Constitution does not prohibit the imposition of a possessory interest tax;

5. Plaintiffs' use of the river constitutes possession within the meaning of the law on possessory interest taxation;

6. Plaintiffs' use of the river constitutes a taxable possessory interest as such use includes the requisite elements of exclusivity, durability and independence;

7. The use permit does not constitute a contract; therefore, County was not required to inform plaintiffs that their use of the river might constitute a possessory interest subject to tax;

8. Imposition of a possessory interest tax on plaintiffs' use of the river does not constitute double taxation.

The trial court entered judgment in favor of County. As we deem the trial court's statement of decision to be correct in all respects, we shall affirm.

I

"A possessory interest is basically a right to possession of property, such as a leasehold interest or the interest of an easement holder, permittee or licensee. Such interests are not usually assessed for property tax purposes separately from the fee unless there is a need to do so, such as where the fee is exempt from taxation and the property would otherwise escape taxation entirely." (Fn. omitted; Ehrman & Flavin, Taxing Cal. Property (1979) § 3.6, p. 93, hereafter cited as Ehrman.)

Section 201 of the Revenue and Taxation Code provides: "All property in this State, not exempt under the laws of the United States or this State, is subject to taxation under this code." Section 103 of the Revenue and Taxation Code defines property as including "all matters and things, real, personal, and mixed, capable of private ownership." "Possessory interests" include "(a) Possession of, claim to, or right to the possession of land or improvements, except when coupled with ownership of the land or improvements in the same person. [p] (b) Taxable improvements on tax-exempt land...." (Rev. & Tax.Code, § 107.) Possessory interests in "land or improvements" are taxable pursuant to the constitutional mandate that, with limited exceptions, "[a]ll property is taxable...." (Cal. Const., art. XIII, § 1, subd. (a).)

Pursuant to its statutory authority, the State Board of Equalization has adopted extensive rules defining possessory interests. Rule 21 first defines a possessory interest in the language of Revenue and Taxation Code section 107 and further states the definition includes a leasehold interest, an easement, a profit a prendre, or any other legal, or equitable interest less than a fee, provided only the instrument which confers a right of possession or exclusive use is "... independent, durable and exclusive of rights held by others in the property." (Cal.Admin.Code, tit. 18, § 21.)

The Supreme Court long ago recognized the taxability of a private possessory interest held in otherwise tax exempt property. In State of California v. Moore (1859) 12 Cal. 56, the court upheld a tax upon defendant's interest in a mining claim, even though the property itself was owned by the federal government: "The term 'property in lands' is not confined to title in fee, but is sufficiently comprehensive to include any usufructuary interest, whether it be a leasehold or a mere right of possession. Several persons may have, in the same land, a property which is subject to taxation, and it is not perceived that the fact, that the property of the Government is exempt from taxation, affects the right to tax the interest which private individuals have acquired in the same property. Exemption from taxation is a privilege of the Government, not an incident to the property. [p] In the hands of the Government the lands are exempt, but the moment the title vests in a private individual, it becomes liable to the burdens which are imposed on other property of like character. If the acquisition of the fee by a private person subjects the property to taxation, it follows that the acquisition of a lesser estate would equally subject such estate." (At pp. 70-71.) Seven years later, the Supreme Court again acknowledged the use of public property for private benefit and gain constitutes a taxable property interest. (People v. Shearer (1866) 30 Cal. 645, 656-658.)

The Shearer decision answers a question posed by this court to the parties; namely, may the County grant to or create in plaintiffs a taxable possessory interest in property which is owned, not by the County, but by the State of California? (See National Audobon Society v. Superior Court (1983) 33 Cal.3d 419, 434-435 and fn. 17, 189 Cal.Rptr. 346, 658 P.2d 709. [The state owns " 'all of [the] navigable waterways and the lands lying beneath them "as trustee of a public trust for the benefit of the people." ' "] ) The Shearer court made it clear the question of how the taxpayer acquires a possessory interest may be unimportant; i.e., as long as there is possession and valuable use of otherwise tax exempt property, a possessory interest is established regardless of whether possession is by deed, lease, or under no claim of right whatsoever: "The possession itself of the public lands and the improvements thereon, whether by naked trespassers, or those who claim in addition a right of pre-emption, as to everybody except the United States, have always in California, and in most, if not all of the new States, been regarded as valuable property interests.... [p] These possessions, then, are recognized as a species of property subsisting in the hands of the citizen. It is not the land itself, nor the title to the land, nor is it the identical estate held by the United States. It is not the pre-emption right, but is the possession and valuable use of the land subsisting in the citizen. Why should it not contribute its proper share, according to the value of the interest, whatever it may be, of the taxes necessary to sustain the Government which recognizes and protects it?" (Emphasis added; supra, 30 Cal. at pp. 655, 657.)

In light of the decisional law which more than a century ago recognized the concept of a possessory interest tax, coupled with the broad statutory language defining possessory interests, a valuable and taxable possessory interest may be found in virtually any situation where a private citizen is allowed to use public property for personal gain. "There are almost no limits to which the possessory interest concept can be pushed [ ] and the general trend has been toward the expansion of taxable interests." (Fn. omitted; Ehrman, op. cit. supra, pp. 96, 99.) ¹

II

Plaintiffs raise numerous arguments on appeal in furtherance of their sole contention that the possessory interest tax levied upon their commercial use of the river cannot be sustained.

Plaintiffs first argue the flow of water in a navigable stream is not "property" subject to taxation. Revenue and Taxation Code section 103 defines property as "... all matters and things, real, personal, and mixed, capable of private ownership." As navigable waters are incapable of being privately owned, (Cal. Const., art. X, § 4; Wat.Code, §§ 102, 1201), plaintiffs argue such waters do not constitute a species of property susceptible to a property or possessory interest tax.

Plaintiffs are not being taxed on the flow of the water in the river, but rather on their use of that water for commercial purposes. Water is unquestionably a...