STATEMENT OF FACTS

On April 24, 1996, the El Dorado County Assessor (“Assessor”) issued the results of his 1992-1995 property tax audit of the land, improvements, fixtures and personal property of Heavenly Valley Ski Resort (“Heavenly”). For each of the four years at issue, the audit disclosed certain property that was underassessed (i.e., the property’s taxable value had been understated on the original assessment roll) and certain other property that was overassessed (i.e., the property’s taxable value had been overstated on the assessment roll). Clerk’s Transcript (hereinafter “CT”) at 327. The following schedule shows the net underassessments and overassessments disclosed by the assessor’s audit for each year:

1992 Lien Date: Net Underassessment of Taxable Value	$ 1,082,313...
1993 Lien Date: Net Overassessment of Taxable Value	(3,791,710)[1]
1994 Lien Date: Net Underassessment of Taxable Value	1,443,993...
1995 Lien Date: Net Underassessment of Taxable Value	1,266,694...
Cumulative Net Underassessment	$ 1,290...

CT at 325.

The Assessor aggregated and offset the four years of underassessments against the 1993 overassessment, declared the cumulative net underassessment of $1,290 to be de minimis pursuant to section 155.20 of the Revenue and Taxation Code, and declined to enroll any escape assessments.

Heavenly responded by filing Applications for Changed Assessment for each year (the “Applications”), requesting that the El Dorado County Assessment Appeals Board (the “Board”) review the Assessor’s original 1992-1995 assessments of Heavenly’s property. CT at 147-162. Heavenly contended that the Assessor’s discovery of underassessed property in each of the four audit years constituted “audit disclosure of property subject to escape assessment,” providing Heavenly the right to challenge its original assessments under Revenue and Taxation Code section 469.[2] CT at 471, 498.

On February 14, 1997, the Board held a hearing to determine the scope of Heavenly’s section 469 rights to appeal its original assessments. CT at 165-172. Heavenly submitted a 1984 State Board of Equalization (“SBE”) Letter to County Assessors (the “SBE Opinion”),[3] holding that a section 469 appeal right arises whenever an assessor’s audit discloses any underassessed property and that actual enrollment of escape assessments is not required.

The Board elected to solicit the advice of the California Attorney General on the scope of Heavenly’s section 469 appeal rights. The Attorney General opinion (the “AG Opinion”)[4] confirmed that Heavenly’s appeals were valid even though no escape assessment was enrolled.

On a 3-2 vote, the Board chose to disagree with both the SBE Opinion and the AG Opinion and announced that it would not grant a hearing on Heavenly’s Applications. CT at 630, 632, 636-641. Heavenly informed the Board that it would appeal the decision and that it would also ask the reviewing court to utilize the two-year statute of limitations in section 1604(c)[5] to require that Heavenly’s opinion of value be upheld without further Board proceedings. CT at 8. On March 18, 1998 the Board issued its written decision refusing to hold hearings on Heavenly’s Applications. CT at 175.

On April 12, 1999 Heavenly filed a Writ of Mandate seeking reversal of the Board’s decision. CT 2-14. El Dorado County Sup. Ct. Case No. PV-4876; CT at 669-676. On July 29, 1999 the trial court reversed the Board’s decision. The trial court agreed with the SBE Opinion and the AG Opinion and held that the Assessor’s audit discovery of underassessed property was sufficient to provide Heavenly a section 469 right to appeal its original 1992-1995 assessments. Slip Op. at 7. The trial court also accepted Heavenly’s section 1604(c) argument and upheld Heavenly’s opinions of value as stated in the Applications. Slip Op. at 8; CT at 376.

On August 18, 1999 Appellant filed its Notice of Appeal.

ARGUMENT

I. The Trial Court Correctly Determined that the Section 469 Right to Challenge an Original Assessment Arises Upon Audit Disclosure of UnderassessED Property. Enrollment of an Escape Assessment is Not Necessary.

A. Background on California Property Tax Assessments.

Article XIII, section 1 of the California Constitution states:

a) all property is taxable and shall be assessed at the same percentage of fair market value . . .

b) all property so assessed shall be taxed in proportion to its full value.

Assessment refers to the process of valuing property and listing it on the local roll for taxing purposes. Each county assessor is charged with the statutory duty of “assessing” (i.e., valuing) all taxable property within the county as of each lien date and preparing annual assessment rolls (due each July 1) detailing the assessor’s value determinations. §§ 401, 401.3, 601.[6] The completed annual assessment roll is certified by the county assessor and delivered to the county auditor. §§ 601, 616, 617. The county auditor computes the tax liability for each taxpayer location (based on the assessor-determined value and the applicable tax rate) and transmits the roll to the tax collector, who mails out the annual tax bills. §§ 1646, 2151, 2601, 2610.5.

