Western Title Guaranty Co. v. County of Stanislaus

• Decision Date: 12 September 1974
• Court: California Court of Appeals Court of Appeals
• Parties: WESTERN TITLE GUARANTY COMPANY, Plaintiff and Appellant, v. COUNTY OF STANISLAUS et al., Defendants and Respondents. Civ. 1913.

Page 351

116 Cal.Rptr. 351

41 Cal.App.3d 733

WESTERN TITLE GUARANTY COMPANY, Plaintiff and Appellant, v. COUNTY OF STANISLAUS et al., Defendants and Respondents.

Civ. 1913.

Court of Appeal, Fifth District, California.

Sept. 12, 1974.

As Modified on Denial of Rehearing Oct. 7, 1974.

Hearing Denied Nov. 21, 1974.

Stockton & Schrimp and Cleveland Stockton, Modesto, for plaintiff-appellant.

T. W. Martz, County Counsel, Jonathan H. Rowell and John F. Christensen, Senior Deputy County Counsels, and Harry P. Drabkin, Deputy County Counsel, Modesto, for defendants and respondents.

OPINION

STONE, ^* Associate Justice.

Appellant, Western Title Guaranty Company, filed a complaint in the Superior Court of Stanislaus County to recover taxes paid under protest. The court denied appellant relief and this appeal followed.

Appellant is a title company engaged in business in the City of Modesto in the County of Stanislaus. The company gives opinions concerning the title to a particular parcel of real property upon which a certificate of title insurance issues. Its opinion is largely derived from its 'title plant' which consists of the title records of the various parcels of real property in Stanislaus County dating back to 1951. The official records containing the title information are varied, such as the records of the county clerk, tax assessor, tax collector, and particularly, the county recorder. Searching the title to a particular parcel of property may be a painstaking and time-consuming chore taking the searcher from office to office and from record book to record book. By consolidating and indexing all of this material in one place, the title condition of any particular lot or parcel can be easily, quickly and readily ascertained from the title company records.

Respondent County of Stanislaus assessed appellant's title plant at a full cash value of $100,000 for the year 1969. This resulted in an assessed value of $20,000. There were no comparable sales known to the assessor, and consequently no known actual market. For this reason the assessor used the cost approach method of arriving at a $100,000 value assessment. He took the initial $54,793.20 cost of establishing the plant. To this he added the estimated annual cost of additions to the plant which appellant's books indicated was $15,000 per year. However, one-half of this was replacement cost. After deducting this, the assessor estimated the other one-half, or $7,500, augmented the value by that amount, or $7,500 per year. The plant had been in operating for six years by 1969, resulting in an increased value of $45,000 which, when added to the initial cost of $54,793.20, resulted in a full cash value of $99,793.20, rounded off to $100,000.

In addition to the 1969 valuation of appellant's title plant, the assessor levied escape assessments for the fiscal years 1965--1968, reaching his valuation of the plant for those years by the method described above.

Appellant paid the assessed taxes and installments under protest and filed a timely application for a reduction with the board of supervisors sitting as a board of equalization. After a hearing by the board, findings of fact were entered approving the assessor's valuation of appellant's personal property, including the title plant.

In its protest accompanying payment of the taxes appellant stated as its grounds for protest that: '1. The assessment includes my title plant which is non-taxable, and therefore erroneous, illegal and void. 2. The escape assessments for 1965, 1966, 1967 and 1968 are erroneous, illegal and void, include non-taxable property, and are actually not an escape assessment. 3. The Assessor's valuation is erroneous, illegal and void for the annual assessment, as well as for the escape assessment, because of the basis of computation.' The application to the board of supervisors for hearing was essentially the same. Plaintiff's complaint to recover taxes paid under protest, although essentially the same as the payment under protest on the application for reduction and assessment and hearing before the board of supervisors, is more specific in that appellant alleged that the assessments 'were illegal and void by reason of the fact that the said title plant is intangible personal property and therefore not subject to taxation under the provisions of the Revenue and Taxation Code of the State of California.'

