Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2012
 

Revenue and Taxation Code

Property Taxation

Part 1. General Provisions

Chapter 1. Construction

Section 107.2

107.2. Valuation of certain oil and gas interests. The full cash value of leasehold estates in exempt property for the production of gas, petroleum and other hydrocarbon substances from beneath the surface of the earth, and all other taxable rights to produce gas, petroleum and other hydrocarbon substances from exempt property (all of which rights are hereinafter in this section referred to as "such oil and gas interests"), is the value of such oil and gas interests exclusive of the value of any royalties or other rights to share in production from exempt property owned by any tax-exempt entity, whether receivable in money or property and whether measured by or based upon production or income or both.

This section applies to such oil and gas interests created prior to the date on which the decision in De Luz Homes, Inc. v County of San Diego (1955) 45 Cal.2d 546, became final. This section does not, however, apply to any of such oil and gas interests created prior to such date which have been after such date or are hereafter extended or renewed, unless such extension or renewal is pursuant to authority in a contract, lease, statute, regulation, city charter, ordinance, or other source, which authority permits no reduction of the rate of royalty or other right to share in production on grounds of an increase in the assessed valuation of such oil and gas interest. Moreover, this section does not apply to any of such oil and gas interests if the rate of royalties or other right to share in production has, prior to the effective date of this section, been reduced to adjust for the fact that certain assessors have valued such oil and gas interests without excluding the value of said royalties or other rights to share in production.

History.—Added by Stats. 1967 p. 4218, in effect November 8, 1967.

Construction.—This section and section 107.3 constitute a valid exercise of the Legislature's power to avert hardship caused by a retroactive application of a change in assessment practice. Atlantic Richfield Co. v. Los Angeles County, 68 Cal.App.3d 105. In passing this section and Section 107.3, the Legislature intended that they be applicable to the 1967–68 tax year. Retrospective application of the sections did not constitute an unconstitutional gift of public funds where, although tax liens on the leasehold estates had vested prior to the enactment of the sections, the Legislature reasonably concluded such application would serve a valid public purpose in relieving hardship to taxpayers. Atlantic Richfield Co. v. Los Angeles County, 129 Cal.App.3d 287.

This section does not require a county to reduce the value of oil and gas leaseholds from the federal government by an amount equal to the present value of government royalties due under the leases. While it provides that, for oil and gas interests created prior to the date of De Luz Homes, Inc. v. San Diego County, 45 Cal.2d 546, stating a contrary rule, the full cash value of such leasehold estates excludes the royalties, and while the lessee's interests were created prior to that date, the section also provides that it does not apply to extensions or renewals unless the extension or renewal is pursuant to authority permitting no reduction of the royalty rate. Thus, the Legislature intended the statutory relief to apply to extensions or renewals pursuant to provisions denying the lessee the ability to renegotiate in light of De Luz Homes, Inc. v. San Diego County. There was nothing in the terms of the leases at issue or in the federal statutes that prohibited a reduction in royalty on the ground of an increase in the assessed valuation. Oryx Energy Company v. Kern County, 17 Cal.App.4th 48.