Security Data, Inc. v. County of Contra Costa

• Decision Date: 20 July 1983
• Citation: 145 Cal.App.3d 108,193 Cal.Rptr. 121
• Parties: SECURITY DATA, INC., Plaintiff and Respondent, v. COUNTY OF CONTRA COSTA and City of Walnut Creek, Defendants and Appellants. A011836. Civ. 49978.
• Court: California Court of Appeals Court of Appeals

Page 121

193 Cal.Rptr. 121

145 Cal.App.3d 108

SECURITY DATA, INC., Plaintiff and Respondent, v. COUNTY OF CONTRA COSTA and City of Walnut Creek, Defendants and Appellants.

A011836.

Civ. 49978.

Court of Appeal, First District, Division 4, California.

July 20, 1983.

Hearing Denied Oct. 6, 1983.

John B. Clausen, County Counsel, Contra Costa County, Dennis C. Graves, Deputy County Counsel, Martinez, for defendants and appellants.

Irving J. Kornfield, P.C., Oakland, for plaintiff and respondent.

Kenneth A. Ehrman, Ehrman, Flavin & Morris, Inc., Monterey, for amicus curiae.

RATTIGAN, Associate Justice.

The County of Contra Costa (County) and the City of Walnut Creek (City) appeal from a judgment refunding certain property taxes to plaintiff and respondent Security Data, Inc. (plaintiff).

Background

Plaintiff is a subsidiary of Security National Bank, a national banking association (hereinafter identified by name or as "the bank"). At pertinent times, the bank owned certain components designed for use in a computer system. It also owned or controlled an office building located in the County and within the territorial limits of the City. The bank leased the components, and space in the building, to plaintiff. The components were installed in the leased space.

The County classified the components as real property assessed to plaintiff in the tax years 1973-1974, 1974-1975, and 1975-1976. Plaintiff paid the real property taxes consequently imposed in those years. Part of the taxes paid were remitted by the County to the City. Plaintiff subsequently claimed refunds of the taxes; exhausted its administrative remedies; and commenced two separate actions against the County and the City, seeking recovery of the taxes on the ground that the computer components had been erroneously classified as real property and illegally assessed as such. The County and the City filed answers in both actions, which were consolidated for trial.

Pursuant to an agreement reached by the parties at the commencement of the nonjury trial, the sole issue tried was whether the computer components were real property during the tax years in question, and taxable as such, or whether they were personal property and constitutionally exempt from taxation as personal property owned by a bank. ¹ (See Cal. Const., art. XIII, § 27; Rev. & Tax.Code, §§ 23181-23182.) The evidence received at the trial was accordingly addressed to the question whether the components had been installed in the bank's building in such manner as to make them part of the real property as "fixtures" in the factual and legal sense of that term.

The trial court filed findings of fact and conclusions of law in which it determined that the computer components were not fixtures; that they had consequently retained their character as personal property owned by the bank, which meant that they were exempt from taxation; and that the assessment of the disputed taxes to plaintiff had been "erroneous and invalid." The court thereupon entered a judgment which had the effect of refunding approximately $60,000 in back taxes to plaintiff. The appeal by the County and the City is from this judgment.

The Evidence

We find it convenient to summarize the evidence in the approximate order in which the trial court received it. As pertinent at this point, the record of the trial supports the recitals separately captioned below.

Plaintiff's Case

Claude Hutchison testified for plaintiff as follows: He is the president of Security National Bank and a member of plaintiff's board of directors. Plaintiff is a "wholly owned subsidiary" of the bank, and performs "data processing services" ² for the bank and "outside clients." In 1969 and 1970, the bank constructed a building at 1500 Newell Avenue in Walnut Creek. Hutchison described the structure as "an eight-story general purpose office building." The bank "maintained control of the building," first as its owner and subsequently as "master lessee." The bank and various "outside tenants" occupied "general purpose office space" in the building.

In or about 1972, the bank leased the fifth floor of the building to plaintiff. In two separate written leases executed in November of that year, the bank also leased eight computer components to plaintiff. The components were explicitly described in the leases as a power unit, a processing unit, a console keyboard, a tape control unit, and four magnetic tape units. All eight components had been manufactured by International Business Machines Corporation (IBM), which had sold them to the bank. Plaintiff also leased four other computer components from IBM and another supplier.

