Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2017

Revenue and Taxation Code

Property Taxation

Part 2. Assessment

Chapter 3. Assessment Generally

Article 1. General Requirements

Section 401

401. Ratio of assessed to full value. Every assessor shall assess all property subject to general property taxation at its full value.

History.—Prior to 1966 this section provided "Except as provided in this part, all taxable property shall be assessed at its full cash value". A succession of amendments from 1966 through 1971 provided that a ratio of assessed value to full cash value of from 20% to 25% be employed and in successive years no less closer to 25% than in the immediate prior year, and that ultimately 25% be employed beginning with the lien date for 1971–72. See: Stats. 1966, p. 658 (First Extra Session), Stats. 1967, p. 942, Stats. 1968, p. 10 (First Extra Session), and Stats. 1971, p. 350. Present wording was enacted by Stats. 1972, p. 2191, in effect March 7, 1973. Stats. 1974, Ch. 311, p. 603, in effect January 1, 1975, substituted "full value" for "full cash value". Stats. 1978, Ch. 1207, in effect January 1, 1979, operative January 1, 1981, deleted "25 percent of" after "taxation at".

Constitutionality.—Article XI, Section 12, of the Constitution does not prohibit the assessment of taxable property by a county at a uniform fraction or ratio of its full cash or market value. Michels v. Watson, 229 Cal.App.2d 404.

Fractional assessments as required by the 1966 amendment to this section are not violative of California Constitution, article XI, section 12, which requires property to be assessed "at its full cash value." This phrase is a term of art and authorizes assessments at a uniform fraction of full cash value. Sacramento County v. Hickman, 66 Cal.2d 841.

"Full cash value", as used in the section, requiring that, with certain exceptions, property be taxed at its "full cash value," means market value. Union Oil Co. v. Ventura County, 41 Cal.App.3d 432; Freeport-McMoran Resource Partners v. Lake County, 12 Cal.App.4th 634.

Construction.—This statutory duty is mandatory. Domenghini v. San Luis Obispo County, 40 Cal.App.3d 689; Simms v. Pope, 218 Cal.App.3d 472. The duties of the assessor are established by statute (Section 401 et seq.). As a county officer, the assessor is subject to supervision by the board of supervisors of the county, but the county may not be compelled to perform the duties of the office. And as the office of the assessor is elective, the supervisory authority of the board of supervisors is limited to ensuring that the assessor faithfully performs the duties of the office, and it does not permit the board to control the manner in which the duties are performed. Thus, the county could not be ordered to grant an exemption from property tax since that duty, when it exists, is one the assessor must perform. Connelly v. Orange County, 1 Cal.4th 1105.

Declaratory relief.—Declaratory relief is unavailable to restrict future assessment practices where there is no showing that the assessor will fail to follow the law and it is conjectural whether a justiciable controversy will arise. Burke v. City and County of San Francisco, 258 Cal.App.2d 32.

Riparian rights.—Riparian rights, being "rights and privileges appertaining to" land [see Section 104], their inclusion in the assessment of the land is contemplated. Thus, if there is to be a separate assessment of riparian lands to one person and of the riparian rights to another, the exclusion of these rights in the assessment of the former must clearly appear. Spring Valley Water Co. v. Alameda County, 24 Cal.App. 278, 281. See also Spring Valley Water Co. v. Alameda County, 88 Cal.App. 157, 163.

Leaseholds.—In determining the value of a leasehold the following items should be considered: (1) Duration of lease; (2) excess of annual benefits derived from the lease over burdens; (3) amortization, during lease, of capital employed; (4) amortization of improvements which revert to the lessor; (5) taxes and other fixed charges. The combined net earnings of the lease over the entire term is its ultimate value, and its present value as of any date upon any assumed rate of interest can be computed from that basis, and the result is the approximate present value of the leasehold. Blinn Lumber Co. v. Los Angeles County, 216 Cal. 474, noted in 21 Calif. L. Rev. 596. Contra, De Luz Homes, Inc. v. San Diego County, 45 Cal.2d 546, holding that in valuing a leasehold by the capitalization of income method it is improper, in computing the anticipated net earnings to be capitalized, to deduct from anticipated gross income the lessee's charges for rent and amortization of his investment, and that statements in the Blinn case requiring the assessing authorities to deduct such charges are disapproved.

The proper method of computing the value of a leasehold of an exempt housing project at a permanent military installation is to deduct from annual anticipated gross income the operating and maintenance expenses and the amount required by the lease to be deposited to a replacement reserve, and to capitalize the difference for the remaining years of the lease at a rate which will allow for risk, interest, and taxes. De Luz Homes, Inc. v. San Diego County, 45 Cal.2d 546; Fairfield Gardens, Inc. v. Solano County, 45 Cal.2d 575; Victor Valley Housing Corp. v. San Bernardino County, 45 Cal.2d 580; El Toro Development Co., Inc. v. Orange County, 45 Cal.2d 586.

Under the capitalization of income method of valuation, it is improper when computing the full cash value to deduct from the anticipated gross receipts, the amount of rent reserved. A leasehold is not less valuable because it has not been paid for in advance, and to draw a distinction between rent paid and rent to be paid confuses the equity the lessee has in the leasehold with its value. Taxation of property at its value without regard to the owner's equity therein is an established principle of ad valorem taxation. The Texas Co. v. Los Angeles County, 52 Cal.2d 55.

Amortization and rental provisions which leave the lessee without equity in a garage operated by a nonprofit corporation under a lease from a city are not to be considered in valuation of the leasehold interest in the garage for tax purposes. Stamps v. Board of Supervisors, 233 Cal.App.2d 256.

