Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2014
 

Revenue and Taxation Code

Property Taxation

Part 2. Assessment

Chapter 3. Assessment Generally

Article 2. Information From Taxpayer

Section 469

469. Audit of profession, trade, or business. (a) The assessor shall annually conduct a significant number of audits of the books and records of taxpayers engaged in a profession, trade, or business who own, claim, possess, or control locally assessable trade fixtures and business tangible personal property in the county to encourage the accurate and proper reporting of property as required by this article. The assessor shall conduct an audit of those taxpayers as provided by subdivision (b).

(1) For purposes of this section, "significant number of audits" means at least 75 percent of the fiscal year average of the total number of audits the assessor was required to have conducted during the 2002–03 fiscal year to the 2005–06 fiscal year, inclusive, on those taxpayers in the county that had a full value of four hundred thousand dollars ($400,000) or more of locally assessable trade fixtures and business tangible personal property.

(2) The assessor is not required to audit a taxpayer that is fully exempt from property taxation under other provisions of law for purposes of the requirements of this section.

(3) If the board audits a taxpayer because the taxpayer's assessment was selected in a sampling of assessments from the local assessment rolls pursuant to Section 15640 of the Government Code, that audit may be deemed an audit by the assessor for purposes of the requirements of this section.

(b) Each year the audits required by subdivision (a) shall be conducted in the following manner:

(1) Fifty percent of the audits required by subdivision (a) shall be performed on taxpayers selected from a pool of those taxpayers that have the largest assessments of locally assessable trade fixtures and business tangible personal property in the county.

(A) This pool of taxpayers shall be determined as follows:

(i) The assessor shall rank all of the taxpayers in the county in descending order by the total locally assessed value of both trade fixtures and business tangible personal property.

(ii) The assessor shall select a qualified number of those taxpayers with the largest assessments for inclusion in the pool. The qualified number shall be that number equal to 50 percent of the audits required by subdivision (a) multiplied by four.

(B) Taxpayers in the pool shall be audited at least once within each four-year period following the latest fiscal year covered by a preceding audit and the audit may combine multiple fiscal years. The assessor is relieved of the requirement to audit the taxpayer at least once every four years if the assessor determines that the taxpayer's assessments are no longer large enough for inclusion in the pool.

(2) The remaining 50 percent of the required audits, as determined by paragraph (1) of subdivision (a), shall be selected in a manner that is fair and equitable to all taxpayers and may be based on evidence of underreporting as determined by the assessor.

(3) Nothing in this subdivision is intended to prohibit the audit of any taxpayer more frequently than once every four years.

(c) With respect to any audit of the books of a profession, trade, or business, regardless of the full value of the trade fixtures and business tangible personal property owned, claimed, possessed, or controlled by the taxpayer, the following shall apply:

(1) Upon completion of an audit of the taxpayer's books and records, the taxpayer shall be given the assessor's findings in writing with respect to data that would alter any previously enrolled assessment.

(2) Equalization of the property by a county board of equalization or assessment appeals board pursuant to Chapter 1 (commencing with Section 1601) of Part 3 of this division shall not preclude a subsequent audit and shall not preclude the assessor from levying an escape assessment in appropriate instances, but shall preclude an escape assessment being levied on that portion of the assessment that was the subject of the equalization hearing.

(3) If the result of an audit for any year discloses property subject to an escape assessment, then the original assessment of all property of the assessee at the location of the profession, trade, or business for that year shall be subject to review, equalization and adjustment by the county board of equalization or assessment appeals board pursuant to Chapter 1 (commencing with Section 1601) of Part 3 of this division, except in those instances when the property had previously been equalized for the year in question.

(4) If the audit for any particular tax year discloses that the property of the taxpayer was incorrectly valued or misclassified for any cause, to the extent that this error caused the property to be assessed at a higher value than the assessor would have entered on the roll had the incorrect valuation or misclassification not occurred, then the assessor shall notify the taxpayer of the amount of the excess valuation or misclassification, and the fact that a claim for cancellation or refund may be filed with the county as provided by Sections 4986 and 5096.