If, within four years after completion of the assessment roll,[7] the county assessor discovers property that has escaped assessment (whether the property was overlooked altogether or just improperly valued), the assessor is required to enroll an escape assessment to correct the value for that year. § 531. In the wake of the 1960s assessor scandals, the Legislature enacted significant property tax reforms to ensure that assessors fulfilled their duties to enroll accurate assessments.[8] Among those reforms was section 469, which requires (among other things) that county assessors audit at least once every four years the assessments of taxpayers having aggregate personal property in excess of $300,000.

The right of a California taxpayer to appeal an assessor’s property tax determinations differs significantly from appeal rights in other California tax regimes, such as income, employment and sales taxes. In each of these other regimes, both the taxpayer and the taxing authority are afforded an identical statute of limitations period (typically three to four years) to raise any challenge to the original assessment for a particular year. §§ 6487, 6902, 19057, 19036; Unemp. Ins. Code §§ 1132, 1176.6, 1178.

Under the California property tax statutes, however, county assessors enjoy a much longer time period to make adjustments to the assessment roll than the period afforded taxpayers. Assessors generally have a four-year statute of limitations to discover and enroll escape assessment adjustments to the original assessments. Conversely, prior to 1978 taxpayers had only until September 15 of each tax year to file any challenge to the assessor’s original assessments, so that any taxpayer appeal rights are closed off 75 days after the July 1 completion of the assessment roll.[9] Such taxpayer challenges are commenced by filing an application for “equalization” with the County Assessment Appeals Board (or County Board of Equalization). § 1603.[10]

In 1978 the California Legislature reduced this disparity by amending sections 469 and 1605 to expand the taxpayer’s right to appeal original assessments. Stats. 1978, ch. 732, § 1; ch. 1112, § 16.5 (“the 1978 Amendments”). The 1978 amendments grant the taxpayer an additional right to challenge a particular year’s original assessment whenever the assessor’s audit for that year “discloses property subject to escape assessment”:

If the result of an audit for any year discloses property subject to escape assessment, then the original assessment of all property of the assessee at the location of the profession, trade, or business for that year shall be subject to review, equalization, and adjustment by the county board of equalization or assessment appeals board pursuant to Chapter 1 (commencing with section 1601) of Part 3 of this division, except in those instances when the property had previously been equalized for the year in question.

Section 469, para. 4 of Stats. 1978, ch. 732, 1.

At the same time the Legislature also added a new section 1605(e), which prescribes the method for exercising these new “section 469 appeal rights.”

B. Section 469 Appeals Are Triggered by Audit Disclosure of Underassessed Property, Not by Escape Assessments.

The principal issue at trial and on appeal is whether the Assessor’s 1992-1995 audit triggered Heavenly’s right to bring section 469 appeals of its 1992, 1993, 1994 and 1995 original assessments. As noted above, section 469 specifies that this right to appeal an original assessment is triggered when three elements are present:

· If the result of an [assessor] audit for any year

· discloses

· property subject to an escape assessment for that year[.]

The parties agree that the Assessor completed an audit for each of the 1992, 1993, 1994 and 1995 lien dates. CT at 456. The parties also agree that the results of the Assessor’s audit disclosed underassessed properties for each of the four audit years.[11] CT at 498. Thus, the sole issue to be decided is whether the Assessor’s audit disclosure of underassessed property qualifies as audit disclosure of “property subject to escape assessment,” thereby triggering Heavenly’s section 469 appeal rights. The trial court correctly held that Heavenly’s section 469 appeal rights were validly triggered. Since the audit disclosed underassessed properties for each year, Heavenly’s appeals had fully satisfied the statutory requirement that the audit disclose “property subject to escape assessment.” Slip Op. at 7.

1. The Plain Language of the Statute Provides That Section 469 Appeals Are Triggered Solely by Audit Discovery of Underassessed Property.

Appellant argues that underassessed property is not subject to an escape assessment unless and until the assessor duly enrolls a formal escape assessment. Appellant’s Opening Brief (“AOB”) at 6. Thus, Appellant argues that the section 469 appeal right is triggered only if after an Assessor audit for any year, the Assessor enrolls an escape assessment for that year.

Appellant’s argument violates a basic canon of statutory construction that the Court, in construing a statute, should not insert terms omitted, or omit terms inserted. Civ. Proc. Code § 1858. Stated more succinctly, Appellant’s argument completely ignores the specific language of section 469. It is nothing short of a brazen attempt to rewrite the plain and carefully chosen words of the statute. Thus, Appellant attempts to replace the Legislature’s above-described three-part test with an entirely new test, which the Legislature could have chosen but obviously did not.

Under section 469, the trigger point for a taxpayer’s appeal is audit disclosure of property subject to escape assessment for a particular tax year. In essence, Appellant is trying to excise the words “audit for any year discloses” from the statute and then twist the words “property subject to escape assessment” to read instead “that the assessor has enrolled an escape assessment.”

The Legislature obviously intended the words “audit for any year disclosed property subject to escape assessment” to be tested by looking at the disclosures of the audit, i.e., did the audit disclose that certain property had been underassessed in such year? The Legislature could have chosen to make the section 469 right contingent on the enrollment of escape assessments for each year or for all years taken as a group. But they did not.

