Laws, Regulations & Annotations
Property Taxes Law Guide – Revision 2016
California Constitutional Provisions
ARTICLE XIII Revenue and Taxation
Sec. 19. State board to assess and tax property of public utilities. The Board shall annually assess (1) pipelines, flumes, canals, ditches, and aqueducts lying within 2 or more counties and (2) property, except franchises, owned or used by regulated railway, telegraph, or telephone companies, car companies operating on railways in the State, and companies transmitting or selling gas or electricity. This property shall be subject to taxation to the same extent and in the same manner as other property.
No other tax or license charge may be imposed on these companies which differs from that imposed on mercantile, manufacturing, and other business corporations. This restriction does not release a utility company from payments agreed on or required by for a special privilege or franchise granted by a government body.
The Legislature may authorize Board assessment of property owned or used by other public utilities.
The Board may delegate to a local assessor the duty to assess a property used but not owned by a state assessee on which the taxes are to be paid by a local assessee.
Construction.—Under this section, the Board has the constitutional authority to assess railroads' properties, and the trial court is precluded from substituting its judgment for the Board's on questions of fact or discretionary appraisal decisions. A remand to the Board is generally required when the determination of refunds is dependent upon an exercise of valuation functions and does not involve mere mathematical computations. However, a limited remand rather than a broad, de novo remand to the Board is appropriate if the Board has failed to address or consider a specific question or questions. Union Pacific Railroad Co. v. State Board of Equalization, 231 Cal.App.3d 983.
The undefined term "franchise," as used in the first paragraph of this section has long been equated with the intangible property of a corporation. The nature of a cellular telephone company's Federal Communications Commission station authorization is consistent with the common understanding of the term "franchise," a grant by a government agency authorizing the sale of a product or service in a prescribed geographical area. Although a cellular telephone company's station authorization is intangible property and therefore, exempt from property taxation, such property may enhance the value of its taxable tangible property, and the intangible value may be reflected in the valuation of the taxable property. Los Angeles SMSA Ltd. Partnership v. State Board of Equalization, 11 Cal.App.4th 768.
The requirement in the first paragraph of this section that property shall be subject to taxation to the same extent and in the same manner as other property was not violated, even though the value of a cellular telephone company's Federal Communications Commission station authorization was reflected in its assessment by the Board while the values of the licenses of radio and television broadcasters in the same area were not assessed by the counties. The properties were all properly assessed at fair market value, since the broadcasters were not public utilities and therefore, not necessarily subject to the type of unit assessment authorized by this section for public utility property. Los Angeles SMSA Ltd. Partnership v. State Board of Equalization, 11 Cal.App.4th 768.
Tax or license charge.—A business tax imposed on an electric company at a significantly higher rate than the rate at which retail sales businesses, wholesale sales businesses, and other businesses were taxed violated this article, notwithstanding that the city taxed all electric companies at the same rate. Pacific Gas & Electric Company v. City of Oakland, 103 Cal.App.4th 364.
Utility property.—Although taxation must be uniform and the tax s uniformly applied, as long as a tax system has a rational basis and is not arbitrary, it will be upheld despite the absence of precise, scientific uniformity of taxation. To establish a violation of equal protection, a taxpayer must show the intentional, systematic undervaluation of property similarly situated with other property assessed at its full value. Los Angeles SMSA Ltd. Partnership v. State Board of Equalization, 11 Cal.App.4th 768.
Unit valuation.—The Board may use the principle of unit valuation in valuing properties of an assessee that are operated as a unit in a primary function of the assessee. In valuing such properties, the Board must appraise them at their full values when put to their beneficial and productive uses. Unit taxation prevents real but intangible value from escaping assessment and taxation by treating public utility property as a whole, undifferentiated into separate assets such as land or buildings, or even separate kinds of assets such as realty or personalty. GTE Sprint Communications Corp. v. Alameda County, 26 Cal.App.4th 992.
Unit valuation.—Assuming presence of intangibles.—Although assessors can assume the presence of intangible assets and rights necessary to put taxable property to beneficial or productive use, such intangibles cannot be taxed directly. Consequently, the California State Board of Equalization is required to remove the replacement cost for applied emission reduction credits that it added to the Board’s replacement cost value indicator for the assessment of a power plant. But no deduction is required from the Board’s income approach value indicator because there is no separate income stream attributable to the applied emission reduction credits. Elk Hills Power, LLC v. Board of Equalization (2013) 57 Cal.4th 593.
