Bret Harte Inn, Inc. v. City & County of San Francisco

Opinion

Defendant City and County of San Francisco appeals from a judgment granting recovery of certain personal property taxes paid under protest. The major question before us is whether an assessor, in determining full cash value pursuant to relevant constitutional and statutory provisions, may do so by simply discounting acquisition cost by a uniform 50 percent “depreciation factor.” We conclude that he may not; we affirm the judgment. .

The facts, as substantially disclosed by the fully supported findings of the trial court, are as follows: Plaintiff, a California corporation, owned and operated the Hotel Stewart in San Francisco. In 1964, 1965 and 1966, within the time provided by law, it filed personal property tax returns and declarations relative to merchandise, equipment, and cash located in the hotel. The 1964 and 1965 returns did not disclose costs of merchandise and equipment, but defendant’s auditors subsequently determined these costs by audit. The 1966 returns disclosed such costs according to plaintiff’s books. Assessments'were made for the three years in question in accordance with the aforesaid figures and plaintiff made timely payment of taxes based upon such assessments.

In 1966, following an extensive investigation by the grand jury relative to criminal misconduct in office by the former assessor, and in the context of a taxpayers’ suit which sought to require official action addressed to the situation brought about by such misconduct, the superior court issued a writ of mandate directing defendant to undertake appropriate steps to recover taxes lost due to the misconduct of the former assessor. (Knoff v. City etc. of San Francisco, No. 564237, Superior Court of the State of California for the City and County of San Francisco, affd. (1969) 1 Cal.App.3d 184 [ 81 Cal.Rptr. 683 ].) Pursuant thereto, the assessments of plaintiff’s personal property, for 1964, 1965, and 1966 were audited by certified public accountants, and based upon the determinations so made, defendant in March of 1967 levied escape assessments of $1,975.03, $2,569.45, and $931.49 for the respective years in question. Timely applications to cancel these escape assessments were denied by the board of supervisors sitting as a board of equalization, and the assessments were paid under protest. This action for refund followed.

The evidence, at trial showed that the assessor, in appraising business equipment, determined full cash value by taking the owner’s original acquisition costs and deducting 50 percent for depreciation, regardless of

the property’s age or condition. After establishing the property’s full cash value in this manner, the assessor applied the then prevailing assessment ratio to determine the assessed valuation. Property taxes were computed on the basis of the property tax rate per $100 of assessed valuation. The assessment ratio applied during the years 1964-1966 and in the course of the “re-auditing” and “re-appraisal” procedures undertaken pursuant to the mandate issued in the Knoff case (see Knoff v. City etc. of San Francisco, supra, 1 Cal.App.3d 184 , 194) was 50 percent.

The uncontradicted testimony of two of plaintiff’s witnesses, a vice-president of plaintiff and an auctioneer, indicated that the full cash value of the subject personal property during the relevant years—arrived at by actual on-site appraisal—was not only less than that indicated in the escape assessments but less than that reflected in the original assessments.

The trial court, concluding that the method of valuation was invalid, rendered judgment for the taxpayer in the amount of the taxes paid under protest pursuant to the escape assessments ($5,475.97) plus interest. This appeal followed.

The Availability of Review

We reject at the outset the contention of amicus curiae that plaintiff is foreclosed by principles of res judicata from raising any objection to the method of valuation in this proceeding. The argument, as we understand it, is that because the Knoff mandate, as upheld in Knoff v. City etc. of San Francisco, supra, 1 Cal.App.3d 184 , concerned itself not with valuation practices but with a uniform application of the appropriate assessment ratio, all persons subject to that mandate, in contesting any tax subsequently levied pursuant to it, were limited to challenges relating to ratio. This argument fails on two grounds. In the first place, plaintiff was not a party to the Knoff proceeding, and the interests of all parties to .that proceeding were adverse to those of plaintiff, a taxpayer resisting the imposition of further taxes. In these circumstances plaintiff could in no way be bound by the determinations made in that case. (See Hansberry v. Lee (1940) 311 U.S. 32 , 45 [ 85 L.Ed. 22 , 28-29, 61 S.Ct. 115 , 132 A.L.R. 741 ].) Secondly, we do not read the Knoff mandate as narrowly as amicus curiae would have us. The Court

plaintiff, and the adoption and use by said assessor of an intentionally radical [i/c] different method in arriving at the value of plaintiff’s property from that used in all other cases . . . .” Nevertheless, the court, determining whether the assessment amounted to fraud or “something equivalent to fraud in the making of the assessment, producing such effect,” held that the Board of Equalization’s approval of the assessment cured any wrongdoing on the assessor’s part even though the trial court had also found the board’s approval “merely perfunctory in character and hardly more than a mere form ....”