Indeed, any controversy over the meaning of “property subject to escape assessment” in section 469 requires focusing on the fact that this phrase does nothing more than identify what the Assessor’s audit must disclose. Once this proper perspective is brought to bear, Appellant’s argument falls of its own weight. The assessor’s purpose in conducting an audit is to discover and disclose property that has been underassessed (i.e., subject to escape assessment). Enrollment of an escape assessment is a separate step that often, but not always, follows the assessor’s audit disclosure of “property subject to escape assessment.”

Thus, the plain language of section 469 establishes that the sole test for triggering a section 469 appeal is the assessor’s audit disclosure of property subject to escape assessment, rather than the later event of escape assessment enrollment. Conditioning the section 469 appeal right on enrollment of an escape assessment would amount to a wholesale rewriting of the statute.

Finally, if the Legislature had really meant to make escape assessment enrollment a prerequisite for section 469 appeals, it would long ago have rewritten the language chosen in 1978, especially after the 1984 SBE Opinion.[12] However, the only legislative attempt to revise the section 469 trigger language came in 1999 while the current case was pending. Assem. Bill No. 1643 (1999-2000 Reg. Sess.) § 1. Moreover, the Legislative Counsel’s Digest for this proposed legislation explicitly noted that requiring escape assessment enrollment as a prerequisite for section 469 appeals would constitute a change to existing law rather than a clarification.[13] Thus, this legislative effort clearly reinforced Heavenly’s position that existing law does not require escape assessment enrollment for section 469 appeals.

2. State Board of Equalization Opinion 84/38 Confirms That the Trigger Point for Section 469 Appeals Is Audit Discovery of Underassessed Property, Not the Enrollment of an Escape Assessment.

The SBE is responsible for overseeing the administration of California’s property tax system.[14] In 1984 it issued the SBE Opinion (attached as Exhibit A), concluding that section 469 provides taxpayers the right to the review, equalization and adjustment of all their property if an assessor audit discloses underassessed property (property subject to escape assessment). The SBE agreed that the taxpayer’s section 469 appeal right does not require that the assessor first enroll an escape assessment.

Frequently, an assessor’s audit discloses both under- and overassessments. Section 533 provides in such cases that the appropriate tax liabilities and refunds shall be offset, so the resulting tax bill or refund is a net figure. If the refund is greater than or equal to the escape, then no “escape assessment” is enrolled, and there is a question as to whether the taxpayer is entitled to an equalization hearing under sections 469 and 1605.

The Board’s legal staff has reviewed this question and determined that the taxpayer is entitled to an equalization hearing under the above circumstances.

The critical phase (in the third paragraph of section 469, and also in the fourth paragraph of 1605 [now section 1605(e)]) is “property subject to an escape assessment.” That language does not specify that an escape assessment must be enrolled, only that the audit disclosed property that should have been assessed but was not. It would be a tortured reading of the law to conclude that property is not “subject to an escape assessment” merely because some other error offset the escape.

Therefore, whenever escaped property is discovered as a result of any assessor’s audit, the taxpayer is entitled to equalization on the entire property for the year of such escape, regardless of whether the assessor actually enrolls an escape assessment.

SBE Opinion (emphasis added); see also 3 Property Taxes Law Guide §§ 180.0020, 180.0025.

The SBE’s September 1998 Assessment Appeals Manual again confirms the SBE’s consistent position that section 469 appeals require only audit discovery of underassessed property, not the enrollment of an escape assessment:

As a result of a mandatory audit conducted pursuant to section 469, an assessor may discover that property had escaped assessment for any year under review. Upon discovery of such escaped property, the assessee has a right to appeal the assessed value of all property, except the property previously equalized, at the location of the profession, trade, or business that is the subject of the audit, regardless of whether the assessor actually enrolls an escape assessment.

Id. at 43 (emphasis added).[15]

While not entitled to the weight and judicial deference granted a quasi-legislative act (such as a regulation), the importance of these interpretations by the agency charged with promoting property tax uniformity throughout the state should not be lost on this court. Yamaha Corp. of America v. State Bd. of Equalization, (1998) 19 Cal. 4th 1, 13. Moreover, that this interpretation, establishing the taxpayer’s right to an appeal upon the discovery of underassessed property, has existed for almost 20 years, underscores its soundness (Whitcomb Hotel, Inc. v. Cal. Emp. Com., (1944) 24 Cal. 2d 753, 151 P.2d 233), particularly in light of an unwillingness of the Legislature to change it (Moore v. California State Bd. of Accountancy, (1992) 2 Cal. 4th 999, 9 Cal. Rptr. 2d 358, 831 P.2d 798).

3. The Attorney General Opinion Reconfirms That the Trigger Point for Section 469 Appeal Right Is Audit Disclosure of Underassessed Property, Not the Enrollment of An Escape Assessment.

