216 Cal. App. 4th 41
Cal. Ct. App.2013Background
- STRS owns a publicly owned office building in fee simple and is exempt from property tax; private lessees, like Kim, are taxed on their possessory interests.
- Kim leased 1,280 square feet on the ground floor (later extended) and paid taxes on the leasehold; STRS paid Kim’s tax under protest.
- Assessment for tax year 7/1/2006–6/30/2007 treated Kim’s leasehold value by applying section 7510(b)(1) to allocate the building’s value by lessee’s leasable square feet.
- STRS and Kim challenged the constitutionality and application of §7510(b)(1) and sought refunds; the Board denied relief and deemed it nonreviewable as an administrative matter.
- Trial court granted the County summary judgment upholding §7510(b)(1) as constitutional; STRS appealed, prompting this precedential California Supreme Court–level review.
- Court reverses the judgment, holding §7510(b)(1) facially unconstitutional for taxing a leasehold of exempt property and remands for proper valuation under BOE Rule 21 guidance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is STRS authorized to challenge the lessee’s tax method despite exempt property? | STRS paid Kim’s tax; thus STRS has standing. | STRS is a volunteer; lacks standing to sue for refund. | STRS has standing to challenge the tax valuation. |
| How should the lessee’s possessory interest be valued for tax purposes? | Value based on fair market value, excluding reversionary interest. | §7510(b)(1) prescribes allocable full cash value based on lease area. | Proper valuation is fair market value excluding the public owner’s reversionary interest. |
| Does §7510(b)(1) constitutionally tax exempt public property via leasehold valuation? | Taxing exempt property violates Cal. Const. art. XIII, §3(a) and §1. | Statute validly shifts tax to lessees. | §7510(b)(1) is facially unconstitutional for taxing exempt property and overvaluing the leasehold. |
| Should the judgment reach other constitutional or equal-protection arguments? | Equal protection and other issues may apply. | Issue not necessary to reach given facial unconstitutionality. | Remand for proper valuation; other issues not reached. |
Key Cases Cited
- De Luz Homes v. County of San Diego, 45 Cal.2d 546 (1955) (valuation of leaseholds on exempt public property requires exclusion of reversionary interest)
- Yamaha Corp. of America v. State Bd. of Equalization, 19 Cal.4th 1 (1998) (agency interpretations not binding; duty to independently interpret statute)
- De Luz Homes v. County of San Diego, 45 Cal.2d 546 (1955) (see above (duplicate listed for emphasis))