Los Angeles County Super. Ct. No. LC073339. Judge: Michael B. Harwin. Ct.App. 2/3 B190957
The opinion of the court was delivered by: Chin, J.
Review Granted XXX 155 Cal.App.4th 1082
Article XIII A of the California Constitution (article XIII A), which the voters adopted in June 1978 as Proposition 13, limits the ad valorem tax on real property to 1 percent of the property's "full cash value." (Id., § 1, subd. (a).) As relevant here, section 2, subdivision (a), of article XIII A (sometimes hereafter section 2, subdivision (a)), defines "full cash value" as the 1975-1976 assessed value of the property adjusted for inflation, or the appraised value of the property upon a "change in ownership" occurring after the 1975-1976 assessment. The issue this case presents is whether a "change in ownership" occurred within the meaning of this section upon the death of a trust settlor who transferred her residence to a trust that was revocable during her life, who was the sole present beneficiary of that revocable trust, and who provided in the trust document that upon her death the trust would become irrevocable and her sister would have the right to occupy the residence during her lifetime. Preliminarily, we must determine whether the settlor's surviving sister properly filed this action to challenge an administrative determination that a change in ownership occurred. The Court of Appeal here held that the surviving sister properly filed the action and that no change in ownership occurred. For reasons set forth below, we reverse the Court of Appeal's judgment.
During her lifetime, Esther Helfrick established a revocable trust, made herself trustee and sole present beneficiary of the trust, and transferred to herself as trustee her residence in Sherman Oaks, California. The trust became irrevocable upon Helfrick's death on March 24, 2001. At that time, under the terms of the trust, Helfrick's sister, plaintiff Lorraine Steinhart, received the right to occupy and use the residence "for so long as she lives," provided she pay all taxes, insurance, and assessments on the property and the costs of utilities and any necessary repairs. Upon Steinhart's death, the trustees of the trust were to sell the residence and disburse the net proceeds to those specified in the trust instrument, i.e., Helfrick's siblings still living at the time of Steinhart's death and the still- living issue of any deceased siblings.
When Helfrick died, the residence's assessed value for tax purposes was $96,638, with total taxes due of $1,105.79. Upon her death, defendant County of Los Angeles (County) reassessed the residence and increased its valuation for tax purposes to $499,000. It then issued a prorated supplemental tax bill for the 2000-2001 tax year in the amount of $1,085.19. For the next three tax years, the County sent property tax bills of, respectively, $5,492.67, $5,764.45, and $6,245.33. Pursuant to the terms of the trust, Steinhart paid these bills.
On July 24, 2004, Steinhart filed a claim with the Los Angeles County Auditor-Controller (County Auditor) seeking a tax refund of $18,587.64.*fn2 In stating the reasons for her refund claim, she asserted that when she received a life estate interest in the residence, no "change in ownership" occurred within the meaning of section 2, subdivision (a), to trigger reassessment.
Steinhart later received five letters from the County Auditor relating to the challenged tax bills, each dated March 2, 2005, and each stating: "The County has completed its review of your claim(s) for refund of taxes and/or penalties you filed with us on DECEMBER 21, 2004. [¶] Your claim(s) was reviewed by the ASSESSOR. Based on the documentation you submitted, they [sic] determined that your claim does not meet the provisions in the Revenue and Taxation Code for granting a refund. For this reason, your claim(s) for refund is denied effective March 2, 2005. [¶] Section 5141 of the State of California Revenue and Taxation Code allows you six months from the effective date of denial of your claim(s) to commence an action in the Superior Court to seek judicial review of this denial. Should you have any questions or need further assistance regarding this claim please contact the Los Angeles County Property Tax System at (888) 807-2111 and press 1 for the OFFICE OF THE ASSESSOR." Steinhart also received a letter from the County Assessor (Assessor) dated March 3, 2005, stating that the reappraisal would "stand" because "[t]he real property transfer is a `Change in Ownership', as defined by law." The letter provided the name and telephone number of a person Steinhart could contact "[i]f [she] ha[d] questions." At the bottom, it also included the following: "NOTICE: This notice is your record of our action on your request for investigation. It is your responsibility to pay all billed tax installments. Disputes involving the assessed value of your property should be formally addressed to the Assessment Appeals Board at (213) 974-1471. If we have indicated that a correction is being made, you have 60 days from the date of your corrected tax bill to file an appeal."
