BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Tom Torlakson, Chair
BILL NO: AB 934 HEARING: 8/22/01
AUTHOR: Hertzberg FISCAL: Yes
VERSION: 8/21/01 CONSULTANT: Swenson
PROPERTY TAX ASSESSMENT APPEAL PROCEDURES
Background and Existing Law
Each of California's 58 counties has a constitutionally
elected assessor who sets the value of property. This duty
includes the valuation of all residential, business, and
agricultural properties, boats, aircraft, and apartment
houses. The values determined by the assessor then become
the basis for calculating annual property taxes owed by the
property owners. If a property owner disputes the
assessor's valuation, the owner may appeal the assessment
to the county board of equalization.
The California Constitution establishes a board of
equalization in each county. These boards equalize the
values of locally assessed property by adjusting individual
assessments. In practice, county boards of equalization
review contested assessments to ensure that all property is
fairly assessed.
A county board of supervisors may sit as the county board
of equalization, or it may create one or more assessment
appeals boards. In 19 counties, mostly the smaller rural
counties, the county board of supervisors sits as county
board of equalization. In the remaining 39 counties, the
county supervisors appoint the assessment appeals boards.
Assessment appeals board members serve three-year staggered
terms and there is no limit on the number of terms a member
may serve. In counties with less than 200,000 people, the
county supervisors can appoint anyone believed to possess
"competent knowledge of property appraisal and taxation."
In larger counties, an appointee must have at least five
years of professional experience in California as a public
accountant, licensed real estate broker, attorney, or an
accredited or certified property appraiser. New, but not
existing, appeals board members must take training (SB
1234, Schiff, 1999).
The assessment appeals board (or a county board of
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supervisors sitting as the appeals board) conducts
impartial hearings on property assessment disputes between
taxpayers and the county assessor. Based on the evidence
presented at these hearings, the board determines the fair
market value for the disputed property. The
board-established value appears on the county property tax
roll and the courts consider the board's decision to be
conclusive. Because this process is equivalent to a
decision by a trial court, appeals courts only review a
board's decision for arbitrariness, abuse of discretion, or
failure to follow the law. In other words, a taxpayer may
appeal a decision of an assessment appeals board to the
courts on issues of law such as denial of due process by
the appeals board or use of unlawful appraisal methods, but
not on issues of fact, including the actual assessment
value itself.
One point of view holds that this distinction between fact
and law reflects the county board of equalization's
constitutional duty, and therefore the courts are precluded
from determining assessment values. Thus, if a taxpayer
disagrees with the property assessment value determined by
an assessment appeals board, there is no judicial remedy to
dispute the amount.
The Legislature extended the right to sue over assessment
values to owners of state-assessed property (SB 2601,
Garamendi, 1988). The constitutionality of this law was
challenged but the Sacramento Superior Court upheld the
1988 law. The court concluded that because the State Board
of Equalization both determines the value and hears the
appeals of state-assessed property, there is no independent
review of the determination of value. Thus a judicial
remedy is appropriate. The decision was never appealed.
Many observers note the important distinction from the
process for determining and appealing locally assessed
property where an independent board hears the appeals.
On July 16, 2001, Legislative Counsel issued a written
opinion concluding that the February 23, 2001 version of AB
934 is unconstitutional because it allows the courts to
determine locally assessed property tax values. In
Counsel's view, AB 934 would "impermissibly delegate to
trial courts the quasi-judicial fact-finding authority
granted to county boards of equalization by Section 16 of
Article XIII of the California Constitution." Attorneys
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representing private clients responded with a competing
opinion saying that there is no provision of the California
Constitution limiting the power of the Legislature to
provide for trial de novo review of decisions by local
boards of equalization. The Los Angeles County Counsel's
Office rebutted that opinion and issued its own opinion
agreeing with Legislative Counsel.
Proposed Law
Assembly Bill 934 allows property owners and county
assessors to use a limited version of a "trial de novo"
proceeding when challenging local property tax assessments.
In a taxpayer's suit seeking the refund of locally assessed
property taxes or in a county assessor's suit challenging
the findings of the county board of equalization, AB 934
requires the court to exercise its independent judgment on
the evidence presented by either party. The bill requires
the court to follow the substantial evidence test. After
the court decides the case, county officials must change
the property tax roll.
If the county prevails in a taxpayer's suit seeking a
refund, AB 934 requires the taxpayer to reimburse the
county's cost of attorneys fees and assessor's staff time
incurred in litigating the factual issues. The court
determines the costs, which cannot exceed $100,000 or 20%
of the disputed property taxes, whichever is less.
