The opinion
Filed 6/5/17
IN THE SUPREME COURT OF CALIFORNIA
WILLIAMS & FICKETT, )
)
Plaintiff and Appellant, )
) S224476
v. )
) Ct.App. 5 F068652
COUNTY OF FRESNO, )
) Fresno County
Defendant and Respondent. ) Super. Ct. No. 13CECG00461
____________________________________)
As a general rule, a party must exhaust available administrative remedies as
a prerequisite to seeking relief in the courts. “In the property tax context,
application of the exhaustion principle means that a taxpayer ordinarily may not
file or pursue a court action for a tax refund without first applying to the local
board of equalization for assessment reduction under [Revenue and Taxation
Code] section 1603 and filing an administrative tax refund claim under section
5097.”1 (Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1308, italics
omitted (Steinhart).) Our case law has recognized an exception to this general
rubric where a tax assessment is “a nullity as a matter of law.” (Stenocord v. San
Francisco (1970) 2 Cal.3d 984, 987 (Stenocord).) This case presents the question
of whether the nullity exception applies, so that a timely assessment appeal is not
required as a first step in the exhaustion process, when an assessment on
1 All further statutory citations are to the Revenue and Taxation Code.
SEE CONCURRING & DISSENTING OPINION
nonexempt property is challenged on the ground that the taxpayer does not own
the property involved.
We conclude that in this scenario, the taxpayer must seek an assessment
reduction through the assessment appeal process before the county board of
equalization or a county assessment appeals board (county board), or obtain a
stipulation under section 5142, subdivision (b) that such proceedings are
unnecessary, in order to maintain a postpayment superior court action under
section 5140 that seeks reduction of the tax. To the extent that our decision in
Parr-Richmond Industrial Corp. v. Boyd (1954) 43 Cal.2d 157 (Parr-Richmond)
provides otherwise, we conclude that it has been overtaken by intervening
developments in the law, and overrule it. However, because plaintiff and others in
its position could reasonably have relied on Parr-Richmond in opting not to pursue
timely assessment appeal proceedings under section 1603, we give our ruling
prospective effect only. We therefore affirm the judgment of the Court of Appeal.
I. FACTS AND PROCEDURAL BACKGROUND
This is a tax refund action brought by plaintiff Williams & Fickett against
defendant County of Fresno (County). Because this case is before us after the trial
court sustained defendant’s demurrer without leave to amend, we take the facts as
stated in the operative complaint and its attachments to be true. (Steinhart, supra,
47 Cal.4th at p. 1304, fn. 1.) Plaintiff is a general partnership engaged in the
business of farming in Fresno County. In 1997, the County’s Office of the
Assessor-Recorder conducted an audit of plaintiff. That audit eventually led to
escape assessments2 for the tax years 1994 through 1997 and assessments for the
2 An escape assessment is a retroactive assessment for years in which
property was either not assessed or underassessed. (See § 531 et seq.)
2
tax years 1996 through 2001, based on the assertion that plaintiff owned certain
farming equipment that was not reported, or was incorrectly reported, on its
personal property statements. In 1997, when the County first gave notice of the
escape assessments, it informed plaintiff that if plaintiff wished to challenge the
assessments, it had 60 days from the date of the notice to apply to the County’s
assessment appeals board for assessment reductions under section 1603. On the
relevant lien dates, however, plaintiff did not own the farm equipment that was the
subject of the assessments, and plaintiff neither paid the assessed taxes nor applied
for assessment reductions under section 1603 within the 60-day period. The
County then recorded certificates of delinquency related to the unpaid tax
assessments, resulting in liens on plaintiff’s real and personal property.
In 2003, the County audited plaintiff’s property tax declaration for the 2001
tax year. At that time, the County found an overassessment and gave plaintiff a
refund for the 2001 tax year. The County declined, however, to grant refunds for
previous tax years. In 2006, the County again audited plaintiff, and it again found
an overassessment, giving plaintiff refunds for the tax years 2002 through 2005.
Shortly after the 2006 audit, plaintiff hoped to refinance certain property,
and it sought to clear the tax liens that encumbered that property. Plaintiff’s
attorney wrote to the County’s auditor-controller, explaining: “From 1996 to the
current date, Fresno County has erroneously assessed personal property taxes
against my clients. For whatever reason, prior auditors felt that my clients and
their secured creditors were lying when they presented evidence that a substantial
portion of their personal property was seized as a result of their bankruptcy filings
during 1997. This proof, rejected by the prior auditor, was accepted during the
most recent [2006] audit . . . . [¶] . . . Since the property was returned to various
secured creditors in 1997, the County lien, which appears to date back to 1996,
3
must be significantly reduced[,] as were the 2002-2005 taxes.” The County
declined to reduce the liens.