Not content with the statute’s clear language, or the SBE Opinion, Appellant solicited the California Attorney General’s (AG) Opinion on the scope of Heavenly’s section 469 appeal rights. (See copy attached as Exhibit B.) The AG Opinion, like the SBE opinion, supported the validity of Heavenly’s appeals, confirming again that any audit disclosure of underassessed property qualifies as audit disclosure of “property subject to escape assessment,” whether or not the assessor enrolls an escape assessment. The AG Opinion stated:

Property is subject to an “escape assessment” for a variety of reasons (§§ 531-538), including when the property owner has underreported its cost to the assessor (§ 531.4). In this particular case, the property owner in question both underreported and overreported the cost of its property over the four-year audit period. While the assessor’s audit thus disclosed that certain of the property could be subject to an escape assessment, no escape assessments were issued due to the overreporting of the cost of other property.

* * * * *

The requirement of sections 469 and 1605 are [sic] met for filing an application for review if the audit discloses “property subject to an escape assessment.” In this context the term “subject to” commonly means exposed to, disposed to, or being under the contingency of (See Webster’s Third New Internat. Dict. (1961) p. 2275). The statutes do not require the actual issuance of an escape assessment, only that the audit disclose some or all of the property as being under the contingency of an escape assessment. We are to interpret statutes by consulting “the words themselves, giving them their usual and ordinary meaning.” (DaFonte v. Up-Right, Inc. (1992) 2 Cal. 4th 593, 601.)

* * * * *

In answer to the question presented, therefore, we conclude that a property owner may apply for review, equalization, and adjustment of a county assessor’s assessment with respect to the value of all property at the location of the owner’s business after a mandatory audit of the owner’s books and records has been made by the county assessor that discloses both an underassessment and overassessment of some of the property, resulting in no change to the original assessment.

80 Cal. Atty. Gen. Op. 322, No. 97-315 (1997) (emphasis added). The AG Opinion thereby confirms that a section 469 appeal is permitted for a particular tax year whenever an assessor audit discloses any underassessed property for such year, and it is immaterial whether the assessor enrolls an escape assessment.

“The Attorney General's opinion, although not binding, is entitled to considerable weight.” Freedom Newspapers, Inc. v. Orange County Employees Retirement System, (1993) 6 Cal. 4th 821, 829, 25 Cal. Rptr. 2d 148, 863 P.2d 218. Absent controlling authority, it is persuasive because the Court presumes that the Legislature was cognizant of the Attorney General's construction and would have taken corrective action if it disagreed with that construction. California Assn. of Psychology Providers v. Rank, (1990) 51 Cal. 3d 1, 17, 270 Cal. Rptr. 796, 793 P.2d 2.

C. Section 1605(a) Is Irrelevant to Section 469 Appeals.

Appellant erroneously argues that section 1605(a) requires the enrollment of an escape assessment as a prerequisite to any section 469 appeal right. AOB at 7-9. Section 1605(a) states:

An assessment made outside of the regular assessment period is not effective for any purpose, including its review, equalization and adjustment by the county board, until the assessee has been notified thereof personally or by United States mail at the assessee’s address as contained in the official records of the county assessor.

Section 1605(a) governs only the “effectiveness” of escape assessments themselves and does not address or affect the section 469 right to appeal an original assessment. Although section 1605(a) might be interpreted to require enrollment of an escape assessment before the escape assessment itself may be appealed, it does not make enrollment of an escape assessment a prerequisite for a taxpayer’s section 469 appeal of a preexisting original assessment.

The method for appealing an original assessment following the audit disclosure of property subject to escape assessment is instead prescribed by section 1605(e), which was part of the same 1978 amendments that added section 469 appeals. Section 1605(e) provides:

If any audit of the books and records of any profession, trade, or business pursuant to section 469 discloses property subject to an escape assessment for any year, then the original assessment of all property of the assessee at the location of the profession, trade, or business for that year shall be subject to review, equalization and adjustment by the county board of equalization or assessment appeals board pursuant to this chapter, except in those instances when that property had previously been equalized for the year in question by the county board of equalization or assessment appeals board. The application shall be filed with the clerk no later than 60 days after the date on which the assessee was notified. Receipt by the assessee of a tax bill based upon that assessment shall suffice as that notice.

The Legislature’s simultaneous adoption of both sections 469 and 1605(e), their nearly identical language, and section 1605(e)’s specific reference to section 469, verifies that section 1605(e) applies exclusively to section 469 original assessment appeals, while the pre-existing section 1605(a) applies only to escape assessment appeals. (See People v. Caudillo (1978) 21 Cal.3d 562, 146 Cal.Rptr. 859, 580 P.2d 274 [when provisions are enacted contemporaneously, the rule that statutes in pari materia, containing similar phrases, should be construed together, is most justified].)

II. Sections 155.20 and 533 do not permit Appellant to Extinguish Section 469 Appeal Rights by Offsetting Overassessments Against Underassessments.