In assessing the value of a lessee's possessory interests in tax-exempt land and improvements, it is proper to assess the values of the land and improvements separately. If there is insufficient history of income and expenses and an appraisal based on capitalization thereof would be unreliable, it is proper to use the "imputed income method" if the land and improvements are to be used for enterprise activity. Where a lessee leases property for a certain period and is given the option to extend the lease for an additional like period, the lease term is the total of both periods. Where leased improvements will reach the end of their economic life before the lease terminates, it is proper to value them by the "reproduction cost less depreciation" method. Riverside County v. Palm-Ramon Development Co., 63 Cal.2d 534.

Liability of assessors.—An assessment of property at less than its actual value, if made with the purpose of enabling the one assessed to evade taxation, is not a refusal or neglect to perform an official duty, but a "willful and corrupt misconduct in office," for which the assessor might be accused by the grand jury under Section 758 of the Penal Code; but if made in the ordinary exercise of his official duty, without any corrupt or illegal motive, is of a judicial nature, for which he is not amenable to the penal laws of the state. Siebe v. Superior Court, 114 Cal. 551.

A complaint against an assessor alleging that he " willfully and against law" assessed plaintiff's property at too large a sum does not state a cause of action. Such an allegation, without an averment that he acted maliciously and with an intent to wrong or injure the owner of the property, does not negate the presumption that he simply erred in judgment, for which he is not civilly liable, the only remedy being by application to the Board of Equalization. Ballerino v. Mason, 83 Cal. 447.

Work in progress.—Aircraft in the process of being manufactured may be assessed at the book value computed by the corporate owner, despite the fact that such book value contains costs which are directly attributable to the development of the production technique on previously sold aircraft, and not to the aircraft actually being assessed. Lockheed Aircraft Corp. v. Los Angeles County, 207 Cal.App.2d 119.

Assessment of motion picture negatives.—"Market value" for assessment purposes is the value of property when put to beneficial use; it is not merely whatever residual value may remain should the property be reduced to its constituent elements. In the event the beneficial use of the property would not pass to a willing buyer on an open market, the assessor must treat the property as having no actual market for valuation purposes and use such pertinent factors as replacement costs and income analysis for determining valuation. Michael Todd Co. v. Los Angeles County, 57 Cal.2d 684.

Cyclical reassessment.—Where not possible to assess all parcels of real property in one year, a program of assessment of equal numbers of parcels yearly over a three-year period is valid. Lord v. Marin County, 214 Cal.App.2d 25.

Valuation of property on annexation.—When tax-exempt property is included within unhabitated territory proposed to be annexed, its value, for protest purposes, is determined by the county assessor in the same amount he would assess such property if it were not tax exempt, regardless of whether the owner of the tax-exempt property is a protestant. Guerrieri v. City of Fontana, 232 Cal.App.2d 417.

Valuation methodology.—Taxpayer that challenged the assessment of property tax on equipment and personal property in its novelty ice cream production lines is not entitled to a reduction in the value of the property, based on excess capacity or underutilization of the property, under the cost approach to valuation because the taxpayer did not present sufficient evidence of either excess capacity or external market condition, resulting in economic obsolescence. Dreyer’s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828.

Valuation methods.—Property subject to taxation must be assessed at its full value, which is defined as its full cash value or fair market value (Revenue and Taxation Code Sections 110.5, 401). There are three basic methods for calculating fair market value: (1) the comparative sales or market data method; (2) the reproduction or replacement cost method; and (3) the income method (Property Tax Rules 3, 4, 6, 8). Dreyer’s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828.

Cost approach—Depreciation types.—The cost approach to property valuation is based upon the economic principle of substitution, which holds that a rational person will pay no more for a property than the cost of acquiring a satisfactory substitute. It begins with either reproduction cost, replacement cost, or historical cost; it then makes adjustments for depreciation to reach an estimate of current value, that is, physical deterioration, functional obsolescence, and external obsolescence. Dreyer’s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828.

Value—Cost approach—Underutilization adjustment.—Property Tax Rule 6, subdivision (e), requires that the reproduction or replacement value of the property be adjusted for overimprovement only when overimprovement or underutilization is shown to exist and that underutilization affects the fair market value of the property. Thus, not all uses at less than full capacity constitute underutilization for purposes of the rule. The underutilization adjustment is only appropriate when there is excess capacity that is beyond the control of a prudent operator and is recognized in the market. Dreyer’s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828.

Valuation Methodology.—Legally incorrect methodology was used to assess the value of wind turbine generators and related equipment because the assessor used an average rate that includes taxes paid to other states. Under the income method (Property Tax Rule 8), the appropriate tax rate for the conversion from an after-tax to a before-tax discount rate is the typical potential purchaser's expected combined California and federal marginal income tax rate. Sky River LLC et al. v. County of Kern (2013) 214 Cal.App.4th 720.

Burden of proof.—The burden is on the taxpayer challenging an assessment to prove that the property has not been properly assessed (Property Tax Rule 321). Dreyer’s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828.

Because it is presumed that the assessor has properly performed his duties, the burden is on the taxpayer challenging an assessment to prove that the value on the assessment roll is not correct. (Property Tax Rule 321, subdivision (a).) This presumption, however, disappears when the assessor seeks to increase the valuation of the taxpayer's property; in that event, the burden is on the assessor to prove the higher value of the property. (Property Tax Rule 313, subdivision (f).) Sky River LLC et al. v. County of Kern (2013) 214 Cal.App.4th 720.

Note.—For additional cases relating to value, see annotations to Section 110 of the code and to Article XIII, Section 1, of the Constitution.