Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2014
 

Revenue and Taxation Code

Property Taxation

Part 1. General Provisions

Chapter 1. Construction

Section 107.7

107.7. Valuation of cable television and video service interests. (a) When valuing possessory interests in real property created by the right to place wires, conduits, and appurtenances along or across public streets, rights-of-way, or public easements contained in either a cable franchise or license granted pursuant to Section 53066 of the Government Code (a "cable possessory interest") or a state franchise to provide video service pursuant to Section 5840 of the Public Utilities Code (a "video possessory interest"), the assessor shall value these possessory interests consistent with the requirements of Section 401. The methods of valuation shall include, but not be limited to, the comparable sales method, the income method (including, but not limited to, capitalizing rent), or the cost method.

(b) (1) The preferred method of valuation of a cable television possessory interest or video service possessory interest by the assessor is capitalizing the annual rent, using an appropriate capitalization rate.

(2) For purposes of this section, the annual rent shall be that portion of that franchise fee received that is determined to be payment for the cable possessory interest or video service possessory interest for the actual remaining term or the reasonably anticipated term of the franchise or license or the appropriate economic rent. If the assessor does not use a portion of the franchise fee as the economic rent, the resulting assessments shall not benefit from any presumption of correctness.

(c) If the comparable sales method, which is not the preferred method, is used by the assessor to value a cable possessory interest or video service possessory interest when sold in combination with other property, including, but not limited to, intangible assets or rights, the resulting assessments shall not benefit from any presumption of correctness.

(d) Intangible assets or rights of a cable system or the provider of video services are not subject to ad valorem property taxation. These intangible assets or rights include, but are not limited to: franchises or licenses to construct, operate, and maintain a cable system or video service system for a specified franchise term (excepting therefrom that portion of the franchise or license which grants the possessory interest); subscribers, marketing, and programming contracts; nonreal property lease agreements; management and operating systems; a work force in place; going concern value; deferred, startup, or prematurity costs; covenants not to compete; and goodwill. However, a cable possessory interest or video service possessory interest may be assessed and valued by assuming the presence of intangible assets or rights necessary to put the cable possessory interest or video service possessory interest to beneficial or productive use in an operating cable system or video service system.

(e) If a change in ownership of a cable possessory interest or video service possessory interest occurs, the person or legal entity required to file a statement pursuant to Section 480, 480.1, or 480.2 shall, at the request of the assessor, provide as a part of that statement the following, if applicable: confirmation of the sales price, allocation of the sales price among the counties, and gross revenue and franchise fee expenses of the cable system or video service system by county. Failure to provide the statement information shall result in a penalty as provided in Section 482, except that the maximum penalty shall be five thousand dollars ($5,000).

History.—Added by Stats. 1988, Ch. 1630, in effect January 1, 1989. Stats. 2006, Ch. 700 (AB 2987), in effect January 1, 2007, added "either" after "easements contained in" and substituted "cable franchise" for "cable television franchise" before "franchise or license", substituted "cable possessory interest" for "cable television possessory interest" after "Government Code (a", added "or a state franchise to provide video service pursuant to Section 5840 of the Public Utilities Code (a "video possessory interest")" after "possessory interest")" in the first sentence of subdivision (a); added "or video service possessory interest by the assessor" after "television possessory interest" in the first sentence of paragraph (1) of subdivision (b); deleted "by the franchising authority" after "franchise fee received" and added "or video service possessory interest" after "television possessory interest" in the first sentence of paragraph (2) of subdivision (b); substituted "cable possessory interest or video service" for "cable television" after "to value a" in the first sentence of subdivision (c), substituted "cable system or the provider of video services" for "cable television" after "rights of a" in the first sentence, substituted "cable system or video service system" for "cable television system" after "and maintain a" in the second sentence, and substituted "cable possessory interest or video service" for "cable television" twice after "However, a" and after "to put the," and substituted "cable system or video service" for "cable television" after "in an operating" in the third sentence of subdivision (d); and substituted "cable possessory interest or video service" for "cable television" after "ownership of a" and substituted "cable system or video service" for "able television" after "expenses of the" in the first sentence of subdivision (e). Stats. 2007, Ch. 123 (AB 1715), in effect January 1, 2008, deleted "television" after "for the cable" in the first sentence of paragraph (2) of subdivision (b). Stats. 2008, Ch. 179 (SB 1498), in effect January 1, 2009, substituted "possessory" for "posessory" after "video service" in the first sentence of subdivision (b); added a comma after "with other property" in the first sentence of subdivision (c); deleted a comma after "assets or rights", substituted "a workforce" for "a work force" after "operating systems;", and substituted semi-colons for commas in the second sentence of subdivision (d); and substituted "If a" for "Whenever any" before "change in ownership", deleted a comma after "408.1, or 408.2" and substituted a semicolon for a comma twice after "the sales price" and "among the counties" in the first sentence and substituted "the statement" for "this" after "Failure to provide" in the second sentence of subdivision (e).

