(Santa Cruz County Super. Ct. No. CV154719). Trial Judge: Honorable Robert B. Atack.
The opinion of the court was delivered by: McAdams, J.
See Concurring Opinion and Concurring and Dissenting Opinion
CERTIFIED FOR PUBLICATION
In this case of first impression, we are called upon to interpret Proposition 60, voter-enacted constitutional tax relief implemented through legislation. (Cal. Const., art. XIII A, § 2, subd. (a); Rev. & Tax. Code, § 69.5.) Proposition 60 allows qualified homeowners to transfer the property tax basis of their principal residence to a replacement dwelling of equal or lesser value. The dispute in this case concerns valuation of the replacement dwelling. The specific issue before us is this: When an applicant for Proposition 60 tax relief builds a new residence on land purchased years earlier, is the value of the replacement dwelling calculated using the land's current value (its fair market value when construction is complete) or the land's historic value (its base year value under Proposition 13)? We conclude that the land must be valued currently, as of the date that construction of the structure is completed. We therefore reverse the summary judgment granted to the homeowners here.
The parties to this appeal are plaintiffs and respondents Kenneth Wunderlich and Jeanette Englehart (the homeowners), and defendants and appellants the County of Santa Cruz and its assessor (the County). The pertinent facts are undisputed.*fn1
The homeowners owned a home at 520 Stagg Lane, Santa Cruz (the original property). They sold the original property in January 2004 for $830,000. At that time, it had a property tax basis of $187,922.
The homeowners also owned a lot across the street at 521 Stagg Lane, which they purchased in 1979; they constructed a new home on the lot, which was completed in June 2004 (the replacement dwelling). After construction was complete, the County assessed the replacement dwelling at $730,877 for property tax purposes under Proposition 13, specifying improvements at $668,400 and land at $62,477 (its base year value).
The homeowners applied to the County for transfer of the property tax basis of their original property to the replacement dwelling. For Proposition 60 purposes, the County assessed the replacement dwelling at $900,000, specifying improvements at $668,400 and land at $231,600 (its then current fair market value). Since the assessed value of the replacement dwelling exceeded 105 percent of the value of the original property, the County refused to transfer the homeowners' property tax basis to the replacement dwelling.
After exhausting administrative appeals, the homeowners sued the County, seeking declaratory, injunctive, and writ relief. The County interposed a demurrer, which the court overruled.
In April 2007, the homeowners moved for summary judgment. The court granted the motion. In October 2007, the court entered judgment for the homeowners.
The County filed this timely appeal from the judgment. We granted four requests for leave to file briefs as amici curiae.*fn2 We also granted two requests for judicial notice.*fn3
The County contends that it correctly valued the land component of the replacement dwelling for Proposition 60 purposes. In support of its contention, the County cites the language of the governing provisions, the intent of the initiative and its implementing legislation, and instructions concerning the assessment of replacement dwellings issued by the State Board of Equalization (the Board).
The homeowners disagree. In their view, the applicable statute directs the County to use the same method of assessing the land both for Proposition 13 and for Proposition 60.
To establish the proper framework for our analysis, we first summarize pertinent general principles of property taxation before turning to the specific provisions at issue here.
I. Overview: Property Taxation
In California, all nonexempt property is subject to ad valorem taxation. (Jensen v. Byram (1964) 229 Cal.App.2d 651, 652, disapproved on another point in Bauer-Schweitzer Malting Co. v. City and County of San Francisco (1973) 8 Cal.3d 942, 948; Rev. & Tax. Code, §§ 201, 2202.)*fn4 ―An ad valorem tax is a tax levied on property in proportion to its value, as determined by assessment or appraisal.‖ (American Airlines, Inc. v. County of San Mateo (1996) 12 Cal.4th 1110, 1124.)
The starting point for assessing property is its full value. ― ‗Full value' means fair market value, full cash value, or such other value standard as is prescribed by the Constitution or [the Revenue and Taxation Code] under the authorization of the Constitution.‖ (§ 110.5; see ITT World Communications, Inc. v. County of Santa Clara (1980) 101 Cal.App.3d 246, 251.)
Assessed value is derived from full value. It is determined as a percentage of the property's full value, either its ―fair market value‖ or ―a value standard other than fair market value‖ where constitutionally authorized. (Cal. Const., art. XIII, § 1, subd. (a); City and County of San Francisco v. County of San Mateo (1995) 10 Cal.4th 554, 565, fn. 5; id. at p. 566; 1 Ehrman & Flavin, Taxing Cal. Property (4th ed., 2008) § 3:1, p. 3-2, fn. 1.)
The California ―Constitution requires all property subject to taxation to be assessed at the same percentage of . . . value; i.e., there must be uniformity of assessment.‖ (Shafer v. State Bd. of Equalization (1985) 174 Cal.App.3d 423, 429, discussing Cal. Const., art. XIII, § 1.) ―Adjustment of assessment levels of various categories of property to a uniform percentage of full value is called equalization.‖ (American Airlines, Inc. v. County of San Mateo, supra, 12 Cal.4th at p. 1124, internal quotation marks omitted.)
