Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2014
 

Revenue and Taxation Code

Property Taxation

Part 2. Assessment

Chapter 3. Assessment Generally

Article 1.5. Valuation of Open-Space Land Subject to an Enforceable Restriction*

Section 423

423. Factors to be considered in valuation. Except as provided in Sections 423.7 and 423.8, when valuing enforceably restricted open-space land, other than land used for the production of timber for commercial purposes, the county assessor shall not consider sales data on lands, whether or not enforceably restricted, but shall value these lands by the capitalization of income method in the following manner:

(a) The annual income to be capitalized shall be determined as follows:

(1) Where sufficient rental information is available the income shall be the fair rent which can be imputed to the land being valued based upon rent actually received for the land by the owner and upon typical rentals received in the area for similar land in similar use, where the owner pays the property tax. Any cash rent or its equivalent considered in determining the fair rent of the land shall be the amount for which comparable lands have been rented, determined by average rents paid to owners as evidenced by typical land leases in the area, giving recognition to the terms and conditions of the leases and the uses permitted within the leases and within the enforceable restrictions imposed.

(2) Where sufficient rental information is not available, the income shall be that which the land being valued reasonably can be expected to yield under prudent management and subject to applicable provisions under which the land is enforceably restricted. There shall be a rebuttable presumption that "prudent management" does not include use of the land for a recreational use, as defined in subdivision (n) of Section 51201 of the Government Code, unless the land is actually devoted to that use.

(3) Notwithstanding any other provision herein, if the parties to an instrument which enforceably restricts the land stipulate therein an amount which constitutes the minimum annual income per acre to be capitalized, then the income to be capitalized shall not be less than the amount so stipulated.

For the purposes of this section, income shall be determined in accordance with rules and regulations issued by the board and with this section and shall be the difference between revenue and expenditures. Revenue shall be the amount of money or money's worth, including any cash rent or its equivalent, which the land can be expected to yield to an owner-operator annually on the average from any use of the land permitted under the terms by which the land is enforceably restricted, including, but not limited to, that from the production of salt and from typical crops grown in the area during a typical rotation period, as evidenced by historic cropping patterns and agricultural commodities grown. When the land is planted to fruit-bearing or nut-bearing trees, vines, bushes, or perennial plants, the revenue shall not be less than the land would be expected to yield to an owner-operator from other typical crops grown in the area during a typical rotation period, as evidenced by historic cropping patterns and agricultural commodities grown. Proceeds from the sale of the land being valued shall not be included in the revenue from the land.

Expenditures shall be any outlay or average annual allocation of money or money's worth that has been charged against the revenue received during the period used in computing that revenue. Those expenditures to be charged against revenue shall be only those that are ordinary and necessary in the production and maintenance of the revenue for that period. Expenditures shall not include depletion charges, debt retirement, interest on funds invested in the land, interest on funds invested in trees and vines valued as land as provided by Section 429, property taxes, corporation income taxes, or corporation franchise taxes based on income. When the income used is from operating the land being valued or from operating comparable land, amounts shall be excluded from the income to provide a fair return on capital investment in operating assets other than the land, to amortize depreciable property, and to fairly compensate the owner-operator for his operating and managing services.

(b) The capitalization rate to be used in valuing land pursuant to this article shall not be derived from sales data and shall be the sum of the following components:

(1) An interest component to be determined by the board and announced no later than October 1 of the year preceding the assessment year, which is the arithmetic mean, rounded to the nearest 1/4 percent, of the yield rate for long-term United States government bonds, as most recently published by the Federal Reserve Board as of September 1, and the corresponding yield rates for those bonds, as most recently published by the Federal Reserve Board as of each September 1 immediately prior to each of the four immediately preceding assessment years.

(2) A risk component that shall be a percentage determined on the basis of the location and characteristics of the land, the crops to be grown thereon and the provisions of any lease or rental agreement to which the land is subject.

(3) A component for property taxes that shall be a percentage equal to the estimated total tax rate applicable to the land for the assessment year times the assessment ratio. The estimated total tax rate shall be the cumulative rates used to compute the state's reimbursement of local governments for revenues lost on account of homeowners' property tax exemptions in the tax rate area in which the enforceably restricted land is situated.

(4) A component for amortization of any investment in perennials over their estimated economic life when the total income from land and perennials other than timber exceeds the yield from other typical crops grown in the area.

