Elk Hills Power v. Board of Equalization
57 Cal. 4th 593
| Cal. | 2013Background
- Elk Hills Power owns and operates a Kern County power plant; ERCs were purchased to authorize construction and operation.
- ERCs are intangible rights; assessors may not directly tax intangibles but may reflect them via valuation to put property to use.
- Board valued the plant using replacement cost and income capitalization approaches; added ERCs to replacement cost base.
- Dispute centered on whether 110(d) and 110(e) can be applied together and whether ERCs could be removed from the valuation when using 110(d)(2).
- Legislative history and Roehm framework provide that intangibles are not directly taxable but may influence valuation; 212(c) exempts intangibles from direct taxation.
- Court held that 110(d) and 110(e) apply together and that ERCs must not be directly taxed; under replacement cost, the ERCs’ value cannot be added to the unitary value.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can 110(d) and 110(e) be applied together? | Elk Hills: they are mutual exclusive by preamble, so only 110(e) applies. | Board/County: they are compatible and both apply with no conflict. | They can be harmonized and applied together. |
| Whether ERCs may be included in replacement cost valuation. | Including ERCs in base value directly taxes intangibles and violates 110(d). | Assuming presence of intangibles is permissible under 110(e) to reflect productive use. | Improper to include ERCs in replacement cost; must deduct under 110(d)(2). |
| Whether the income approach required deducting ERCs from the income stream. | ERCs may contribute to enterprise value; must remove a separate income stream attributed to ERCs. | ERCs do not create a separate income stream attributable to enterprise activity. | No deduction required for ERCs under the income approach; they do not create a separate income stream. |
| Role of 212(c) and whether intangibles are directly taxed. | Intangibles exempt from taxation; but valued via presence for use; must avoid direct taxation. | Intangibles may influence valuation under 212(c) while not being directly taxed. | Intangible rights are exempt from direct taxation; may be reflected in valuation if necessary for use. |
| Did 110(f) salvage the replacement cost valuation? | If ERCs are intangible attributes of real property under 110(f), they may be reflected. | 110(f) not compatible with 212(c); cannot justify ERC inclusion. | Section 110(f) does not validate the Board’s replacement-cost treatment; must remove ERCs. |
Key Cases Cited
- Roehm v. County of Orange, 32 Cal.2d 280 (Cal. 1948) (found intangibles not directly taxable but may affect valuation)
- Michael Todd Co. v. County of Los Angeles, 57 Cal.2d 684 (Cal. 1962) (going-concern value may be reflected in valuation without taxing intangibles directly)
- GTE Sprint Communications Corp. v. County of Alameda, 26 Cal.App.4th 992 (Cal. App. 1994) (distinguishes intangible assets’ effect on income vs. direct valuation)
- Los Angeles SMSA Limited Partnership v. State Bd. of Equalization, 11 Cal.App.4th 768 (Cal. App. 1992) (illustrates valuing property while recognizing presence of intangibles)
- County of Stanislaus v. County of Stanislaus Assessment Appeals Bd., 213 Cal.App.3d 1445 (Cal. App. 1989) (income approach and entitlement considerations in unit valuation)
- American Sheds, Inc. v. County of Los Angeles, 66 Cal.App.4th 384 (Cal. App. 1998) (mixed treatment of intangibles in income-based valuation)
- Mitsui Fudosan, Inc. v. County of Los Angeles, 219 Cal.App.3d 525 (Cal. App. 1990) (intangibles as attributes of real property; section 110(f) discussion)
- Shubat v. Sutter County Assessment Appeals Bd. No. 1, 13 Cal.App.4th 794 (Cal. App. 1993) (distinguishes locational/intangible attributes from business rights)
- County of Orange v. Orange County Assessment Appeals Bd. No. 1, 13 Cal.App.4th 524 (Cal. App. 1993) (intangible effects on valuation framework)
- County of Los Angeles v. County of Los Angeles Assessment Appeals Bd. No. 1, 13 Cal.App.4th 102 (Cal. App. 1993) (valuation of property with enterprise-related intangibles)
- Roehm v. County of Orange, 32 Cal.2d 280 (Cal. 1948) (found intangibles largely exempt from direct taxation; framework for 110(d)/(e))