The Assessor’s audit disclosed underassessments of over one million dollars for each of the four years under audit. CT at 121. The audit also found a net overassessment of roughly $4 million in 1993, which virtually equaled the cumulative underassessments for all four audit years. Appellant argues that section 533 allows this one year of Assessor-determined overassessments to offset and, in effect, cancel the Assessor-determined underassessments for all four audit years. Since this multi-year offsetting netted to less than $5,000, Appellant conveniently claims that the de minimis provisions of section 155.20 excuse the Assessor from enrolling any escape assessment for any audit year, thereby completely extinguishing Heavenly’s right to appeal any of the four audit years at issue. AOB at 20-21.

A. Section 155.20 Is Intended To Reduce the Assessor’s Administrative Costs, Not To Deny Taxpayer Appeal Rights.

Appellant misunderstands the unique purposes of section 155.20. That statute is the legislative implementation of Article XIII, section 7 of the California Constitution allowing a County Board of Supervisors to exempt specific/individual items of property from taxation where the “full value is so low that, if not exempt, the total taxes, assessments and subventions on the property would amount to less than the cost of assessing and collecting them.” Nothing in section 155.20 exempts an escape assessment (regardless of size) where the full value of the underlying property exceeds $5,000, as was obviously true in Heavenly’s case. Second, the $5,000 ceiling is based on each property’s value as of a specific valuation date. Thus, by its own terms, section 155.20 does not excuse the assessor from enrolling escape assessments for underassessments in excess of one million dollars for four separate years, just because there is an offsetting overassessment (for a different property) in one of those years.

Finally, section 155.20 is merely a narrowly worded statute simplifying the administrative duties of assessors and tax collectors for individual properties of inconsequential value. Nothing in section 155.20 or section 469 suggests that section 155.20 operates to extinguish or cancel a taxpayer’s section 469 appeal right when the statutory prerequisite for that right (i.e., audit disclosure of any underassessed property) has clearly been met.

Indeed it seems rather absurd for Appellant to invoke section 155.20 in the present situation. After all, as noted above, section 155.20’s purpose is to allow the county to avoid the administrative cost of the initial assessment and /or audit of de minimis properties (i.e., those less than $5,000 in value). However, the properties assessed and audited here are worth millions of dollars, and (according to the Assessor) have been underassessed by millions of dollars. Moreover, the Assessor has already incurred both the cost of issuing original assessments and the cost of conducting an extensive audit. It seems disingenuous for the Assessor to now claim that section 155.20 prohibits him from incurring the modest cost of enrolling appropriate escape assessments on these multimillion-dollar properties, especially when the Assessor claims this lack of an assessor-enrolled escape assessment also extinguishes the taxpayer’s appeal rights to have the value of these properties correctly determined.

B. Section 533, Permitting Offsetting Proposed Tax Liabilities with Tax Refunds, Does Not Nullify the Existence of “Property Subject To Escape Assessment” Triggering Section 469 Appeals.

Appellant also misconstrues section 533, which has nothing to do with the section 469 appeals. While section 533 does provide for offsetting tax liabilities (from escape assessments) with tax refunds (from the correction of underassessments), it in no way suggests that an overassessment from one tax year nullifies the very existence of an underassessment (i.e., “property subject to escape assessment”) from another tax year. Thus, section 533 is not a mechanism for ignoring or canceling assessments, but rather a vehicle permitting the tax liabilities generated by enrolled escape assessments to be offset against tax refunds generated by corrected overassessments for other years.[16] In fact, section 533 provides that each enrolled escape assessment and each overassessment must remain identified with the year in which the specified overassessment and underassessment were generated.

The statute does not authorize or permit an assessor to use audit results from one tax year (i.e., an overassessment), to eliminate appeal rights in other tax years. The crucial point is that neither section 155.20 nor section 533, read separately or together, provides the Appellant with any authority to rewrite the clearly worded test of section 469, which is simply whether the audit disclosed property subject to escape assessment in any one particular tax year. Any assessment of property is obviously limited to its value on a specific lien date for a specific tax year, and any appeal regarding that assessment is limited to contesting the assessed value for that specific tax year. Thus, a section 1603 original assessment appeal applies only to the lien date preceding the year of filing. An appeal from a section 1605(a) escape assessment applies only to the year for which the escape assessment was enrolled. Similarly, a section 469 original assessment appeal applies only to the tax year(s) for which an assessor audit disclosed property subject to escape assessment:

If the result of any audit for any year discloses property subject to any escape assessment, then the original assessment of all property of the assessee at the location of the profession, trade, or business for that year shall be subject to review, equalization and adjustment by the county board of equalization . . .

Section 469, para. 4 (emphasis added).

In each and every taxpayer appeal, the right to an appeal is tax year specific. Thus, the right to challenge the assessment in any one tax year must stand on its own and is completely unaffected by any assessment or appeal event in another tax year.[17] Once again, Appellant’s attempt to combine or offset the audit results for a group of years requires a rewriting of section 469 in a way which clearly contradicts the plain language chosen by the Legislature.

