The State Board of Equalization’s interpretation of a state law relating to the welfare exemption for property taxes is “clearly erroneous” and not binding, the Second District Court of Appeal ruled January 5 in a published decision.
In Jewish Community Centers Development Corporation v. County of Los Angeles (January 15, 2016) Case No. B261022, the county relied on the BOE’s interpretation of Revenue and Taxation Code Section 214, and contended that a trial court erred by not deferring to a BOE advisory rule interpreting the section to mean that both the owner and third-party operator of a property used for charitable purposes must file claims for welfare exemptions before an owner can be exempt from property taxes.
The trial court ruled for the taxpayer, which owned the Valley Cities Jewish Community Center in Sherman Oaks during the tax years in question. Beginning in 2004, a third party, Friends of Valley Cities Jewish Community Center, leased the property for $1 a year and operated the community center. The property was sold in 2008.
After paying several years’ worth of back taxes, the property owner filed for refunds based on the welfare exemption. “The county assessor denied the claims solely because Friends did not have an OCC (organizational clearance certificate),” the Court of Appeal wrote. “This ruling was based on an advisory rule in the Assessor’s Handbook … in which the SBE interpreted section 214 and advised assessors that both and owner and operator of a property must file claims for welfare exemptions, and that any organization seeking a welfare exemption must file a claim for an OCC. … [T]he SBE’s interpretation of the statutory scheme is clearly erroneous, and its advisory rules are not binding.”
The court continued: “To interpret the statutory scheme as suggested in section 267 of the Handbook would result in the absurdity of requiring an operator to go through the time and expense of seeking a welfare exemption it does not need. In rejecting the SBE’s interpretation, we adhere to the principle that a court construing an ambiguous statute must avoid, if it can, an interpretation that would lead to absurd consequences. … Tipping the scales further against the County, we conclude that there is an apparent conflict between section 510 and section 267 of the Handbook because the former correctly treats a leasehold of private property as nontaxable while the latter impliedly treats it as taxable. Thus, it does not appear that the advisory rules are consistent, or that the SBE staff gave consideration to the taxability of leases when writing about the welfare exemption.”