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Keywords

appealtriallease

statutewilllease

Related Cases

California State Teachers’ Retirement System v. County of Los Angeles, 216 Cal.App.4th 41, 156 Cal.Rptr.3d 545, 13 Cal. Daily Op. Serv. 4592, 2013 Daily Journal D.A.R. 5857

Facts

STRS, a public entity exempt from property taxation, owned a building in Los Angeles and leased a portion of it to private tenants. The County assessed property taxes on the lessee's possessory interest based on a statutory method that included the full cash value of the property, which STRS argued was unconstitutional. STRS and its tenant challenged the assessment, seeking a refund of the taxes paid, claiming the valuation method was flawed and unconstitutional.

In January 1998, Dong Eil Kim and Chang Nim Kim, doing business as Mail Boxes, Etc. (collectively, Kim) entered into a five-year lease with STRS for a retail space consisting of 1,280 square feet on the ground floor of the building.

Issue

Does the statutory valuation method for assessing property taxes on leasehold interests in public land violate constitutional prohibitions against taxing publicly owned property and against assessing property in excess of its fair market value?

Does [STRS], which is exempt from property taxation and which paid the property tax assessed to its lessee, have standing to challenge the lessee's tax assessment? and (2), if this court can reach the merits of the controversy, does … section 7510, subdivision (b)(1) fail to tax a lessee's taxable possessory interest in accordance with the possessory interest's fair market value so as to render the statute's valuation methodology unconstitutional?

Rule

The court applied constitutional provisions that exempt publicly owned property from taxation and require that property be assessed at its fair market value.

The statutory scheme clearly contemplates that one person may pay property taxes on the property of another.

Analysis

The court found that the statutory method of assessing the lessee's possessory interest included the value of the publicly owned property, which is exempt from taxation. This method effectively taxed the public property itself, violating the constitutional prohibition against such taxation. Additionally, the court determined that the assessment exceeded the fair market value of the lessee's interest, further contravening constitutional requirements.

Under the statute, the exempt remainder or reversionary interest, belonging to the public retirement system owner, is included in the assessment of the lessee's possessory interest. Consequently, the statute violates the prohibition against assessing property taxes on publicly owned real property (Cal. Const., art. XIII, § 3 (a)), as well as the prohibition on assessing property in excess of its fair market value.

Conclusion

The Court of Appeal reversed the trial court's judgment and remanded the case, directing that the assessment method be reevaluated in light of constitutional standards.

Therefore, the judgment will be reversed and the matter remanded for further proceedings.

Who won?

California State Teachers' Retirement System (STRS) prevailed because the court found the County's assessment method unconstitutional, violating both the prohibition against taxing public property and the requirement to assess property at fair market value.

STRS contends section 7510, subdivision (b)(1), violates the California Constitution because: (1) it does not value taxable possessory interests in accordance with their fair market value; (2) it taxes property exempt from taxation; (3) its classification of taxpayers violates equal protection; (4) its valuation methodology is not uniform in its application to all similarly situated taxpayers.

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