Appellant's basic contention is that its records, which were taken from the public records, are intangible property and that the records, as such, are taxable only for their physical worth which would be scratch paper. We believe that when viewed in the light of Revenue and Taxation Code section 6016, which defines tangible as follows: "Tangible personal property' means personal property which may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses,' the information contained on the records of appellant's title plant is intangible property. Furthermore, as appellant points out, the Supreme Court in Roehm v. County of Orange, 32 Cal.2d 280, 284--285, 196 P.2d 550, 556, declared that all forms of intangible personal property other than those specified in article XIII, section 14 of the Constitution, i.e., 'notes, debentures, shares of capital stock, bonds, (solvent credits,) deeds of trust, mortgages and any legal or equitable interest therein' were exempt from taxation. Thus, it would appear at first blush that only the paper, cards and books upon which appellant's records are maintained are taxable personal property, while the information compiled and indexed upon such physical documents, being intangible, is not taxable. But the Supreme Court, in Roehm v. County of Orange, Supra, also stated, at page 285, 196 P.2d at page 554, '(i)ntangible values, however, that cannot be separately taxed as property may be reflected in the valuation of taxable property. Thus, in determining the value of property, assessing authorities may take into consideration earnings derived therefrom, which may depend upon the possession of intangible rights and privileges that are not themselves regarded as a separate class of taxable property. (Citations.)' In a later case, Michael Todd Co. v. County of Los Angeles, 57 Cal.2d 684, 21 Cal.Rptr. 604, 371 P.2d 340, the Supreme Court reaffirmed this view where it said at page 694, 21 Cal.Rptr. at page 609, 371 P.2d at page 345, 'The propriety of including non-taxable intangible value in the valuation of otherwise taxable property has been asserted by the courts in a variety of contexts. (See, e.g., Adams Express Company v. Ohio State Auditor (1897) 165 U.S. 194, 220--222, 17 S.Ct. 305, 41 L.Ed. 683; Ewert v. Taylor (1916) 38 S.D. 124, 160 N.W. 797, 801 (2--3); Council of Newark v. Claringbold (1914) 28 Del. 133, 90 A. 1130; State ex rel. Attorney General v. Halliday (1899) 61 Ohio St. 352, 56 N.E. 118, 123--124; and compare Stein v. Mayor etc. of Mobile (1850) 17 Ala. 234, 240--242, with Town of Orange v. City of Barre (1921) 95 Vt. 267, 115 A. 238, 240(6).)' (Fn. omitted.)

The Todd case presents an interesting discussion of a tax question which is in many ways analogous to the case at bench. In Todd the Los Angeles County Assessor placed a cash value of $1,526,900 on the film negatives of the motion picture 'Around the World in Eighty Days.' Plaintiff, who owned the original negative and a duplicate or protective master thereof, also owned the copyright of the film. Todd contended that the film, as physical personal property, had a value of $1,000 to which the county stipulated. Since no one could use the master negative to make prints without owning the copyright, and since a copyright is intangible personal property and nontaxable, Todd contended that the tax had to be predicated upon a market value of $1,000. But the court determined that assessing authorities may take into consideration earnings derived from intangible rights and privileges that are not themselves regarded as a separate class of taxable property and thus be reflected in the valuation of the taxable property. If we apply the principle of production value or earning value to the information contained in appellant's title records upon which it bases an opinion as to the condition of the title of a parcel of real property, which opinion in turn supports the issuance of a certificate of title insurance, we see little difference between this case and the Todd case.

During the pendency of this appeal, the Legislature enacted an urgency statute which is pertinent to the foregoing discussion. Section 997 was added to the Revenue and Taxation Code effective with respect to assessments for the 1973--74 fiscal year (Stats.1973--74, ch. 456, p. 1107). We quote the pertinent parts of the act. Section 1, subdivision (a), of the act provides:

'(a) The cash value of records of persons engaged in a business or profession for purposes of this division is the cash value only of the tangible material upon which, or in which, such records are recorded, maintained or stored. Such cash value shall be determined without inclusion of or consideration of the intangible value of the information or data so recorded, maintained or stored, nor the intangible right to utilize such information of data.'

Subdivision (b) of section 1 of the act reads as follows:

'(b) As used in this section 'records' includes all written documents and photographic reproductions thereof, recorded data, research notes, calculations, and indices maintained or utilized by persons engaged in a business or profession.'

Section 2 of the act provides a method by which the state is to 'appropriate funds for subventions for the loss of revenue resulting from the classification of property by Section 1 of this act.' Providing reimbursement to local political entities for the loss of revenue derived from being deprived of the authority to assess records such as those in the case at bench ...