C. The SBE Opinion and the AG Opinion Both Confirm That Section 469 Appeal Rights Are Not Nullified by Offsetting Overassessments and Underassessments.

Appellant’s attempt to offset underassessments and overassessments from different tax years was also addressed by both the SBE Opinion and the AG Opinion. Both conclude that the discovery of offsetting overassessed property is irrelevant, inasmuch as any audit disclosure of underassessed property triggers section 469 appeal rights.

It would be a tortured reading of the law to conclude that property is not “subject to an escape assessment” merely because some other error offset the escape.

SBE Opinion, attached as Exhibit A. Ehrman and Flavin reiterate that offsetting over- and underassessments do not nullify the existence of section 469 appeal rights.

The fact that an escape assessment was offset by a right to refund does not deprive the taxpayer of his right to reopen all the property at that location for that year in an equalization hearing, unless the property has been the subject of a previous equalization hearing.

Ehrman & Flavin, 1 Taxing California Property § 14.06, at 14-19 (1997 3d Ed.)

Indeed, Appellant’s contention concerning offsets leads to the absurd result that a taxpayer who had only underassessed property (and paid too little tax) should somehow have greater section 469 appeal rights than a taxpayer that had both overassessed property and underassessed property (and paid too much tax). The AG Opinion specifically noted the anomaly of this construction:

It is argued, nonetheless, that a property owner should not be allowed to obtain an additional period for filing a review application by underreporting the cost of some of its property. Such an argument may be addressed to the Legislature, not the Attorney General. Concededly, section 1605 authorizes a new application period when an escape assessment is made. Here, we are concerned with an overreporting of the cost of property by a property owner that prevented an escape assessment from being made. Should a property owner be penalized for overreporting the cost of some of its property and paying too much in property taxes with respect to such property? That would be the result of allowing a new application period for property owners who underreported the cost of their property, while denying a new application period for those who both underreported and overreported their costs resulting in no change being made in the original assessments. We do not view the Legislature as intending such anomalous results. “It is presumed the Legislature intended reasonable results consistent with its expressed purpose, not absurd consequences.” (Harris v. Capital Growth Investors XIV (1991) 52 Cal.3d 1142, 1165-1166.)

This analysis again reinforces the wisdom of the trial court’s holding that the disclosure of underassessed property for one tax year is not nullified by the discovery of other overassessed property in the same or another tax year. Inasmuch as the Assessor’s audit disclosed one or more items of underassessed property (i.e., property subject to escape assessment) for each of the 1992, 1993, 1994 and 1995 tax years, Heavenly was entitled to file a section 469 appeal for each of those years.

III. aPPELLANT’S UNFOUNDED CLAIMS OF TAXPAYER GAMESMANSHIP mask that appelant’s construction produces greater riskS OF ASSESSOR GAMESMANSHIP.

Appellant’s final salvo is to assert a potential for taxpayer abuse under Heavenly’s interpretation of section 469. AOB at 12; Appellant’s Reply Brief (“ARB”) at 5-7. Appellant asserts that if the Court were to follow the explicit language of the statute, the SBE Opinion, the AG Opinion and the trial court, and recognize a taxpayer’s right to appeal upon audit discovery of underassessed property, taxpayers will be encouraged to engage in troublesome gamesmanship. Appellant cautions that taxpayers will intentionally file false tax returns with inaccurate data in order to preserve the opportunity to file a section 469 appeal up to four years later.

However, Appellant fails to explain why a taxpayer would intentionally file a false tax return instead of choosing to file a section 1603 original assessment appeal. In other words, any taxpayer preparing a tax return due April 1, and wishing at that point to preserve its appeal rights, would inevitably choose simply to file a normal section 1603 appeal by the following September 15. This course would seem far more logical than foregoing such an appeal and filing a fraudulent return in order to be in a position to seek a section 469 appeal after an audit several years later.[18]

Indeed, amici believe there is a greater risk of assessor gamesmanship under the result advocated by Appellant. Appellant is asking the Court to rewrite section 469 to hold that there can be no section 469 appeal without an enrolled escape assessment. In any case where the taxpayer is seeking such an appeal right, the taxpayer obviously believes—and the assessor may know—that there is a substantial overassessment of some of the taxpayer’s property. Under Appellant’s interpretation of section 469, an assessor’s auditor might be encouraged to close an audit without needed adjustments (to avoid enrollment of an escape assessment), or to “discover” just enough of the taxpayer’s claimed overassessment to offset and eliminate any audit-disclosed underassessments.[19]

Since no escape assessment would be enrolled at all in a case of assessor offset, Appellant would claim (as it does here) that the taxpayer has no right of recourse to challenge the accuracy of either the assessor-determined overassessments, or the audit-disclosed underassessments.[20] Appellant’s construction of offsetting underassessments and overassessments thereby provides assessors the ability to cut off not only all section 469 appeal rights, but also all section 1605(a) escape assessment appeal rights. This is a particularly egregious result where the assessor’s unchallenged audit determinations of offsetting over and underassessments, leave irreconcilable assessment peaks and valleys, which will undoubtedly create ongoing problems for determining the trended depreciated values in future years.