On June 13, 2007, plaintiff attempted to apply to the assessment appeals
board for cancellation of the disputed assessments. These applications were
submitted to the clerk of the board of supervisors using the County’s printed form
for applying for assessment reductions under section 1603.3 That form includes a
catchall option stating: “If you are uncertain of which item to check [regarding the
basis of your application], please check ‘I. OTHER’ and attach two copies of a
brief explanation of your reason(s) for filing this application.” Plaintiff’s attorney
checked that catchall option on each of the applications and attached a statement
saying, “This application is based upon Revenue and Taxation Code § 4986.”4
The attachment further explained that as of the lien date, plaintiff was not the
owner of most of the property being taxed. The County returned the applications
unfiled, taking the view that they were untimely applications for assessment
reductions under section 1603.
About three years later, on November 24, 2010, plaintiff filed a complaint
for declaratory relief against the County, asserting that the farm equipment in
question had been “sold or returned to secured creditors,” and therefore that the
3 For the 1994 escape assessment, plaintiff sought a reduction from
$1,352,560 to $238,794; for the 1995 escape assessment, a reduction from
$1,032,680 to $238,794; for the 1996 escape assessment, a reduction from
$496,660 to $0; for the 1997 escape assessment, a reduction from $300,190 to $0;
for the 1996-1997 tax year assessment, a reduction from $1,170,290 to $238,794;
and for the 1997-1998, 1998-1999, 1999-2000, and 2000-2001 tax year
assessments, a reduction from $1,170,290 to $169,259.
4 Section 4986 authorizes the county auditor to cancel “[a]ll or any portion of
any tax, penalty, or costs” if, among other things, it was levied erroneously or
illegally, or if it was levied on property that did not exist as of the lien date.
4
assessments related to the equipment should be cancelled. The trial court
sustained a demurrer to the complaint, concluding that the complaint sought to
enjoin the collection of property taxes, which is prohibited by both the state
Constitution and state law (see Cal. Const., art. XIII, § 32; see also § 4807).
In 2012, plaintiff paid the disputed taxes, including interest and penalties,
and it then filed administrative refund claims under section 5097. The County
denied those claims.
Finally, in 2013, plaintiff initiated this action under section 5140, seeking to
recover the taxes that it had paid. The superior court sustained the County’s
demurrer on the ground that plaintiff had failed to exhaust its administrative
remedies by not filing timely applications for reduction of the challenged
assessments under section 1603, subdivision (a). The Court of Appeal reversed,
concluding that “where, as here, the taxpayer claims [an] assessment is void
because the taxpayer does not own the [assessed] property, the taxpayer is not
required to apply for an assessment reduction under section 1603, subdivision (a),
to exhaust its administrative remedies.” We granted review.
II. DISCUSSION
According to plaintiff, a taxpayer that asserts it does not own nonexempt
assessed property need not first file and prosecute an assessment appeal under
section 1603 et seq. in order to later pursue a refund action (see § 5140) after filing
an administrative tax refund claim (see § 5097). As we will explain, against a
backdrop of the general rule that requires the exhaustion of adequate
administrative remedies, the statutory scheme for assessment appeals evinces the
Legislature’s intent that disputes such as the one at bar be presented, in the first
instance, to a county board through the assessment appeal process. When a
taxpayer seeks a reduction in an assessment on the local roll on the ground that it
does not own the assessed property, the assessor and county board may agree with
5
the taxpayer that the matter involves only a nonvaluation question; by statute, a
stipulation to this effect will satisfy the exhaustion requirement of an assessment
appeal. Otherwise, an assessment appeal must be pursued to resolution before the
county board to preserve the taxpayer’s right to later bring a refund action after
payment of the tax. This design advances the salutary purposes served by the
exhaustion requirement, while also allowing for expedited presentation of disputes
to the courts in situations where, to all involved, a matter does not implicate the
core of a county board’s expertise.
A. Exhaustion of Administrative Remedies
The rule requiring exhaustion of administrative remedies is well settled.
“In general, a party must exhaust administrative remedies before resorting to the
courts. [Citations.] Under this rule, an administrative remedy is exhausted only
upon ‘termination of all available, nonduplicative administrative review
procedures.’ [Citations.]” (Coachella Valley Mosquito & Vector Control Dist. v.
California Public Employment Relations Bd. (2005) 35 Cal.4th 1072, 1080
(Coachella Valley); see also Abelleira v. District Court of Appeal (1941) 17 Cal.2d
280, 292-293.)
