Annual Report 2011-2012


Court Decisions

Property Taxes

California Court of Appeal Decisions

Property tax assessment imposed on managers of fractionally owned aircraft is constitutional and lawful.

The Court of Appeal held that the legislation providing for the assessment of personal property tax imposed on managers of fractionally owned aircraft was constitutional and lawful. (See Revenue and Taxation Code, sections 441, 452, 1160, 1161, 1162, 5368, added or amended by Senate Bill No. 87 [2007–2008 Regular Session].) Fractionally owned aircraft are fleets of aircraft that are managed and maintained by an operating company, but ownership is distributed like a time–share. The management company handles all operating requirements of the aircraft, including availability, maintenance, billings, shareowner usage, training, and flight crews. Prior to the enactment of Senate Bill 87, there were no assessment provisions for fractionally owned aircraft used in Fractional Ownership Programs that were based at, or using California airports.

The appellate court held that the managers controlled the fractionally owned aircraft and that the fractionally owned aircraft had a sufficient connection with California to justify the imposition of taxes. The appellate court also held that the tax was fairly apportioned, did not discriminate against interstate commerce, and was fairly related to services provided by California to the managers of the fractionally owned aircraft. However, the appellate court held that the legislation could not constitutionally be applied retroactively because it constituted a new law regarding the assessment of taxes imposed on the managers in control of the fractionally owned aircraft fleets.

NetJets Aviation, Inc. v. Guillory (2012) 207 Cal.App.4th26.

Taxpayer’s sale of property to a private party did not qualify as replacement property for purposes of the eminent domain exclusion from change in ownership.

Revenue and Taxation Code section 68 provides an exclusion from change in ownership for property purchased in replacement of property inversely condemned, sold under eminent domain proceedings, or acquired by a public entity in lieu of eminent domain proceedings. The Court of Appeal affirmed the trial court and the county assessment appeals board’s denial of relief under section 68 because the taxpayer sold real property to a private party rather than a public entity.

Duea v. County of San Diego (2012) 204 Cal.App.4th 691.

Clear and convincing evidence of mutual understanding was demonstrated such that the reasonably anticipated term of possession was longer than the stated term of possession.

The Court of Appeal held that substantial evidence existed to support the trial court’s conclusion that the county assessment appeals board correctly found clear and convincing evidence of a mutual understanding between the local franchising authorities and the owner of cable television franchises that the reasonably anticipated term of possession of the franchises was longer than the stated lease term. The appellate court further held that, under such circumstances, the mandate to assess property at fair market value, including possessory interests under Revenue and Taxation Code section 107.7, permitted the county assessor to consider criteria listed in Property Tax Rule 21, subdivision (d)(2) to establish, by a preponderance of the evidence, a reasonably anticipated term of possession that was otherwise of unspecified duration.

Charter Communications Properties, LLC v. County of San Luis Obispo (2011) 198 Cal.App.4th 1089.

SPECIAL TAXES AND FEES

California Court of Appeal Decisions

Interpretation of the statutory definition of alcoholic beverages is within the exclusive jurisdiction of the Department of Alcoholic Beverage Control (ABC).

The Court of Appeal held that the BOE’s regulations defining “beer” and “distilled spirits” for the purposes of excise taxation were invalid and exceeded its rulemaking authority under Revenue and Taxation Code section 32451. The appellate court ruled that the classification of alcoholic beverages under the Alcoholic Beverage Control Act and the Alcoholic Beverage Tax Law is within the exclusive jurisdiction of the ABC, and the BOE cannot adopt its own definitions for taxation purposes.

Diageo–Guinness USA, Inc. v. Board of Equalization (2012) 205 Cal.App.4th 907.

“Hazardous materials” tax is properly imposed on businesses with 50 or more employees.

The Court of Appeal upheld the validity of a regulation adopted by the DTSC listing the types of businesses with at least 50 employees that use, generate, store, or conduct activities in California related to “hazardous materials” as defined in the Health and Safety Code. The appellate court held that Health and Safety Code section 25205.6 imposes a tax, not a regulatory fee, and does not violate equal protection or substantive due process.

Morning Star Co. v. Board of Equalization (2011) 201 Cal.App.4.th 737.

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