Steinhart did not pursue the matter with the Los Angeles County Assessment Appeals Board (Assessment Appeals Board). Instead, on August 29, 2005, she filed an action against the County in superior court contesting the reassessment. She alleged that the County had erred in denying her refund claim because, under the terms of the trust, no change in ownership occurred upon Helfrick's death to trigger reassessment under section 2, subdivision (a). By way of relief, Steinhart sought recovery of the excess real property taxes she had paid on the residence for the years in question. She also requested "a declaration that pursuant to the terms of the trust instrument, no change [in] ownership occurred as of the date of [Helfrick's] death, and hence, defendants were not legally authorized to tax the residence based on a reevaluation of the property as of the date of [Helfrick's] death."
The County responded by way of demurrer, asserting that the complaint failed to state a cause of action for the following reasons: (1) Steinhart did not exhaust her administrative remedies before filing suit; (2) under Revenue and Taxation Code section 60,*fn3 which defines a "change in ownership" as "a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest," the transfer of a life estate to a non-spouse third party constitutes a change in ownership under section 2, subdivision (a); and (3) the court lacked power to issue the requested order for declaratory relief, because the requested order would, in violation of section 4807, prevent or enjoin the collection of the tax. In opposition to the demurrer, Steinhart argued the following: (1) because her claims present no issues of fact, and the reassessment is a nullity as a matter of law, she was not required to exhaust her administrative remedies; (2) the County is estopped from invoking the exhaustion doctrine, because the denial letters she received from the County led her to believe the next step in the review process was the filing of an action in superior court within six months of the County's denial; (3) under Pacific Southwest Realty Co. v. County of Los Angeles (1991) 1 Cal.4th 155 (Pacific Southwest), no change in ownership occurred upon Helfrick's death; and (4) section 4807 is inapplicable because the complaint seeks a refund of paid taxes, not a prohibition against collection of future taxes. After hearing, the trial court sustained the demurrer without leave to amend, dismissed the complaint with prejudice, and ordered entry of judgment for the County.*fn4
On Steinhart's appeal, the Court of Appeal reversed. For two reasons, it first rejected the County's reliance on the exhaustion doctrine: (1) Steinhart's claims present pure questions of law, not factual issues regarding the property's valuation; and (2) the futility exception to the exhaustion requirement applies given the County's "unyielding position," both in the trial court and on appeal, that a change in ownership occurred.*fn5 The court next rejected the County's reliance on section 4807, finding the statute inapplicable because Steinhart is seeking not to enjoin collection of future taxes, but to obtain a refund of taxes she has already paid. In other words, she is seeking a judicial declaration "only in aid of obtaining a refund, i.e., a ruling from the court to the effect that no change in ownership occurred and therefore the County was not authorized to reassess the subject real property." On the merits, the court, relying on our decision in Pacific Southwest, found that no change in ownership occurred upon Helfrick's death. In reaching this conclusion, the court expressly disagreed with the decision in Leckie v. County of Orange (1998) 65 Cal.App.4th 334, which reached a different conclusion on analogous facts after finding the relevant discussion in Pacific Southwest to be dicta.
We then granted the County's petition for review.
As noted above, the County raises both procedural and substantive issues in opposition to plaintiff's refund claim. We begin with the procedural issues: whether plaintiff failed to exhaust her administrative remedies and, if so, whether that failure bars her action.
I. Exhaustion of Administrative Remedies
Article XIII of the California Constitution (article XIII), which addresses taxation, specifies that "[t]he county board of supervisors, or one or more assessment appeals boards created by the county board of supervisors, shall constitute the county board of equalization for a county." (Art. XIII, § 16.) It further provides, with exceptions not applicable here, that "the county board of equalization . . . shall equalize the values of all property on the local assessment roll by adjusting individual assessments." (Ibid.) As our courts have observed, in view of these provisions, a county board of equalization "is a constitutional agency exercising quasi-judicial powers. [Citation.]" (International Medication Systems, Inc. v. Assessment Appeals Bd. (1997) 57 Cal.App.4th 761, 766; see also Maples v. Kern County Assessment Appeals Bd. (2002) 96 Cal.App.4th 1007, 1013 ["as a board of equalization," county assessment appeals board "is a constitutional agency exercising quasi-judicial powers delegated to it by the California ...