The exhaustion rule “ ‘is not a matter of judicial discretion, but is a
fundamental rule of procedure . . . binding upon all courts.’ ” (Campbell v.
Regents of the University of California (2005) 35 Cal.4th 311, 321 (Campbell).)
We have explained that “[t]he exhaustion doctrine is principally grounded on
concerns favoring administrative autonomy (i.e., courts should not interfere with
an agency determination until the agency has reached a final decision) and judicial
efficiency (i.e., overworked courts should decline to intervene in an administrative
dispute unless absolutely necessary). [Citations].” (Farmers Ins. Exchange v.
Superior Court (1992) 2 Cal.4th 377, 391; see also Rojo v. Kliger (1990) 52
6
Cal.3d 65, 83 [explaining that the exhaustion doctrine advances policy interests
such as “easing the burden on the court system, maximizing the use of
administrative agency expertise and capability to order and monitor corrective
measures, and providing a more economical and less formal means of resolving
[a] dispute”]; Yamaha Motor Corp. v. Superior Court (1986) 185 Cal.App.3d
1232, 1240 [observing that the exhaustion doctrine “ ‘facilitates the development
of a complete record that draws on administrative expertise’ ” and affords “a
preliminary administrative sifting process [citation], unearthing the relevant
evidence and providing a record which the court may review”].)
As previously observed, “In the property tax context, application of the
exhaustion principle means that a taxpayer ordinarily may not file or pursue a
court action for a tax refund without first applying to the local board of
equalization for assessment reduction under section 1603 and filing an
administrative tax refund claim under section 5097.” (Steinhart, supra, 47 Cal.4th
at p. 1308, italics omitted.) As plaintiff recognizes, it has long been held that
taxpayers that claim that their property has been overvalued must exhaust the
assessment appeal administrative remedy before resorting to the courts.
(See, e.g., Dawson v. County of Los Angeles (1940) 15 Cal.2d 77, 81; Luce v. City
of San Diego (1926) 198 Cal. 405, 406-407.) Plaintiff asserts, however, that this
principle does not apply here, because its assertion of nonownership means that
“there is no question of valuation involved which requires the local board[’]s . . .
expertise, and the board has no function to perform.”
B. The Statutory Scheme for Assessment Appeals
In evaluating this argument, we begin with the statutory scheme for
assessment appeals. Pursuant to section 1603, “[a] reduction in an assessment on
the local roll shall not be made unless the party affected or his or her agent makes
7
and files with the county board a verified, written application showing the facts
claimed to require the reduction and the applicant’s opinion of the full value of the
property.” (§ 1603, subd. (a).)5 These appeals are then resolved through a process
that can involve a public hearing (§§ 1605.4, 1605.6), exchanges of information
(§ 1606), examinations under oath (§ 1607), and the collection and introduction of
additional evidence in support or refutation of an appeal (§§ 1609, 1609.4, 1609.5,
1610.2). Ultimately, “the county board shall equalize the assessment of property
on the local roll by determining the full value of an individual property, by
assessing any taxable property that has escaped assessment, correcting the amount,
number, quantity, or description of property on the local roll, canceling improper
assessments, and by reducing or increasing an individual assessment . . . .”
(§ 1610.8; see also § 1605, subd. (e).)
The statutory procedures associated with assessment appeals connote that
the central responsibility of county boards is to decide questions of valuation.
(E.g., § 1603, subd. (a).) But when a party seeks a reduction in an assessment on
the local roll, pure questions of valuation are often inextricably connected to
related issues of fact, such as whether a change in ownership has occurred,
whether property has been properly classified, and whether a taxpayer in fact owns
assessed property.6
5 A “county board” means “a county board of supervisors meeting as a
county board of equalization or an assessment appeals board.” (§ 1601, subd. (a).)
6 In his concurring and dissenting opinion, Justice Chin asserts that county
boards lack jurisdiction to decide claims of nonownership such as the one raised
here. (See conc. & dis. opn. of Chin, J., post, at pp. 8, 14.) But this view fails to
fully appreciate that a county board may need to decide certain threshold facts in
the proper exercise of the equalization function, and that it lies within the authority
of these bodies to make these decisions. (See Cal. Const., art. XIII, § 16; § 5142,
subd. (c).) Questions regarding a change in ownership are among these issues, but
(Footnote continued on next page.)
8
The statutory scheme recognizes the authority of the county boards to
decide these issues. Particularly pertinent here are changes to and clarifications of
the assessment appeal scheme that have occurred since 1978, the year in which the
electorate passed Proposition 13. That measure “generally limits the maximum
amount of any ad valorem tax on real property to 1 percent of its ‘full cash value.’