In Southern Pac. Land Co. v. San Diego Co. (1920) 183 Cal. 543 [ 191 P. 931 ], the court, citing Los Angeles G. & Elec. Co., supra, held that when a complaint alleged that the Board of Equalization approved an assessment in excess of the actual value of the plaintiff’s land with knowledge that the assessor had assessed the rest of the county at less than 25 percent of true value, the complaint stated a cause of action and showed “something equivalent to fraud.” In Mahoney v. City of San Diego (1926) 198 Cal. 388 [ 245 P. 189 ], the trial court had found that the assessor assessed all land in the city at 80 to 100 percent of full cash value but assessed all improvements and personal property at 25 percent or less. The court affirmed a judgment for the plaintiff on the ground that the assessment pattern implied fraud or “something equivalent to fraud.” In Rittersbacher v. Board of Supervisors, supra, 220 Cal. 535 , the court refused to invalidate an elaborate assessment formula, citing Mahoney, supra, for the proposition that, in judging the assessor’s methods, the courts will consider only whether they constituted “an arbitrary and wilful disregard of the law intended for his guidance” and were “a constructive fraud upon [the plaintiffs].” (220 Cal. at p. 542.)

More recently, however, the decisions have exhibited a trend towards less drastic requirements where aggrieved taxpayers have sought to set aside assessments. In De Luz Homes, Inc. v. County of San Diego, supra, 45 Cal.2d 546 , 564, the court reinterpreted the “something-equivalent-to-fraud” standard as allowing judicial review for “arbitrariness, abuse of discretion, or failure to follow the standards prescribed by the Legislature,” and this standard now appears to have replaced the less specific constructive fraud standard of the Mahoney era. (See Hunt-Wesson Foods, Inc. v. County of Alameda, supra, 41 Cal.App.3d 163 , 180; Westlake Farms, Inc. v. County of Kings (1974) 39 Cal.App.3d 179 , 186-187 [ 114 Cal.Rptr. 137 ]; Georgia-Pacific Corp. v. County of Butte (1974) 37 Cal.App.3d 461 , 473 [ 112 Cal.Rptr. 327 ]; Red Bluff Developers v. County of Tehama, supra, 258 Cal.App.2d 668 , 674; County of Amador

v. State Board of Equalization (1966) 240 Cal.App.2d 205 , 216 [ 49 Cal.Rptr. 448 ]; County of Tuolumne v. State Board of Equalization (1962) 206 Cal.App.2d 352 , 372 [ 24 Cal.Rptr. 113 ].)

The recent cases have also distinguished between challenges to the result reached by the assessor after applying a sound valuation method and challenges to the validity of the method itself. (See generally Georgia-Pacific Corp. v. County of Butte, supra, 37 Cal.App.3d 461 , 473-474.) If the plaintiff claims only that the assessor and the Board of Equalization erroneously applied a valid method of determining full cash value, the decision of the board is equivalent to the determination of a trial court, and the trial court in turn may review only the record presented to the board. (Pacific Grove-Asilomar Operating Corp. v. County of Monterey (1974) 43 Cal.App.3d 675 , 681 [ 117 Cal.Rptr. 874 ]; Glidden Company v. County of Alameda (1970) 5 Cal.App.3d 371 , 378-379 [ 85 Cal.Rptr. 88 , 86 Cal.Rptr. 464 ].) The trial court may overturn the board’s decision only when no substantial evidence supports it, in which case the actions of the board are deemed so arbitrary as to constitute a deprivation of property without due process. (Hunt-Wesson Foods, Inc. v. County of Alameda, supra, 41 Cal.App.3d 163 , 177; see generally Charleston Assn. v. Alderson, supra, 324 U.S. 182 , 191.) On the other hand, when the taxpayer challenges the validity of the valuation method itself, the trial judge is faced with a question of law. (Mahoney v. City of San Diego, supra, 198 Cal. 388 , 403-404; Hunt-Wesson Foods, Inc. v. County of Alameda, supra, 41 Cal.App.3d 163 , 178; Georgia-Pacific Corp. v. County of Butte, supra, 37 Cal.App.3d 461 , 473-474; cf. Board of Supervisors v. Archer (1971) 18 Cal.App.3d 717 , 723-724 [ 96 Cal.Rptr. 379 ].) That question, stated in terms of the more modern authorities discussed above, is whether the challenged method of valuation is arbitrary, in excess of discretion, or in violation of the standards prescribed by law. It is this test which we apply today.

The Validity of the Method Here Utilized

In reviewing this defendant’s valuation method we begin with the proposition that no property may escape taxation because of the difficulty of determining its full cash value. “[T]he absence of an ‘actual market’ for a particular type of property does not mean that it has no value or that it may escape from the constitutional mandate that ‘all property . . . shall be taxed in proportion to its value’ . . . but only that

Our decision in Mahoney v. City of San Diego, supra, 198 Cal. 388 , provides an instructive parallel. There the assessor assessed improvements on real property separately from the real property itself; in so doing he took initial construction cost for old and new buildings alike, discounting that figure by a fixed percentage according to the type of structure. Thus frame and stucco buildings were valued at 15 percent of their initial construction cost, brick or tile at 20 percent, and concrete at 25 percent—all without regard to age, location, or actual condition. This method, we concluded, could not be upheld: “We do not say that in assessing improvements upon real estate the elements of age, state of repair, location, cost of construction or of replacement are or that any one of them is controlling upon the assessor in the exercise of his judgment and discretion as to what valuations he shall place upon assessable improvements upon real estate; but what we do hold is that an assessment made by an assessor in accordance with a systematic and intentionally adopted theory for the arrival at valuations to be placed upon that form of property which omits to take into consideration any of the foregoing elements which in common experience ordinarily determine values, and in place thereof substitutes an arbitrary basis for the fixation of values upon the several classes of such form of property for purposes of assessment upon a percentage plan, from which the foregoing elements for determining values are expressly excluded, will not be upheld when it sufficiently appears that actual discrimination has resulted from an assessment thus arrived at.” (198 Cal. at p. 402.)