(c) The value of the land shall be the quotient for the income determined as provided in subdivision (a) divided by the capitalization rate determined as provided in subdivision (b).

(d) Unless a party to an instrument which creates an enforceable restriction expressly prohibits such a valuation, the valuation resulting from the capitalization of income method described in this section shall not exceed the lesser of either the valuation that would have resulted by calculation under Section 110, or the valuation that would have resulted by calculation under Section 110.1, as though the property was not subject to an enforceable restriction in the base year.

In determining the 1975 base year value under Article XIII A of the California Constitution for any parcel for comparison, the county may charge a contractholder a fee limited to the reasonable costs of the determination not to exceed twenty dollars ($20) per parcel.

(e) If the parties to an instrument that creates an enforceable restriction expressly so provide therein, the assessor shall assess those improvements that contribute to the income of land in the manner provided herein. As used in this subdivision "improvements which contribute to the income of the land" shall include, but are not limited to, wells, pumps, pipelines, fences, and structures which are necessary or convenient to the use of the land within the enforceable restrictions imposed.

History.—Stats. 1969, p. 1703, operative March 1, 1970, completely revised this section. Stats. 1970, p. 1591, in effect November 23, 1970, added the rebuttable presumption in subsection (a)(2). Stats. 1971, p. 3617, in effect March 4, 1972, substituted "the following" for "three" in subdivision (b) of the fourth paragraph and added (4) to subsection (b). Stats. 1972 p. 2191, in effect March 7, 1973, combined the second and third paragraphs in subsection (b)(2). Stats. 1973, Ch. 1165, p. 2425, in effect January 1, 1974, added "Except as provided in Section 423.7" at the beginning of the first paragraph, Stats. 1974, Ch. 311, p. 604, in effect January 1, 1975, substituted "enforceably restricted open-space land" for "open-space land subject to an enforceable restriction", and substituted "enforceably restricted" for "subject to an enforceable restriction" in the first sentence of the first paragraph; substituted "provisions under which the land is enforceably restricted" for "enforceable restrictions" in the second sentence of subsection (a)(1) and in the first sentence of subsection (b)(1); and substituted "by which the land is enforceably restricted" for "of the enforceable restriction" in the second sentence of the second paragraph. Stats. 1976, Ch. 423, p. 1083, in effect July 1, 1976, added subsection (a)(3), and deleted the former fourth paragraph which required that the board and the assessor impute income to land in certain cases. Stats. 1978, Ch. 1120, in effect January 1, 1979, substituted the second sentence for the former second sentence of subdivision (a)(1) which read "When the land being valued is actually encumbered by a lessee, any cash rent or its equivalent considered in determining the fair rent of the land shall be the amount for which the land would be expected to rent were the rental payment to be renegotiated in the light of current conditions including applicable provisions under which the land is enforceably restricted", substituted "5120" for "51201" after "Section" in subdivision (a)(2), substituted "as evidenced by historic cropping patterns and agricultural commodities grown" for "not to exceed six years including the tax year and the next succeeding five years" after "period" in the second and third sentences of the second paragraph, deleted "expected to be" after "revenue" in the first sentence of the third paragraph, added the second sentence to subsection (b)(3), and added subdivisions (e) and (f). Stats. 1979, Ch. 1075, in effect September 28, 1979, applicable to the 1979–80 fiscal year and thereafter substituted "51201" for "5120" in the second sentence of the subdivision (a)(2), substituted subdivision (e) for the former subdivision (e), and substituted "subdivision" for "subsection" in the second sentence of subdivision (f). Stats. 1981, Ch. 261, in effect January 1, 1982, deleted "one-quarter" before and the parentheses surrounding "1/4" in subsection (1) of subdivision (b), deleted subdivision (d), and relettered former subdivisions "(e)" and "(f)" as "(d)" and "(e)", respectively. Stats. 1984, Ch. 678, in effect January 1, 1985, deleted "the board for purposes of surveys required by Section 1815 of this code . . . and " after "purposes," in the first sentence. Stats. 