Justia California Court of Appeals Opinion Summaries

The trustees of the Amen Family 1990 Revocable Trust challenge the Assessor's reassessment of property the Trust received from a corporation that the Trust had partially owned. Although there were at least five owners of the stock of the transferor corporation (including the Trust) and the transferee was solely the Trust, the Trust contends that the proportional ownership interest exception applied because it had owned all the voting stock in the corporation.The Court of Appeal affirmed the trial court's judgment in favor of the Assessor and upholding the reassessment. The Assessor argues that "stock" in Revenue & Taxation Code section 62(a)(2) means exactly what it says—stock—and applies to all classes of stock, including for present purposes both voting and non-voting stock. Under this interpretation, the Assessor was right to reassess the property after the transfer because the proportional ownership interests, as measured by all the stock of the transferor corporation, had changed. Finally, the "Primary Economic Value" test in section 60 also supports that all stock is considered in applying section 62(a)(2). View "Prang v. Amen" on Justia Law

A city-owned utility charges rates to its customers that do not "exceed the reasonable costs" of providing the utility service, but at the end of each fiscal year, the city routinely invokes its power under the city's charter to, via multiple steps, transfer the "surplus" in the utility's revenue fund—the amount left over after paying all "outstanding demands and liabilities" which, if transferred, will not have a "material negative impact" on the utility's "financial condition" (L.A. Charter, section 344(b))—to the city's general fund. Plaintiff filed suit against the city defendants, alleging that this routine practice by the city constitutes a "tax" that requires voter approval.The Court of Appeal affirmed the trial court's dismissal of the action challenging the practice as being an unlawful "tax." The court held that the city's alleged, ongoing practice of transferring a “surplus” from the DWP's revenue fund to the city's General Fund where, as also alleged, the rates charged by the DWP to its customers nevertheless do not exceed the costs of providing electricity to them, does not constitute a "tax" for three reasons. First, the practice does not satisfy the definition of a "tax" under the plain language of the California Constitution. Second, this conclusion is the one that best accords with the purpose behind the Constitution's restrictions on local taxation, namely to stop local governments from extracting even more revenue from California taxpayers. Third, Citizens for Fair REU Rates v. City of Redding (2018) 6 Cal.5th 1, strongly suggests that the city's yearly transfers of surplus funds do not constitute a "tax" when they do not cause the DWP's rates to exceed its costs of providing electricity. In this case, because plaintiff will be bound in any future amended complaints by the same verified allegations that doom his claims now, the court concluded that he cannot cure these defects by amendment and the trial court properly sustained the demurrer without leave to amend. View "Humphreville v. City of Los Angeles" on Justia Law

Plaintiff filed suit against Fresno Unified and the Contractor, alleging that they violated California's competitive bidding requirements, the statutory and common law rules governing conflicts of interest, and Education Code sections 17406 and 17417. Based on the Court of Appeal's review of the four corners of the construction agreements and resolution of Fresno Unified’s board, the court concluded that plaintiff properly alleged three grounds for why Education Code section 17406's exception to competitive bidding did not apply to the purported lease-leaseback contracts. The court also concluded that California's statutory and common law rules governing conflicts of interest extended to corporate consultants and plaintiff alleged facts showing Contractor participated in creating the terms and specifications of the purported lease-leaseback contracts and then became a party to those contracts. After remand, the further proceedings included defendants' motion for judgment on the pleadings, which argued the lawsuit had become moot because the construction was finished and the contracts terminated. The trial court agreed.The Court of Appeal reversed, holding that defendants and the trial court erroneously interpreted plaintiff's lawsuit as exclusively an in rem reverse validation action. Rather, plaintiff is pursuing both a validation action and a taxpayer action. In this case, plaintiff asserts violations of California's competitive bidding laws and Education Code sections 17406 and 17417 along with conflicts of interest prohibited by Government Code section 1090 and common law principles. The remedy of disgorgement is available under these counts asserted in plaintiff's taxpayer's action even though the Construction Contracts are fully performed. Therefore, the counts in plaintiff's taxpayer's action seeking disgorgement are not moot. The panel remanded for further proceedings. View "Davis v. Fresno Unified School District" on Justia Law