Reimbursement for the county's attorneys fees can't exceed
the hourly rate charged by the Attorney General.
AB 934 prohibits the court from awarding attorney fees or
assessor staff expenses incurred in litigating legal issues
in a suit for refund.
AB 934 defines the county as the prevailing party if the
court sustains the assessment appeals board decision or if
the court determines the disputed value to be higher than a
settlement offered by the county but rejected by the
taxpayer during the assessment appeals board process.
AB 934 allows the court to assess a penalty against either
party for a frivolous lawsuit.
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AB 934 requires the California Research Bureau, in
consultation with the Department of Finance, to study and
report to the Legislature and the Governor by January 1,
2006, on the effects of implementing this bill. The study
must include several specified items and the California
Research Bureau must convene an advisory group to assist
it. The bill also requires the California Research Bureau
to keep any taxpayer information confidential and
encourages county officials to cooperate with the Bureau in
providing information.
AB 934 encourages the Judicial Council to train judges in
the valuation and assessment of property and encourages the
Council to provide experienced judges to counties.
AB 934 encourages the State Board of Equalization to
compile a list of professionals experienced in the
valuation and assessment of complex properties who are
available to serve as assessment appeals board members
These provisions automatically terminate on January 1,
2008.
Comments
1. Their day in court . Because assessment values
determine property taxes, which in turn generate local
revenues, many property owners believe that assessment
appeals boards are too close to counties' fiscal interests
to be truly independent. They say that the county
assessment appeals process is inherently biased toward
protecting the counties' coffers. Stories of rogue appeals
boards and county supervisors that try to limit or even
dismantle appeals boards when they too strongly favor
taxpayers are not difficult to find. Armed with scores of
anecdotes to support their case, property owners want to go
to court when they think appeals boards have treated them
unfairly. AB 934 gives them their day in court.
2. Is it constitutional ? Legislative Counsel's written
opinion concludes that the February 23, 2001 version of AB
934 is unconstitutional. The August 21, 2001 version of AB
934 changes the parameters for going to court, but the
constitutionality arguments still apply. Although other
attorneys differ, the courts have generally reached similar
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conclusions. When the Legislature considered adopting
trial de novo for state assessees, opponents raised the
same concerns, but a trial court upheld the statute's
constitutionality. However, the situation for state
assessees is different because the State Board of
Equalization both sets the value and sits as the appeals
board of state-assessed property. Thus, there is no
independent review of the determination of value. The
Committee may wish to consider whether it is appropriate to
pass a bill that Legislative Counsel has declared
unconstitutional.
3. Unknown cost for counties . Most of the assessment
appeals cases that go to hearings involve highly valued
commercial property. Because there are a lot of property
tax dollars at stake, these cases are most likely to go to
court. Although difficult to precisely measure, by
limiting the court to reviewing the evidence presented at
the assessment appeals board hearing and requiring
taxpayers to cover counties' court costs when the taxpayer
loses, AB 934 limits some of the counties' costs. However,
the true cost implications for counties are still unknown.
As a result, counties fear that AB 934 will compel them to
settle out-of-court because they lack the financial
resources to defend the cases in court. Counties will lose
property tax revenues not because they over-assess
property, but because they settle on lower assessments to
avoid litigation costs.
4. Identifying the problem ? Property owners file
thousands of assessment appeals each year. Most of the
volume involves residential property while most of the
value involves commercial property. Although concrete
statewide data are not available, recent surveys suggest
most appeals are resolved before they get to an assessment
appeals board hearing. The cases that go to a hearing do
not represent the broad spectrum of appeals initially
filed. Instead, most of the cases that go to hearing
involve either commercial personal property, primarily
computer and electronic equipment, or apartment complexes.
The disputes often involve depreciation schedules. Some
observers believe that the underlying problem for these
property owners lies in the county assessors' practices,
not with the appeals boards. By asking the California
Research Bureau to study and report on the issues, AB 934
lets the Legislature identify and resolve the problems.
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5. Legislative history . Bills attempting to extend this
so-called trial de novo procedure regarding issues of fact
(assessment values) to locally-assessed property failed in
1989, 1991, 1995, 1996, 1997, 1998, and in 1999 (SB 1293,
Schiff, 1999). The bills stumbled over local governments'
cost concerns and the constitutional issue every time.
Although the constitutionality issue remains, AB 934 goes a
long way toward limiting and mitigating the counties' cost
and revenue concerns.