Plaintiff installed all the components on the leased fifth floor of the building at 1500 Newell Avenue. The floor consisted of approximately 6,000 square feet of office space. It was "[b]asically a shell," with the "whole floor open," when plaintiff leased it. The bank made "improvements" on the floor in accordance with plaintiff's specifications. The "improvements" included the physical arrangements for a "computer room," in which the several components were installed and operated as a single computer system. The area of the computer room was approximately 2,000 square feet, or about one-third of the fifth floor. The rest of the floor was used by plaintiff as "[o]ffice space primarily, meeting, conference rooms." The "improvements" installed for the computer room included partitions which separated the room from the rest of the floor; a "raised floor ... to accommodate the data processing equipment" in the room; and "supplemental air conditioning equipment in order to handle the very great amount of heat that this type of equipment generates."

Hutchison testified that it was never intended that plaintiff would "remain permanently" in the building at 1500 Newell Avenue. In September of 1978, plaintiff vacated the fifth floor of the building and moved to a new location in Concord. The computer components were moved to the new location.

Plaintiff also called William Bauer, its president. He had been involved in the "data processing field" for 22 years. He described the computer system and its installation in detail, as follows: The "raised floor" in the computer room was a horizontal surface which was positioned about one foot above the regular floor surface. It consisted of approximately 400 contiguous metal panels. Each of the panels was two feet square, weighed approximately fifty pounds, and was portable. In place as part of the "raised floor," each panel rested in a metal frame. The frames in turn rested on vertical "jacks" which were located at the common corners of the panels. The computer components rested on the panels, but were not fastened to them in any way. The panels were not fastened to the frames, and the frames were not fastened to the jacks. Each jack had a small square base which was glued to the floor surface of the computer room (i.e., to the fifth floor of the building) with a strong adhesive (or "mastic"). This was done to "keep the jack from shifting." Bauer had seen the jacks "kicked over when they're taking the floor down."

The computer system used 220-volt power which was delivered to it from a "dedicated electrical power source" in the building: i.e., from 220-volt wiring which supplied the system alone. The several components of the system were interconnected with heavy-duty electrical cables which lay about under the "raised floor." The cables were manually plugged into outlets in the components and in the 220-volt wiring. The computer system was equipped with a "freestanding" air conditioning unit which also rested on the "raised floor." The unit required a water supply, refrigerant, electrical power, and a drain. The power and the drain "ran under the raised floor." The water and refrigerant were supplied from pipes which "ran in the ceiling." The "same type of installation was [used] in several different places" throughout the bank's building.

The air flow from the air conditioning unit moved under the raised floor and "not in ducts." The purpose of the raised floor was to accommodate the electrical cables and the air flow. Bauer testified that it is "more difficult to work in a computer room where the cables are exposed." He would "certainly recommend ... [a raised floor] ... as a required method of operation," and IBM recommends it for "data processing systems of ... [this] ... magnitude."

Each of the computer components was equipped with permanent wheels at its base, and various components were "moved from time to time." On several occasions when this was done, a component was removed and replaced with a technologically improved unit. A person moving a component would lift the floor panels manually, with a "suction cup device," and "unplug the unit, roll it over" to another location, and "replug it."

Bauer also testified that the move of the computer system from 1500 Newell Avenue to Concord, in 1978, was accomplished on a single Saturday. Early in the morning, "the engineers began to disconnect the various boxes so that the devices could be rolled off the floor." As the components were disconnected, their doors were taped shut and they were "rolled out and onto the moving vans." The regular passenger elevators in the building were used when the components were removed from it. They "began to arrive" at the new location in Concord before noon, and the entire computer system was installed and "operational" there by 11 p.m. on the same day. Plaintiff paid $8,055.30 to a commercial mover for the entire move, which included the air conditioning unit and all the furniture and equipment plaintiff had used in the office areas outside the computer room at 1500 Newell Avenue.

Bauer testified that the "raised floor" and the computer room partitions were removed from the fifth floor after plaintiff moved to Concord. Before the move, plaintiff had a similarly "raised floor" installed at the Concord...