Laws, Regulations & Annotations
Property Taxes Law Guide – Revision 2011
Property Tax Rules
Title 18, Public Revenues California Code of Regulations
DIVISION 1. STATE BOARD OF EQUALIZATION
CHAPTER 1. STATE BOARD OF EQUALIZATION—PROPERTY TAX
Subchapter 4. Equalization by State Board (370–500)
Article 4. Change in Ownership and New Construction (460–500)
Authority: Section 15606(c), Government Code.
Reference: Article XIII A, Sections 1 and 2, California Constitution.
(a) The right to remove petroleum and natural gas from the earth is a taxable real property interest. Increases in recoverable amounts of such minerals caused by changed physical or economic conditions constitute additions to such a property interest. Reduction in recoverable amounts of minerals caused by production or changes in the expectation of future production capabilities constitute a reduction in the interest. Whether or not physical changes to the system employed in recovering such minerals qualify as new construction shall be determined by reference to Section 463(a).
(b) The market value of an oil and gas mineral property interest is determined by estimating the value of the volumes of proved reserves. Proved reserves are those reserves which geological and engineering information indicate with reasonable certainty to be recoverable in the future, taking into account reasonably projected physical and economic operating conditions. Present and projected economic conditions shall be determined by reference to all economic factors considered by knowledgeable and informed persons engaged in the operation and buying or selling of such properties, e.g., capitalization rates, product prices and operation expenses.
(c) The unique nature of oil and gas property interests requires the application of specialized appraisal techniques designed to satisfy the requirements of Article XIII, Section 1, and Article XIII A, Section 2, of the California Constitution. To this end, the valuation of such properties and other real property associated therewith shall be pursuant to the following principles and procedures:
(1) A base year value (market value) of the property shall be estimated as of lien date 1975 or as of the date a change in ownership occurs subsequent to lien date 1975. Newly constructed improvements and additions in reserves shall be valued as of the lien date of the year for which the roll is being prepared. Improvements removed from the site shall be deducted from taxable value. Base year values shall be determined using factual market data such as prices and expenses ordinarily considered by knowledgeable and informed persons engaged in the operation, buying and selling of oil, gas and other mineral-producing properties and the production therefrom. Once determined, a base year value may be increased no more than two percent per year.
(2) Base year reserve values must be adjusted annually for the value of depleted reserves caused by production or changes in the expectation of future production.
(3) Additions to reserves established in a given year by discovery, construction of improvements, or changes in economic conditions shall be quantified and appraised at market value.
(4) The current year's lien date taxable value of mineral reserves shall be calculated as follows:
(A) The total unit market value and the volume of reserves using current market data shall be estimated.
(B) The current value of taxable reserves is determined by segregating the value of wells, casings, and parts thereof, land (other than mineral rights) and improvements from the property unit value by an allocation based on the value of such properties.
(C) The volume of new reserves shall be determined by subtracting the prior year's reserves, less depletions, from the estimated current total reserves.
(D) The value of removed reserves shall be calculated by multiplying the volume of the reserves removed in the prior year by the weighted average value, for reserves only, per unit of minerals for all prior base years. The prior year's taxable value of the reserves remaining from prior years shall be found by subtracting the value of removed reserves from the prior year's taxable value.
(E) The new reserves are valued by multiplying the new volume by the current market value per unit of the total reserves.
(F) The current taxable value for reserves only is the sum of the value of the prior year's reserves, net of depletions as calculated in (D) above, factored by the appropriate percentage change in the Consumer Price Index (CPI) added to the value of the new reserves, as calculated in (E) above.
(5) Valuation of land (other than mineral reserves) and improvements.
(A) A base year value (market value) of land (including wells, casings and parts thereof) and improvements shall be estimated as of lien date 1975 the date of new construction after 1975, or the date a change of ownership occurs subsequent to lien date 1975.
(B) The value of land (wells, casings and parts thereof) and improvements shall remain at their factored base year value except as provided in (6) below.
(6) Value declines shall be recognized when the market value of the appraisal unit, i.e., land, improvements and reserves, is less than the current taxable value of the same unit.
History: Adopted June 29, 1978, effective July 3, 1978.
Amended effective April 2, 1979.
Amended June 28, 1979, effective July 2, 1979.
Amended and effective June 6, 2001. Deleted reference to repealed rule in subsections (c)(1) and (c)(5).