1987, Ch. 144, in effect January 1, 1988, substituted "these" for "such" after "value" in the first sentence; substituted "that" or "the" for "such" in paragraphs (a)(2), (a)(3) and (d); in (a)(3) substituted "." for "; and" after "subject" in subdivision (b)(2); added "the lesser of either" after "exceed" and added "by calculation under Section 110, or the valuation that would have resulted" after "resulted" in the first sentence of the first paragraph of subdivision (d), deleted the former second paragraph thereof, which provided that "The county assessor shall notify annually the parties to an instrument which creates an enforceable restriction that unless either party expressly prohibits such a valuation, the valuation resulting from the capitalization of income method shall not exceed the valuation that would have resulted by calculation under Section 110.1, as though such property was not subject to an enforceable restriction in the base year", and substituted "contractholder" for "contract holder" after "charge a" in the first sentence of the third paragraph thereof. Stats. 1992, Ch. 247, in effect January 1, 1993, substituted ", which is the . . . 1/4 percent, of" for "and which was" after "assessment year", and substituted "and the corresponding yield rates . . . preceding assessment years" for "rounded to the nearest 1/4 percent" after "Federal Reserve Bank" in the first sentence of paragraph (1) of subdivision (b); added the second sentence of paragraph (A) of subdivision (b), and added subparagraphs (A), (B), (C), (D), and (E) to paragraph (1) of subdivision (b). Stats. 1996, Ch. 997, in effect September 27, 1996, substituted "Sections 423.7 and 423.8" for "Section 423.7" after "Except as provided in" in the first sentence. Stats. 2003, Ch. 471(SB 1062), in effect January 1, 2004, substituted "October 1" for "September 1" after "no later than" and added "as of September 1" after "Federal Reserve Board" in the first sentence of paragraph (1) of subdivision (b), and deleted the former second sentence thereof which provided that " The interest component defined by this paragraph shall be implemented in phases and shall be: (A) For the 1993–94 assessment year, the yield rate for long-term United States government bonds, as most recently published by the Federal Reserve Board, rounded to the nearest 1/4 percent. (B) For the 1994–95 assessment year, the arithmetic mean, rounded to the nearest 1/4 percent, of the yield rate for long-term United States government bonds, as most recently published by the Federal Reserve Board, and the corresponding yield rate for those bonds, as most recently published by the Federal Reserve Board as of the September 1 immediately prior to the 1993–94 assessment year. (C) For the 1995–96 assessment year, the arithmetic mean, rounded to the nearest 1/4 percent, of the yield rate for long-term United States government bonds, as most recently published by the Federal Reserve Board, and the corresponding yield rates for those bonds, as most recently published by the Federal Reserve Board as of each September 1 immediately prior to the 1993–94 and 1994–95 assessment years. (D) For the 1996–97 assessment year, the arithmetic mean, rounded to the nearest 1/4 percent, of the yield rate for long-term United States government bonds, as most recently published by the Federal Reserve Board, and the corresponding yield rates for those bonds, as most recently published by the Federal Reserve Board as of each September 1 immediately prior to the 1993–94, 1994–95, and 1995–96 assessment years. (E) For the 1997–98 assessment year, and each fiscal year thereafter, the arithmetic mean, rounded to the nearest 1/4 percent, of the yield rate for long-term United States government bonds, as most recently published by the Federal Reserve Board, and the corresponding yield rates for those bonds, as most recently published by the Federal Reserve Board as of each September 1 immediately prior to the four immediately preceding assessment years."; and substituted "that" for "which" throughout the text.

Note.—Stats. 1968, p. 875, in effect June 28, 1968, provides that the assessment procedures specified under Section 423 shall be effective with respect to land for the 1968–69 fiscal year if the land is subject to an instrument, meeting the requirements of Section 422, which was signed and recorded on or before June 15, 1968. Stats. 1969, p. 60, in effect February 25, 1969, and Stats. 1970, p. 14, in effect February 27, 1970, similarly provide for the 1969–70 and 1970–71 fiscal years respectively. Section 4 of Stats. 1979, Ch. 1075, provided that notwithstanding Section 2231 or 2234 of the Revenue and Taxation Code, no appropriation is made by this act pursuant to these sections because local government entities have the option to prohibit computation of the lower of Williamson Act values determined according to capitalization rates or Article XIII A, and thus, this act does not itself impose additional duties or result in loss of revenues.

* Stats. 1969, p. 1930, in effect November 10, 1969, repealed Section 4 of Stats. 1967, p. 3651, which made Article 1.5 operative only until the 61st day following adjournment of the Regular Session of the 1970 Legislature.