Western States Petroleum etc. v. State Bd. of Equalization
57 Cal. 4th 401
| Cal. | 2013Background
- In 2007 the California State Board of Equalization adopted Rule 474, creating a rebuttable presumption that petroleum refineries (land, improvements, and fixtures) constitute a single appraisal unit for decline‑in‑value (Prop. 8) purposes, departing from the general Rule 461(e) practice of treating fixtures as a separate appraisal unit.
- The Board adopted Rule 474 based on record evidence (county assessors’ testimony and Board staff reports) that refineries are commonly bought and sold as integrated units and that fixtures comprise a large share of refinery value.
- Western States Petroleum Association (WSPA) sued, arguing Rule 474: (1) conflicts with Revenue & Taxation Code § 51(d) and Propositions 13/8; (2) violates the constitutional two‑thirds requirement for tax increases; and (3) is procedurally invalid because the Board’s initial economic‑impact assessment under the California APA was inadequate.
- Trial court and Court of Appeal invalidated Rule 474 on both substantive and procedural grounds; the California Supreme Court granted review.
- The Supreme Court held Rule 474 is substantively consistent with article XIII A, section 2, and § 51(d) (market‑unit appraisal principle), but procedurally invalid because the Board failed to make a reasoned, evidenced initial economic‑impact determination as required by the APA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rule 474 conflicts with § 51(d) and Propositions 13/8 (i.e., whether fixtures must be appraised separately) | WSPA: § 51(d) and pre‑Prop.13 practice codified separate fixture appraisal; board may not bundle land/fixtures to avoid Prop.13 limits | Board: § 51(d) defines appraisal unit by market practice; where refineries sell as a unit, treating land and fixtures together reflects full cash (market) value | Rule 474 is consistent with § 51(d) and Propositions 13/8; market‑unit test permits single‑unit appraisal when supported by evidence |
| Whether Rule 474 violates Prop.13’s cap by taxing unrealized land appreciation (two‑percent cap) | WSPA: bundling lets unrealized land appreciation offset fixture depreciation, effectively reassessing land above base‑year cap | Board: Prop.13 caps growth in the appraised value of the appraisal unit; where unit is land+fixtures, market valuation (including offsets) is proper | No Prop.13 violation; appraisal unit may include land and fixtures if market shows they are sold as one unit |
| Whether the Board’s adoption of Rule 474 amounted to a tax increase requiring a two‑thirds legislative vote (Art. XIII A, § 3) | WSPA: rule causes higher taxes for some owners and thus is functionally a tax increase requiring legislative approval | Board: the Board administers tax laws and has no power to levy taxes; changing assessment method to reflect statute is administrative, not a legislative tax increase | Article XIII A, § 3 does not apply to an administrative rule change implementing existing law; not a two‑thirds statutory enactment |
| Whether the Board complied with the APA economic‑impact and notice requirements | WSPA: Board’s economic estimate was unsupported, opaque, and understated the rule’s tax impact; APA requires a factual basis | Board: relied on staff revenue estimate and record; affected parties could and did comment but offered no reliable contrary estimate | Board failed to make an adequately supported initial determination of economic impact; Rule 474 invalidated on procedural (APA) grounds despite substantive validity |
Key Cases Cited
- Yamaha Corp. of America v. State Bd. of Equalization, 19 Cal.4th 1 (1998) (explains quasi‑legislative vs. interpretive regulation standards and judicial review scope)
- Mahoney v. City of San Diego, 198 Cal. 388 (1926) (separate assessment entries do not require separate market appraisals; market unit governs valuation)
- Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, 22 Cal.3d 208 (1978) (context on Prop.13 assessment regime)
- Auerbach v. Assessment Appeals Bd. No. 1, 39 Cal.4th 153 (2006) (Task Force Report as evidence of legislative intent implementing Prop.13/8)
- Maxwell‑Jolly v. California Assn. of Medical Product Suppliers, 199 Cal.App.4th 286 (2011) (outlines agency obligation to make initial, evidence‑based economic‑impact showing under the APA)
- Carmona v. Division of Industrial Safety, 13 Cal.3d 303 (1975) (interpretive agency action distinguished from quasi‑legislative rulemaking)
- State Bd. of Equalization v. Board of Supervisors, 105 Cal.App.3d 813 (1980) (on valuation method when market values decline)