It is the Board's function ―to equalize on the basis of fractional assessments to full cash value.‖ (Hanks v. State Board of Equalization (1964) 229 Cal.App.2d 427, 432; Cal. Const., art. XIII, § 18.) To carry out that function, the Board is charged with prescribing ―rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing‖ property. (Gov. Code, § 15606, subd. (c).) The Board is also required to ―issue instructions to assessors designed to promote uniformity throughout the state and its local taxing jurisdictions in the assessment of property for the purposes of taxation.‖ (Id., subd. (e); see also Gov. Code, § 15608.)
3. Assessment of Real Property
For taxation purposes, real property includes both land and improvements. (§ 104; see also § 69.5, subd. (g)(3); Cal. Const., art. XIII A, § 2, subd. (a).) The two components are ―separately assessed.‖ (§ 607; Cal. Const., art. XIII, § 13.) Both are subject to taxation. (Jensen v. Byram, supra, 229 Cal.App.2d at p. 652 [county could recover taxes as escaped assessments, where ―land was assessed and taxes were paid, but through oversight, there was no assessment of improvements‖].) The separate assessment provisions mandate ―that the distinction be carried into the tax rolls for the purpose of equalizing separately the assessments on land and on improvements.‖ (Krouser v. County of San Bernardino (1947) 29 Cal.2d 766, 769.)
―In 1978, the voters adopted Proposition 13, which became article XIII A of the California Constitution. Article XIII A limits both the valuation of real property for tax purposes and the maximum tax rate that can be imposed on the resulting real property valuation.‖ (City and County of San Francisco v. County of San Mateo, supra, 10 Cal.4th at p. 561.) ―Article XIII A's purpose was to restrict the taxation of real property generally by limiting the growth in valuation of real property and by limiting the maximum tax rate imposed on real property.‖ (Id. at p. 569.)
Under Proposition 13, a base year value for real property is established, which is dependent on the property acquisition date. (§ 110.1.) For property owned at the 1975 lien date, Proposition 13 limits its value ―to the 1975-1976 ‗full cash value' of the property, increased for inflation by a maximum of 2 percent annually.‖ (City and County of San Francisco v. County of San Mateo, supra, 10 Cal.4th at p. 561, citing art. XIII A, § 2, subds. (a) & (b); see § 110.1, subd. (a)(1).) For property acquired after 1975, the base year value is determined as of the date of purchase, new construction, or change in ownership. (§§ 110.1, subd. (a)(2), 75.8; City and County of San Francisco v. County of San Mateo, at pp. 565-566.) As with property owned at the 1975 lien date, the base year value of these later-acquired properties will increase at a maximum rate of two percent per year. (§§ 110.1, subd. (f), 51, subd. (a); Cal. Code Regs., tit. 18, § 460, subd. (b)(5).)
Proposition 13 thus ―established an ‗acquisition value' tax for real property in California.‖ (1 Ehrman & Flavin, Taxing Cal. Property, supra, § 3:1, p. 3-2.) In other words, ―Proposition 13 abandons the annual lien date revaluation principle.‖ (Id., § 11:2, p. 11-3.) Under Proposition 13, ―the only time full cash value equals fair market value is in the year when real property subject to appraisal at fair market value is first purchased, newly constructed, or otherwise changes ownership.‖ (City and County of San Francisco v. County of San Mateo, supra, 10 Cal.4th at p. 566.) But additions, alterations, or other changes to existing property may trigger a partial reassessment under Proposition 13, such that a new base year value will be established for the newly constructed portion of the property. (§ 71; Cal. Code Regs., tit. 18, § 463, subd. (a); see generally 2 Ehrman & Flavin, Taxing Cal. Property, supra, § 23:10, pp. 23-15 to 23-16.)
In addition to its constraints on valuation, Proposition 13 also ―limits the maximum tax rate to 1 percent.‖ (City and County of San Francisco v. County of San Mateo, supra, 10 Cal.4th at p. 561, citing art. XIII A, § 1, subd. (a).)
C. Subsequent Tax Relief Initiatives
In a series of voter-enacted initiatives that followed the approval of Proposition 13, the California electorate authorized the Legislature to permit the transfer of a property's base year value to a replacement property under some circumstances. (See generally, 1 Ehrman & Flavin, Taxing Cal. Property, supra, § 11:11, pp. 11-17 to 11-19.)
In November 1986, the voters approved Proposition 60, the measure at issue here. In brief, Proposition 60 is a constitutional amendment authorizing legislation to permit qualified homeowners over 55 years of age (seniors) to transfer their base year value to a replacement dwelling of equal or lesser value within their county. (Cal. Const., art. XIII A, § 2, subd. (a).) In November 1988, the voters approved Proposition 90, a further constitutional amendment enabling the transfer of base year values between counties, upon the adoption of implementing legislation and of qualifying local ordinances. (Ibid.) In the 1990s, California's voters authorized the extension of base-year transfers to two other classes of property owners besides seniors: disabled homeowners and owners of contaminated property.*fn5
The Legislature implemented these constitutional provisions. As relevant here, section 69.5 governs transfers of base year values by seniors.*fn6
II. Proposition 60: Overview
As just noted, Proposition 60 arose from a voter initiative amending the California Constitution, which the Legislature ...