Proposition 218, the Right to Vote on Taxes Act, generally required local governments obtain voter approval prior to imposing taxes. Plaintiffs Jess Willard Mahon, Jr. and Allan Randall brought this certified class action against the City of San Diego (City) claiming that the City violated Proposition 218 by imposing an illegal tax to fund the City’s undergrounding program. Specifically, plaintiffs contended the City violated Proposition 218 through the adoption of an ordinance that amended a franchise agreement between the City and the San Diego Gas & Electric Company (SDG&E). The ordinance, together with a related memorandum of understanding, further specifies that part of the money to fund the undergrounding budget will be collected by SDG&E through a 3.53 percent surcharge on ratepayers in the City that will be remitted to the City for use on undergrounding (Undergrounding Surcharge). Plaintiffs claim that the surcharge is a tax. Plaintiffs further claim that the surcharge violates Proposition 218 because it was never approved by the electorate. Plaintiffs note that the City has imposed more than 200 million dollars in charges pursuant to the Undergrounding Surcharge during the class period. Through this action, plaintiffs seek a refund of those amounts, among other forms of relief. The City moved for summary judgment, which the trial court granted on two grounds: (1) the Undergrounding Surcharge constituted compensation for franchise rights and thus was not a tax; alternatively, (2) the Undergrounding Surcharge was a valid regulatory fee and not a tax. After review, the Court of Appeal concluded the trial court properly granted the City’s motion for summary on the ground that the Undergrounding Surcharge was compensation validly given in exchange for franchise rights and thus, was not a tax subject to voter approval. View "Mahon v. City of San Diego" on Justia Law

Manson owns heavy marine construction and dredging equipment, including 60 specialized vessels and over 50 barges. After the Contra Costa County Assessor’s Office assessed property taxes on the value of Manson’s vessels for tax years 2013 and 2014, Manson filed administrative appeals, claiming some of its vessels were exempt from taxation under the Vessel Use Exemption, which provides that “[v]essels of more than 50 tons burden in this State and engaged in the transportation of freight or passengers” “are exempt from property taxation,” Cal. Const. art. XIII, section 3(l). The Board denied Manson’s appeals.The trial court and court of appeal affirmed. Manson did not establish that anyone owned or controlled the sludge it dredged, or that the dredged material could be considered goods, delivered from a consignor to a consignee. The dump scows and barges were moved from the harbor to disposal sites for the purpose of being emptied out so that they could return to the harbor and continue to perform the work for which they were hired; the carrying of the dredged material from the harbor to the disposal sites was merely a necessary byproduct of, and incidental to, that dredging work. Manson’s vessels were engaged in dredging, not in the transportation of goods for hire. View "Manson Construction Co. v. County of Contra Costa" on Justia Law

The Court of Appeal affirmed the trial court's issuance of a writ of administrative mandamus allowing the Assessor to levy more than four years' worth of escape assessments under Revenue and Taxation Code section 532, subdivision (b)(3). The court held that every single one of the prerequisites for the escape assessments challenged by Downey SPE is not only satisfied, but is undisputedly so. The court also held that the filing requirement set forth in section 480.1 is not satisfied when the taxpayer acquiring the legal entity recorded a document with less than all the information required by section 480.1. Therefore, taxpayers must strictly comply with those aspects of the notice requirements of section 480.1. In this case, it is undisputed that Downey SPE's act of recording the Certificate with the County Recorder's Office did not strictly comply with section 480.1's informational requirements (because it lacked several categories of information) or with section 480.1's requirement that the information be provided to the State Board. View "Prang v. L.A. County Assessment Appeals Board No. 2" on Justia Law