History.—Added by Stats. 1966, p. 662 (First Extra Session), in effect October 6, 1966. Stats. 1969, p. 2192, in effect November 10, 1969, added "before October 6, 1971, and" and "thereafter", Stats. 1970, p. 1070, in effect November 23, 1970, added the second sentence. Stats. 1973, Ch. 678, p. 1233, in effect January 1, 1974, added the last paragraph. Stats. 1974, Ch. 311, p. 608, in effect January 1, 1975, substituted "full value" for "full cash value" in the first sentence of the first paragraph. Stats. 1976, Ch. 357, p. 1007, in effect January 1, 1977, substituted "one hundred thousand dollars ($100,000)"for "fifty thousand dollars ($50,000)", and substituted "at least once each four years" for "before October 6, 1971, and at least once each four years thereafter" in the first sentence of the first paragraph; and deleted "or Chapter 1.5 (commencing with Section 1750)" after "Chapter 1 (commencing with Section 1601)" in the first sentence of the second paragraph. Stats. 1978, Ch. 732, in effect January 1, 1979, added the third and fourth paragraphs. Stats. 1979, Ch. 518, in effect January 1, 1980, added "trade fixtures and" after "assessable", and substituted "two" for "one" and "$200,000" for "$100,000" in the first sentence of the first paragraph. Stats. 1984, Ch. 678, in effect January 1, 1985, substituted "Section 15640 of the Government Code," for "Chapter 2 (commencing with Section 1815) of Part 3 of this division" after "pursuant to" in the second sentence of the first paragraph. Stats. 1991, Ch. 1148, in effect October 14, 1991, added a comma after "possessed", substituted "three hundred thousand dollars ($300,000)" for "two hundred thousand dollars ($200,000)" after "full value of", and substituted "that" for "such" after "records of" in the first sentence of the first paragraph; substituted "that" for "such" after "Code," in the second sentence of the first paragraph; substituted "the" for "any such" after "portion of", substituted "that" for "which" after "assessment", and substituted "the" for "any such" after "subject of" in the second paragraph; substituted "the" for "such" after "instances when" in the third paragraph; and substituted "the" for "such" after "roll had" in the fourth paragraph. Stats. 1995, Ch. 498, in effect January 1, 1996, added "Upon completion of . . . previously enrolled assessment." as the second paragraph. Stats. 2000, Ch. 613 (SB 1844), in effect January 1, 2001, substituted "four" for "three" after "full value of" and substituted "($400,000)" for "($300,000)" after "thousand dollars" in the first sentence of the first paragraph. Stats. 2001, Ch. 238 (AB 645), in effect January 1, 2002, designated the first paragraph as subdivision (a), and added subdivision (b) and numbered the former second, third, fourth and fifth paragraphs as paragraphs (1), (2), (3) and (4), respectively, therein. Stats. 2005, Ch. 264 (SB 555), in effect January 1, 2006, added "that is not fully exempt from property taxation under other provisions of law and that is" after "by a taxpayer" in the first sentence of subdivision (a). Stats. 2008, Ch. 297 (AB 550), in effect January 1, 2009, deleted former subdivision (a) which read "In any case in which locally assessable trade fixtures and business tangible personal property owned, claimed, possessed, or controlled by a taxpayer that is not fully exempt from property taxation under other provisions of law and that is engaged in a profession, trade, or business has a full value of four hundred thousand dollars ($400,000) or more, the assessor shall audit the books and records of that profession, trade, or business at least once each four years. If the board determines the value of property pursuant to Section 15640 of the Government Code, that determination may be deemed an audit by the assessor for purposes of this section."; added subdivisions (a) and (b); and relettered former subdivision (b) as subdivision (c).

Note.—Section 3 of Stats. 1991, Ch. 1148, provided that no reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the local agency or school district has the authority to levy service charges, fees, or assessments sufficient to pay for the program or level of service mandated by this act.

Note.—Section 3 of Stats. 2001, Ch. 238 (AB 645) provided that notwithstanding Section 17610 of the Government Code, if the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code. If the statewide cost of the claim for reimbursement does not exceed one million dollars ($1,000,000), reimbursement shall be made from the State Mandates Claims Fund.

Note.—Section 1 of Stats. 2009, Ch. 297 (AB 550), provided that the Legislature finds and declares all of the following:

(a) Businesses having an aggregate cost of one hundred thousand dollars ($100,000) or more in personal property are required to file annually a statement with the assessor identifying the property to facilitate its proper and uniform assessment.

(b) Existing law requires assessors to conduct audits to encourage accurate reporting.

(c) Therefore, it is the intent of the Legislature in enacting this act to provide assessors with discretion in selecting which business taxpayers to audit, thereby adding an element of unpredictability to the audit process and ultimately advancing the policy goals of the audit process, and furthering the constitutional requirement of equal and uniform assessment.

Construction.—A taxpayer is entitled to administrative review if an audit reveals property that was underassessed or unassessed and hence, exposed to further taxation, regardless of whether or not an escape assessment is actually made. Heavenly Valley v. El Dorado County Board of Equalization, 84 Cal.App.4th 1323. Where the assessor initiated an audit for four years but issued a "Notice of Proposed Escape Assessment" for only one year, under applicable regulations the assessor, on finding a discrepancy or irregularity for one year, must audit the other years for which the statute of limitations has not run. The assessor may not forgo these audits based upon his unilateral interpretation of a stipulation of the parties that the property has already been equalized. Apple Computer, Inc. v. Assessment Appeals Board, 105 Cal.App.4th 1355. Under subdivision (b)(3) of Section 469, an otherwise untimely appeal of an original assessment following an escape assessment is allowed to protect the taxpayer from a misallocation of the total assessment. County of Los Angeles v. Raytheon Co., 159 Cal.App.4th 27.

Leaseholds.—Where the lessee under a 55-year lease filed an action against the county seeking a refund on property taxes paid, the Court of Appeal concluded that the lessee had standing to pursue the refund claim under Sections 469(b)(3), 1603(f), and 5140 of the Revenue and Taxation Code. As a tenant under a long-term lease that extended over 35 years, and the party who paid the property taxes for the years at issue, the lessee was considered the beneficial owner of the property for property tax purposes and an affected party. Los Angeles County v. Raytheon Co., 159 Cal. App.4th 27.