Reading section 469 as written clearly prevents the potential for abuse inherent in Appellant’s position. The Legislature carefully crafted the section 469 appeal right so that the taxpayer obtains the right to an appeal once there is an audit disclosure of any property subject to escape assessment. The statute should not be rewritten to add an escape assessment enrollment requirement, largely within the control of the assessor, which power could easily be manipulated to eliminate all taxpayer appeal rights.[21]

IV. Section 1604(c) REQUIRES ACCEPTANCE OF TAXPAYER’S OPINION OF VALUE.

Amici urge the Court also to affirm the trial court’s order that Appellant is required to enroll the stated opinions of value in Heavenly’s Applications pursuant to section 1604(c). Amici concur with the analysis submitted in the briefs prepared by Heavenly’s counsel and believe that this fully and adequately demonstrates that Heavenly is entitled to such relief.

V. CONCLUSION.

By the plain language of Revenue and Taxation Code sections 469 and 1605(e), the legislative intent underlying those statutes, and the interpretations of the State Board of Equalization and the California Office of the Attorney General, Heavenly was entitled to appeal the original assessments for 1992, 1993, 1994 and 1995 upon the Assessor’s audit disclosure that there was property subject to escape assessment for each of those years. The statutes do not require the enrollment of an escape assessment. The decision of the trial court should be affirmed.

Respectfully submitted,

Dated:

Wm. Gregory Turner

Counsel for Amici Curiae

California Taxpayers’ Association

Silicon valley manufacturing group

[1]. The Assessor’s audit disclosed 1993 underassessments totaling $7,816,933 in taxable value and 1993 overassessments totaling $11,608,643 in taxable value, which netted to a $3,791,710 net overassessment for 1993. CT at 326.

[2]. All statutory references are to the California Revenue and Taxation Code, unless otherwise noted.

[3]. SBE Letter to Assessor No. 84/38 (March 30, 1984), included in the record (CT at 72-75) and attached as Exhibit A for the convenience of the Court.

[4]. 80 Cal. Atty. Gen. Op. 322, No. 97-315 (1997), included in the record (CT at 106-111) and attached as Exhibit B for the convenience of the Court.

[5]. Section 1604(c) provides that if an appeals board fails to hold evidentiary hearings and make final determinations on a valid assessment appeal within two years of filing, the taxpayer’s opinion of value must be upheld. Heavenly argued that any remand from the superior court would inevitably take place after the two years had lapsed, and that section 1604(c) would thereby require the Board’s acceptance of all requested reductions to Heavenly’s original assessments.

[6]. To assist the assessor in preparing the assessment roll, taxpayers owning taxable personal property aggregating more than $100,000 for any assessment year are required to file an annual property statement delineating all taxable property owned or controlled by them. §§ 441, 442.

[7]. Property escaping assessment due to a fraudulent act or omission is subject to a six-year statute of limitations. § 532.

[8]. See Ehrman & Flavin, 1 Taxing California Property, § 1:14, at 20-22; David R. Doerr, Capsule History of the California Tax Structure Part V, 1965-1979 - The Struggle for Property Tax Reform and Relief, Chapter One, 1965-1968, Cal‑Tax Digest, Feb. 1998.

[9]. See Ehrman & Flavin, 2 Taxing California Property §§26.08, 26-12 (3d ed. 1997), which further describes this imbalance between the assessor’s four-year period to increase original assessments and the taxpayer’s 75 days to challenge the assessment. This imbalance is particularly inequitable because the taxpayer often does not receive notice of the original assessment until after the September 15 deadline to file an appeal has passed, effectively denying the taxpayer any right to challenge the original assessment.

[10]. “Equalization” by the local Assessment Appeals Board simply means adjusting the value of property assessed to conform to its real value. Sacramento County v. Assessment Appeals Bd. No. 2 of Sacramento County, (App. 3 Dist. 1973) 108 Cal.Rptr. 434, 32 Cal.App.3d 654. It is the constitutionally mandated function of the County Board of Equalization to “equalize” the value of all property on the local assessment roll by adjusting individual assessments. Cal. Const. art. XIII, § 16; Eastern-Columbia, Inc., v. Los Angeles County, (App. 2 Dist. 1943) 61 Cal.App.2d 734, 143 P.2d 992.. The purpose of a county board of equalization is to see that all properties in the county are "equalized," i.e., that the assessor appraises all properties in the county at a constant level of opinion as to market value and keeps all properties in their proper relationship one to the other. Id. This review of the assessment of taxpayer’s property serves as the taxpayer's due process hearing. Peterson v. Johnson, (1952) 39 Cal.2d 745, 249 P.2d 17; Universal Cons. Oil Co. v. Byram, (1944) 25 Cal. 2d 353, 153 P.2d 746.