The method of assessment utilized in the instant case suffers from the same defect as that involved in Mahoney. The assessor’s chief personal property auditor testified that due to the lack of financial resources in the assessor’s office and the time limitations imposed by the Knoff mandate it was not possible to conduct a physical inventory of all personal property of the taxpayers subject to the mandate, and that therefore ~a less cumbersome method of assessment was here necessary. This we freely grant; we also recognize that in assuming the duties of his office subsequent to the issuance of the Knojf mandate the present assessor was faced with grave and urgent responsibilities which had the practical effect of precluding any immediate reexamination of a method of assessment which had been in use in the City and County of San Francisco for a substantial period of time. (See fn. 7, ante.) These considerations, however, cannot dissuade us from a proper resolution cf the legal issue presented in this case. While we have recognized that the magnitude of an assessor’s duties requires the adoption of certain formulas of depreciation and other factors facilitating the determination

of taxable assets, we do not believe that they were of such a character as to foreclose plaintiff from the relief it here seeks. All such deficiencies in plaintiff’s property statements were remedied by subsequent audits by defendant, and there was no showing at trial of any improper motive. “It is not every wrongful act, nor even every fraud, which prevents a suitor in equity' from obtaining relief. His misconduct must be so intimately connected to the injury of another with the matter for which he seeks relief, as to make it inequitable to accord him such relief.” {Bradley Co. v. Bradley (1913) 165 Cal. 237 , 242 [ 131 P. 750 ].)

It is also asserted that plaintiff may not here challenge the depreciation formula here adopted because this ground was not specified in its protest. (See Rev. & Tax. Code, § 5139, subd. (b).) Suffice it to say that we find the following specification in plaintiff’s protest to be adequate for these purposes: “Contrary to the statutory and constitutional requirements the assessor has illegally and arbitrarily used a cost formula rather than market value to determine full cash value and as a result the values before equalization far exceed the full cash values.”

Defendant also contends that plaintiff’s claim should be denied because plaintiff did not offer evidence of discriminatory overvaluation of its property and undervaluation of someone else’s property. Although there is language in certain opinions which would suggest that this burden, which obtains in cases challenging an individual application of a proper assessment method (see Simms v. County of Los Angeles (1950) 35 Cal.2d 303 , 311-312 [ 217 P.2d 936 ]), obtains as well in cases in which the assessment method is “wrong” (see, e.g., Eastern-Columbia, Inc. v. County of L.A. (1945) 70 Cal.App.2d 497 , 505 [ 161 P.2d 407 ]), we think it manifest that the indicated showing is not necessary in a case such as this wherein the assessment method used wholly fails to conform to constitutional provisions requiring assessment at full value. In any event the discrimination which results from defendant’s valuation method is plain: taxpayers owning predominately new property necessarily pay less than they should, and those owning old property necessarily pay more. To say in these circumstances that no discrimination exists because all taxpayers are treated alike is to espouse a strange kind of equality—an “equality” clearly forbidden by our state constitutional requirement of assessment at full value. By the same-token, to require a taxpayer in such circumstances to go beyond a showing of substantial overassessment of its own property and show a similar underassessment in others would be to demand a useless act. (See Mahoney v. City of San Diego, supra, 198 Cal. 388 , 402-403.)

Finally, defendant contends that the trial court should have transferred the case to the department which had issued the Knoff writ of mandate and which had reserved jurisdiction over the collection of taxes pursuant to the writ. Defendant did not object to this alleged irregularity until the appeal; therefore, the only question before us is whether the judgment of the trial court is void because the court exceeded its jurisdiction. In Williams v. Superior Court (1939) 14 Cal.2d 656 , 662-663 [ 96 P.2d 334 ], the court stated that “jurisdiction is vested by the Constitution in the court and not in any particular judge or department thereof; and . . . whether sitting separately or together, the judges hold but one and the same court. . . . [I]f one department of a court exercises authority in a matter which might properly be heard in another, the action constitutes at most an irregularity and does not affect the jurisdiction.” Williams accurately states the law on this question. Unless the action of one judge is necessarily incompatible with the prior action of another judge (see, e.g., In re Kowalski (1971) 21 Cal.App.3d 67 [ 98 Cal.Rptr. 444 ]), the action of the former cannot be attacked for the first time on appeal.

The judgment is affirmed.

Wright, C. J., McComb, J., Tobriner, J., Mosk, J., Clark, J., and Richardson, J., concurred.

Appellant’s petition for a rehearing was denied March 10, 1976, and the opinion was modified to read as printed above.