6. Laundry list of other arguments . The trial de novo
issue has elicited considerable debate and both proponents
and opponents have developed long lists of other arguments
and rebuttals. Most of these topics are secondary to the
bill's primary issues and rely on undocumented opinions or
fears. Among the concerns is the question of the
qualification of assessment appeals board members to judge
property valuation disputes as well as the ability of trial
judges to do the same. By encouraging both the Judicial
Council and the State Board of Equalization to provide
additional training on property assessment and valuation
and make available to counties any expertise they possess,
AB 934 takes a first step toward addressing this concern.
Other topics include:
The observation that trial de novo is afforded to all of
the state's other taxes and to locally assessed property
taxes in many other states, as well as the observation
that other taxes are not subjectively determined and
other states have different property tax systems than
California.
The suggestion that the courts will be overloaded with
new cases as well as the observation that the courts are
not overwhelmed by cases for other taxes nor did they see
a big increase when the Legislature granted trial de novo
for state assessees.
Allowing trial de novo will improve the quality of
appeals boards' hearings as well as the opinion that it
will minimize the importance of their purpose.
7. Sunset provision . AB 934 sunsets on January 1, 2008.
This sunset provision along with the results of the
Research Bureau study will allow the Legislature to
consider the effects of AB 934 and then continue, amend, or
delete the process as appropriate.
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8. Double referral . If the Committee passes AB 934 at its
August 22 hearing, the Rules Committee has ordered it
referred back for a possible referral to the Senate Revenue
and Taxation Committee which has asked for the bill.
Assembly Actions
Assembly Revenue and Taxation Committee: 7-0
Assembly Floor: 64-2
Support and Opposition (8/21/)
Support : California Taxpayers' Association, California
Chamber of Commerce, California Manufacturers' and
Technology Association, American Electronics Association,
Association of Imaging Technology and Sound, California
Business Properties Association, California Restaurant
Association, California Retailers Association, Motion
Picture Association of America Inc., National Association
of Real Estate Investment Trusts, Silicon Valley
Manufacturing Group, State Board of Equalization, Taxation
Section of the State Bar of California, Western States
Petroleum Association, Agilent Technologies, AMB Property
Corporation, AMD, Amgen Inc., Apple Computer, Inc., Boykin
Lodging Company, BP, Calpine Corporation, CarrAmerica
Realty Corporation, County East Mall, Equity Office
Properties, Equity Residential Properties Trust, FelCor
Lodging Trust Incorp., Glenborough Realty Trust
Incorporated, Hewlett-Packard Company, Hilltop Mall, Intel
Corporation, Kilroy Realty Corporation, Lane Westly Inc.,
La Salle Hotel Properties, Lockheed Martin Missiles &
Space, Macerich Company, Metricom Inc., Nestle USA, New
United Motor Manufacturing, Inc., Northridge Mall, Pacific
Bell, Pacific View Ventura, Paramount Pictures, Pillsbury
Winthrop, Prologis Trust, Property Tax Assistance Co. Inc.,
Realty Income Corporation, Rodi Pollock, Rouse Company,
Semiconductor Equipment & Materials International,
Solectron Corporation, Stoneridge Shopping Center,
Sunvalley Shopping Center, United Airlines, Valero Energy
Corporation, Verizon Communications, Inc., Westside
Pavilion, WorldCom, Xilinx.
Opposition : California Assessors' Association, California
Association of Clerks and Election Officials, California
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State Association of Counties, League of California Cities,
Urban Counties Caucus, California School Employees
Association, California Teachers Association, California
Federation of Teachers, Community College League of
California, Faculty Association of California Community
Colleges, California Independent Public Employees
Legislative Council, and California Tax Reform Association,
Service Employees International Union; Counties of Contra
Costa, Glenn, Humboldt, Kern, Napa, Orange, Placer, San
Bernardino, Riverside, Sacramento, San Diego, Santa
Barbara, Santa Clara; Cities of Alturas, Blythe, Costa
Mesa, Chula Vista, La Quinta, Merced, Modesto, Moreno
Valley, Riverside, San Bernardino; County Assessors in
Alameda, Alpine, Calaveras, Del Norte, El Dorado, Fresno,
Glenn, Humboldt, Kern, Lassen, Los Angeles, Marin,
Mendocino, Modoc, Napa, Nevada, Placer, Riverside,
Sacramento, San Diego, Santa Clara, Santa Cruz, Shasta,
Sonoma, Stanislaus, Sutter, Tulare, Ventura, Yolo; City of
Indio, Orange County Citizens Against Lawsuit Abuse,
Silicon Valley Citizens Against Lawsuit Abuse, Lake
Elsinore Unified School District, Palo Verde Unified School
District, Riverside Unified School District, County of
Santa Clara Sheriff, City Treasurer for the City of Redondo
Beach, Judge Quentin L. Kopp, Roy M. Avondet CPA.