Note.—Section 1 of Stats. 1988, Ch. 1630, provided that after investigation, the Legislature finds and declares as follows:

(a) The cable television industry is an important news, entertainment, education, and information service whose economic health and continued growth and development are in the best interests of the people of the State of California and are matters of statewide concern. (b) A cable television system is in the business of providing news, entertainment, education, and information services to its subscribers. (c) Intangible rights and assets are exempt from property taxation. (d) Possessory interests of cable television systems do not sell by themselves. (e) A significant portion of the fair market value of a cable television system may be attributable to intangible assets and rights in addition to the ownership of real and personal property. These intangible assets and rights may include, but are not limited to, franchises or licenses to construct, operate, and maintain a cable television system for a specified franchise term (excepting therefrom that portion of the franchise or license which grants the possessory interest), subscriber contracts, marketing and programming contracts, nonreal property lease agreements, management and operating systems, a work force in place, going concern value, deferred, startup, or prematurity costs, covenants not to compete, and goodwill. (f) It is the intent of the Legislature in enacting this act to provide uniformity and certainty in the assessment of any real property possessory interests of a cable television system by providing a method for possessory interest assessment which does not include the value of any intangible assets of a cable television system, but values only real property subject to property tax in accordance with Article XIII and Section 1 of Article XIII A of the California Constitution. (g) This act is not intended and shall not be construed to affect the existing standard of review of an administrative decision in any judicial proceeding. Section 3 thereof provided that it is the intent of the Legislature in enacting this act to clarify the application of existing law and provide uniformity and certainty in the assessment of cable television possessory interests. It is the further purpose and intent of the Legislature in enacting this act to prohibit an assessment policy that equates any cable television possessory interest with the franchise or license itself or with other intangible assets or rights of a cable television system. Nothing in this act shall be construed as requiring the assessment of any cable television possessory interest at a value less than as required by Section 401 of the Revenue and Taxation Code or as prohibiting the assessment of a cable television possessory interest as an asset put to beneficial or productive use in an operating cable television system. Section 4 thereof provided that if any section, subdivision, sentence, clause, or phrase of this act or the application thereof to any person or circumstance is held to be unenforceable by a court of competent jurisdiction, that section, subdivision, sentence, clause, or phrase and the remainder of this act shall remain effective and enforceable to the fullest extent allowed by law, and all sections, subdivisions, sentences, clauses, or phrases of this act are hereby declared to be severable. The Legislature declares that it would have passed this act and each section, subdivision, sentence, clause, or phrase thereof, irrespective of the fact that any one or more sections, subdivisions, sentences, clauses, or phrases is held to be unenforceable.

Note.—Section 5 of Stats. 2006, Ch. 700 (AB 2987) provided that the Legislature finds and declares as follows:

(a) It is the intent of the Legislature that video service providers shall pay as rent a franchise fee to the local entity in which service is being provided for the continued use of streets, public facilities, and other rights-of-way of the local entity in order to provide service.

(b) It is the intent of the Legislature that securing a state franchise by a cable television operator or video service provider pursuant to this act shall not affect the existing requirements governing the valuation of possessory interests as set forth in Section 107.7 of the Revenue and Taxation Code. Furthermore, nothing in this act shall be construed to change the existing jurisdiction of the State Board of Equalization and county assessors with respect to the assessment of these properties for property tax purposes.

Construction.—This section, which codified case law holding that a cable television company's rights-of-way under the authority granted by public entities constitute an assessable franchise subject to property tax, was inapplicable to assessments for the 1982–83 through 1985–86 fiscal years since the county's right to the taxes at issue became fixed on the lien dates of the fiscal years to which they related, which dates preceded enactment of the section. Stanislaus County v. Assessment Appeals Board, 213 Cal.App.3d 1445.

Valuation.—County assessment appeals board did not err in separating cable television system's property into land and land improvements, fixtures, and personal property rather than considering all the property as one appraisal unit for valuation purposes. Section 51 does not mandate appraisal of the property as a single unit. To the contrary, applicable law suggests that rationally dividing property into component parts for valuation purposes is proper. Orange County v. Orange County Assessment Appeals Board No. 1, 13 Cal.App.4th 524.

Approaches to value.—County assessment appeals board did not err in rejecting the comparable sales approach and the income approach when valuing taxable tangible property of a cable television system. The selection of a particular method is within the board's discretion and is constrained only by fairness and uniformity. Thus, use of the income capitalization method using the annual franchise rent was appropriate for valuing the taxpayer's possessory interest, and use of the cost replacement method was appropriate for valuing the remainder of the property, where the board found that neither the comparable sales approach nor the income approach was a reliable method for the property. Orange County v. Orange County Assessment Appeals Board No. 1, 13 Cal.App.4th 524.

Term of possession.—The duty to assess real property at its fair market value requires consideration of evidence that the term of the possessory interests exceeds the stated lease term. There was clear and convincing evidence of a mutual understanding between the county 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 mandate to assess property at fair market value, including possessory interests under Revenue and Taxation Code Section 107.7, required the county assessor to consider evidence that the leases would be extended beyond their stated terms. Charter Communications Properties, LLC v. County of San Luis Obispo (2011) 198 Cal.App.4th 1089.