Assessment of electric generation facilities.—The Board's assessment jurisdiction extends to all entities that can be considered "public utilities" under Article XIII, Section 19, regardless of whether they are regulated by the California Public Utilities Commission. Where the electric generation facilities supply electricity to the general public, they are considered to have made a dedication of their property to the public so as to be considered a public utility. Public utilities, which include all independent electric generation facilities that have dedicated their property to public use, are subject to unit valuation under this section. Such property is valued annually by the Board at its fair market value, and not valued based upon the limitations imposed on the assessment of real property by Article XIII A, Section 3. Independent Energy Producers Assn., Inc. v. State Bd. of Equalization (2004) 125 Cal.App.4th 425.
Assessment of pipelines.—The prior, controlling judgment in General Pipe Line Co. of California v. State Board of Equalization, 5 Cal.2d 253, defining an intercounty pipeline within the meaning of the former Constitutional provision, was specific, detailed and limited, with no mention of real property interests of any kind. Thus, land and rights-of-way were excluded from the definition of a pipeline; and the Board could only assess those items deemed to constitute a private intercounty pipeline, including enumerated mechanical parts, fittings, and tanks necessary to its operation. Southern Pacific Pipe Lines, Inc. v. State Board of Equalization, 14 Cal.App.4th 42.
Decisions Under Former Article XIII, Section 14.
(A) SUMMARY OF CONSTITUTIONAL CHANGES RELATING TO TAXATION
Separation of sources.—Prior to 1911, the State Government was supported principally by an ad valorem tax on property. With exception of main line rights of way, roadbed, rails, rolling stock and franchises of intercounty railroads, assessed by the State Board of Equalization, all property was assessed for state taxation by the county assessors. State taxes, at rates fixed to meet biennial legislative appropriations, were collected by county tax collectors, along with local taxes, and deposited in county treasuries, from which they were transferred to the State treasury at semiannual settlements.
In 1910 Section 14 was added to Article XIII, and the provisions regarding assessment of railroad property by the State Board of Equalization were eliminated from Section 10 of that article. Under Section 14 a system of separation of sources of state and local revenues was established. This first became operative in 1911. Taxes were levied exclusively for state purposes as follows:
(1) On gross receipts from operations of railroad companies, gas and electric companies, telephone and telegraph companies, car companies and express companies, in lieu of all other taxes and licenses on the operative property of such companies, i.e., their property used exclusively in the business of producing the gross receipts.
(2) On gross premiums of insurance companies in lieu of all other taxes and licenses, except local taxes on real property.
(3) On capital stock of banks (measured by the pro rata book value of capital, surplus and undivided profits, less the assessed value of real estate) in lieu of all other taxes and licenses on such stock and on the banks except local taxes on real property.
(4) On all franchises, general, corporate and special, except the franchises held by the public utilities, insurance companies or banks otherwise taxed for state purposes. This tax was ad valorem on the basis of assessments of franchises made by the State Board of Equalization, and no local taxes on franchises were permitted.
There was no change in this tax system until 1926, when Section 15 was added to Article XIII, providing for a similar "in lieu" gross receipts tax on highway common carriers operating over regular routes or between fixed termini. This was followed by a further amendment in 1928, whereby Section 16 was added, providing for substitution of a tax "according to or measured by" net income for the bank share tax and the corporate franchise tax. The net income measure became effective in 1929.
In 1933 the article was amended by entire deletion of the system of "in lieu" gross receipts taxation on public utilities, and the substitution of provisions for the ad valorem assessment of all property of such companies and of intercounty pipe lines, flumes and canals by the State Board of Equalization, who are required to allocate the property for local taxation according to its situs.
Intangibles.—On November 4, 1924, Section 12½ was added to Article XIII of the Constitution authorizing the Legislature to provide for the taxation of intangibles in a manner, at a rate or in proportion to value different from any other property, such taxes to be in lieu of all other property taxes. Enabling statutes with reference to the taxation of intangibles contemplated by this section were declared unconstitutional in March, 1928. Arnold v. Hopkins, 203 Cal. 553. Thereafter, the subject was covered in a different way through the adoption of Section 16, Article XIII of the Constitution on November 6, 1928. This section provided in part, that intangibles should be taxed upon their actual value at the rate of three-tenths of 1 percent, such tax to be in lieu of all other property taxes. Section 12½ was not repealed until June 27, 1933. At the same time Section 16, Article XIII was amended and provisions relating to the taxation of intangibles were eliminated, while new provisions relating to the taxation of personal property, including intangibles, were added to Section 14, Article XIII.