The San Mateo County Assessment Appeals Board invalidated escape assessments imposed by the County Assessor based on the value of machinery and equipment (M&E) at Genentech’s San Mateo County facility. The fair market value of the M&E on which property tax is imposed is determined with reference to either the cost of equipment purchased in a finished state or, if the equipment is not purchased in a finished state, costs incurred to bring the equipment to a finished state. The Board determined that Genentech purchased all of the M&E in a finished state and that the assembly of the equipment into a production line did not render the equipment “self-constructed property” justifying the inclusion of the additional costs in determining fair market value. The trial court determined that none of the equipment was in a finished state until put to use in a functioning production line and that the additional costs capitalized for accounting purposes add to the value of the property for purposes of the property tax.The court of appeal reversed. The trial court adopted a standard for determining when equipment is in a finished state for which there is no justification, and erroneously rejected Board findings that are supported by substantial evidence. Fair market value and net book value are separate concepts with separate purposes; the assessor may not rely on Genentech’s capitalization of expenses for accounting purposes to establish that those expenses increase the value of the equipment and are subject to assessment. View "Church v. San Mateo County Assessment Appeals Board" on Justia Law

In the November 2018 general election, 61percent of San Francisco voters voted for Proposition C, entitled “Additional Business Taxes to Fund Homeless Services.” San Francisco filed suit to establish that Proposition C has been validly enacted through the voters’ initiative power. The City’s complaint against “All Persons Interested in the Matter of Proposition C” was answered by three defendants: the California Business Properties Association, the Howard Jarvis Taxpayers Association, and the California Business Roundtable (the Associations). The Associations allege that Proposition C is invalid because it imposes a special tax approved by less than two-thirds of the voting electorate as required by Propositions 13 and 218. (California Constitution Art. XIII A, section 4 & Art. XIII C, section 2(d).)The trial court granted the City judgment on the pleadings. The court of appeal affirmed, citing two California Supreme Court cases interpreting other language from Proposition 13 and Proposition 218. The supermajority vote requirements that those propositions added to the state constitution coexist with and do not displace the people’s power to enact initiatives by majority vote. Because a majority of San Francisco voters who cast ballots in November 2018 favored Proposition C, the initiative measure was validly enacted. View "City and County of San Francisco v. All Persons Interested in Proposition C" on Justia Law

The Paula Trust, established for the sole benefit of Medeiros, a California resident, has two cotrustees—a California resident and a Maryland resident. Paula Trust held a limited partnership interest in Syufy, which in 2007 sold stock. Some of the capital gain income from the stock sale was allocated to Paula Trust. Paula Trust’s 2007 tax return reported $2,831,336 of capital gain including the stock sale. The trust paid California income tax of $223,425 and later filed an amended 2007 California fiduciary income tax return, requesting a refund, arguing that the capital gain was incorrectly reported as California-source income. The trustees declared they were “required to apportion the stock gain as California source and non-California-source income . . . according to the number of trustees resident in California” based on Rev. & Tax. Code 17743, which provides: “Where the taxability of income under this chapter depends on the residence of the fiduciary and there are two or more fiduciaries for the trust, the income taxable . . . shall be apportioned according to the number of fiduciaries resident in this state.”The court of appeal reversed a judgment ordering a refund in the amount of $150,655 of tax, plus interest of $68,955.70. The Revenue and Taxation Code imposes taxes on the entire amount of trust income derived from California sources, regardless of the residency of the trust’s fiduciaries. View "Steuer v. Franchise Tax Board" on Justia Law

A toll increase for seven Bay Area bridges that was submitted to the voters as Regional Measure 3 in 2018, and approved by a 55 percent majority. Revenue from the toll increase is to be applied toward various designated highway and public transit improvement projects and programs. Opponents contend that most of the revenue will not be used for the benefit of those who use the bridges and pay the toll but rather for the benefit of those who use other means of transportation; they argue the toll increase is a tax for which the California Constitution requires a two-thirds majority vote, and therefore is invalid.The court of appeal affirmed judgment on the pleadings, upholding the fee increase. The Legislature, not the Bay Area Toll Authority, imposed the toll increase in Senate Bill 595, which required imposition of a toll increase of up to $3, subject to approval by the voters, and specified in great detail the uses to which the resulting revenue would be put. View "Howard Jarvis Taxpayers Association v. Bay Area Toll Authority" on Justia Law