[11]. As noted above, the Assessor’s audit also disclosed overassessed properties. After offsetting the overassessments and underassessments, there were net underassessments for 1992, 1994 and 1995 and a net overassessment for 1993.

[12]. The Legislature is presumed to be aware of consistent and long-standing administrative interpretations. Yamaha Corp. of America v. State Bd. of Equalization, (1998) 19 Cal. 4th 1, 21-22 (Mosk, J., concurring). The failure of the Legislature to modify the statute in a way that establishes that the agency’s interpretation is wrong is “a strong indication that the administrative practice was, and is, consistent with underlying legislative intent.” Cristmat, Inc. v. County of Los Angeles, (1971) 15 Cal. App. 3d 590, 593, 93 Cal. Rptr. 325 (same).

[13]. The Legislative Counsel’s Digest of Assembly Bill 1643 (1999-2000 Reg. Sess.) states:

Existing law further provides, in the case in which an audit for any year discloses property subject to escape assessment, that the original assessment of property of the assessee at the location of the profession, trade, or business for that year is, except as provided, subject to review, equalization, and adjustment by the county board of equalization or assessment appeals board.

This bill would modify this latter provision to instead apply in the case in which an audit for any year results in an enrolled escape assessment.

Leg. Counsel’s Dig. Of Assem. Bill. No. 1643 (1999-2000 Reg. Sess.)

AB 1643 was withdrawn from legislative consideration by its author (Assemblyman Floyd) during the May 10, 1999 session of the Assembly’s Revenue and Taxation Committee. Assem. Recess History (1999-2000 Reg. Sess.) at 968.

[14]. “The Board of Equalization was created in 1879, and originally charged with the responsibility for ensuring that county property tax assessment practices were equal and uniform throughout the state. That charge has been expanded over the years and, among other things, the Board now administers California's property tax programs. (http:// www.boe.ca.gov/about.htm.) To that end, subdivisions (c) and (e) of section 15606 of the Government Code direct the Board to ‘[p]rescribe rules and regulations to govern ... assessors when assessing’ and to ‘[p]repare and issue instructions to assessors designed to promote uniformity throughout the state and its local taxing jurisdictions in the assessment of property for the purposes of taxation ....’ Section 15607 of the Government Code directs the Board to ‘summon assessors to meet with it or its duly authorized representatives at least once annually ... to study or discuss problems of administration of assessment and taxation laws and to promote uniformity of procedure in tax matters throughout the state.’” Hahn v. State Bd. of Equalization, (App. 2 Dist. 1999) 73 Cal. App. 4th 985, 87 Cal. Rptr. 2d 282, 99 Cal. Daily Op. Serv. 6048, 1999 Daily Journal D.A.R. 7679 (No. B121612).

[15]. Appellant erroneously claims that the SBE’s position on section 469 has wavered, citing two 1998 SBE letters. AOB at 18-19. Neither of these letters contradicts the SBE’s ongoing and consistent position that a section 469 audit that disclosed underassessed property triggers a right to appeal the property’s original assessment.

The first letter (see 3 Prop. Taxes Law Guide § 180.0025, dated March 26, 1998) concerns an audit that disclosed neither any overassessed property nor any underassessed property. Not surprisingly, the letter concluded that there was no “property subject to escape assessment.” The second letter (dated January 20, 1998) conceded the taxpayer had the right to file an escape assessment appeal on non-audited real property, and addressed only the proper filing period for this escape assessment appeal. The letter had nothing to do with a taxpayer’s right to a section 469 original assessment challenge following an assessor audit.

[16]. We also note that section 533 provides no offsetting mechanism at all unless an escape assessment is enrolled. Accordingly, since Appellant’s Assessor declined to enroll any escape assessments at all, the Assessor affirmatively eliminated any section 533 offsetting mechanism from this case.

[17]. Appellant’s attempt to use multiple-year results to defeat an appeal for any one tax year is just as unavailing as a taxpayer attempt to argue that duplicate appeals in one tax year could somehow create a new appeal right in another tax year.

[18]. Even if some misguided taxpayer embarked upon this course of fraudulent behavior, the appeal right would not be triggered unless and until the assessor’s subsequent audit disclosed that the taxpayer “planted” underassessed property. Even then, the only thing gained would be a hearing before the local assessment appeals board to establish the proper valuation of the taxpayer’s property, the same right that was available without intentionally filing a false return.

[19]. Indeed, the facts at issue here expose the Assessor to this very criticism, as the Assessor’s audit disclosed multimillion-dollar underassessments and multimillion-dollar overassessments which conveniently netted to an immaterial amount (i.e., less than $1,300 of value or $13 of tax).

[20]. With multi-year offsetting, the problem is even more severe as an assessor could determine an overassessment from any tax year in order selectively to terminate outstanding section 469 appeal rights for any other year.

[21]. As noted earlier, the section 469 appeal right is intended simply to reduce somewhat the great disparity in the parties’ rights to contest the original assessments.

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