Insurance tax.—The provisions of this section relating to the taxation of insurance companies (see 1936 Revenue Laws, p. 46), which are no longer effective except as to business done prior to January 1, 1938, specifically allowed a deduction on account of reinsurance in companies authorized to do business in California, and were construed to require the payment of tax by such reinsuring companies on premiums received by them for the reinsurance of risks in California, even though the reinsurance contract was executed and carried into effect wholly without the State. Connecticut General Life Insurance Co. v. Johnson, 3 Cal.2d 83. As so construed said provisions were held invalid under the Fourteenth Amendment to the Federal Constitution. Connecticut General Life Insurance Co. v. Johnson, 303 U.S. 77. As a result of this decision Section 14¾ was adopted, under which no deduction was allowed on account of reinsurance, and premiums received for reinsurance were specifically excluded from the tax and this same method is now embodied in Section 144/5.
(B) CONSTRUCTION OF PROVISIONS OF SECTION
Utility property.—This section contemplates that utility property and common property will bear the same burden of taxation in proportion to value. But the fact that the State Board of Equalization is given the duty of assessing utility property and that it values such property as a whole indicates that its assessments might differ from the values that would be adopted by the local assessors if they were assessing the property. Southern California Telephone Co. v. Los Angeles County, 45 Cal.App.2d 111. This section does not require public utility property to be valued on the same basis as other property, and thus does not require the application to public utility property of the valuation rollback provisions of Section 2(a) of Article XIII A to the unit taxation of such property. The section simply specifies that public utility property, after it has been placed on the local tax rolls, be levied on at the same rate as locally assessed property. ITT World Communications, Inc. v. City and County of San Francisco, 37 Cal.3d 859.
Automobile licenses.—Under the provisions of this section and Section 14½ of this Article, the exemption from license charges on automobiles of public utilities, given by the gross receipts tax, terminated on December 31, 1934. Thus a public utility company could obtain registration certificates for its automobiles for 1935 only upon payment of registration fees and weight charges provided by Sections 77a and 77c of the Vehicle Act for the entire year 1935, notwithstanding that it had paid the gross receipts tax assessed against it for the Fiscal Year 1934–1935. Pacific Electric Railway Co. v. Department of Motor Vehicles, 4 Cal.2d 181.
Assessment of pipe lines.—It is the duty of the State Board of Equalization under the provisions of this section to assess all intercounty oil pipe lines, whether such property is used for private or public utility purposes. A "Pipe Line" includes not only the pipe, but the appurtenances necessary to its proper functioning as such. General Pipe Line Co. of California v. State Board of Equalization, 5 Cal.2d 253.
Application not limited to public utilities.—This section is not limited to public service corporations and it applies, accordingly, to the railroad cars of a private car company that is not a common carrier. The classification of private cars for tax purposes, as provided by the Private Car Tax Act, is authorized by this section and is not invalid under Section 10 of Article XIII, Section 37 of Article XIII, or the equal protection or uniformity provisions of the Federal and State Constitutions, respectively. People v. Keith Railway Equipment Co., 70 Cal.App.2d 339.
Stage Line.—As used in this section with respect to the assessment of express companies, truck lines carrying property only, and not passengers, constitute stage lines. California Motor Express, Ltd. v. State Board of Equalization, 133 Cal.App.2d 237.
Municipal license taxes.—A city's business license tax ordinance imposing a tax on telephone companies different from and at a higher rate than that imposed upon mercantile, manufacturing and business corporations within the city violates this section. A provision of the ordinance imposing a special tax on pay telephones also violates this section by requiring telephone companies to pay two license taxes on the privilege of engaging in business in the city while only one tax is imposed on mercantile, manufacturing and business corporations. City of Oceanside v. Pacific Telephone and Telegraph Co., 134 Cal.App.2d 361. A city's business license tax ordinance imposing a tax on gas and electric companies at a higher rate than that imposed on grocers and automobile dealers within the city does not violate this section where a rational basis therefor, that grocery stores and automobile dealerships are low profit margin businesses, is demonstrated by the city. City of Livermore v. Pacific Gas & Electric Co., 120 Cal.App.3d 1001.