(Cal. Const., art. XIII A, § 1, subd. (a).)” (Auerbach v. Assessment Appeals Bd.
No. 1 (2006) 39 Cal.4th 153, 160.) Full cash value means “the county assessor’s
valuation of the property on the 1975-1976 tax bill ‘or, thereafter, the appraised
value of real property when purchased, newly constructed, or a change in
ownership has occurred after the 1975 assessment.’ ([Cal. Const., art. XIII A],
§ 2, subd. (a) . . . .)” (Ibid., italics omitted.)
Proposition 13 thus connected property valuation with a nonvaluation
question, i.e., whether a change in ownership has occurred. Initially, there was
(Footnote continued from previous page.)
they do not represent the only factual determination that, although it does not
strictly concern the specific value that may be attached to property, nonetheless
may be pertinent — even essential — to the fulfillment of a county board’s basic
equalization duties. Indeed, the concurring and dissenting opinion’s overly
circumscribed view of the jurisdiction of county boards would seem to call into
question these entities’ ability to decide a bevy of threshold factual questions that
are implicit in any assessment.
Furthermore, to the extent that the concurring and dissenting opinion
premises its jurisdictional analysis on a belief that a party in plaintiff’s position is
not seeking, at root, a “reduction in an assessment” on the local roll (§ 1603, subd.
(a)) within the meaning accorded this phrase within the statutory scheme (see
conc. & dis. opn. of Chin, J., post, at pp. 3-7, 10-11), we disagree with this view,
as well. Contrary to the assertions in the concurring and dissenting opinion, from
the perspective of an individual taxpayer it makes perfect sense to seek a reduction
in an assessment on the ground that one does not own the property that has been
assessed. And in fact, that is substantively what plaintiff sought to do, albeit
styling its application as one seeking cancellation of a tax under section 4986.
9
some doubt whether change in ownership issues lay within the purview of county
boards, as part of the assessment appeal function. In 1986, the Legislature
dispelled this uncertainty by adding section 1605.5, subdivision (a)(1), which
provides that “[t]he county board shall hear applications for a reduction in an
assessment in cases in which the issue is whether or not property has been subject
to a change in ownership . . . or has been newly constructed . . . .” (Added by
Stats. 1986, ch. 1457, § 21, p. 5232.)7 Steinhart, supra, 47 Cal.4th 1298,
elaborated on the rationale behind this provision. There, we observed that “[i]n
detailing the purpose of this section, the relevant legislative history explained:
‘The law is [currently] unclear if taxpayers can appeal the issue of whether or not
there has been a change [in] ownership to either [a county board of equalization or
an assessment appeals board]. [¶] This provision requires county boards of
equalization and assessment appeals boards to hear change [in] ownership issues.’
(Assem. Com. on Revenue & Taxation, Analysis of Assem. Bill No. 2890 (1985-
1986 Reg. Sess.) as amended Mar. 19, 1986, p. 7.) Thus, section 1605.5,
subdivision (a), expressly vests county boards with ‘jurisdiction . . . to adjudicate
change [in] ownership disputes’ between assessors and taxpayers and
‘contemplates’ that such disputes will ‘be resolved by the local appeals board
before resort is made to the courts.’ [Citation.]” (Steinhart, at p. 1311, fn. and
underscoring omitted.)
Seven years later, the Legislature amended section 5142 to affirm that
county boards have “jurisdiction over nonvaluation issues” (§ 5142, subd. (c)),
while simultaneously adding a procedure that allows parties to avoid the
7 In this context, “[a] ‘change in ownership’ means a transfer of a present
interest in real property, including the beneficial use thereof, the value of which is
substantially equal to the value of the fee interest.” (§ 60, italics added.)
10
assessment appeal process if they and “the assessor stipulate that an application
involves only nonvaluation issues,” a stipulation to this effect is filed with the
county board, and the county board accepts this stipulation (id., subd. (b)). The
county board’s acceptance of the stipulation “shall be deemed compliance with the
requirement that the person affected file and prosecute an application for reduction
under Chapter 1 (commencing with Section 1601) of Part 3 in order to exhaust
administrative remedies.” (Ibid.)
Thus, although we have inferred an exhaustion requirement even within
statutory schemes that “ ‘do not make exhaustion of the [administrative] remedy a
condition of the right to resort to the courts’ ” (Flores v. Los Angeles Turf Club,
Inc. (1961) 55 Cal.2d 736, 747), here the relevant statutes provide affirmative
indications of the Legislature’s desire that claims such as plaintiff’s be submitted
to a local board through the assessment appeal process in the first instance as a
prerequisite to later maintaining a refund action under section 5140. Although a
taxpayer’s contention that it does not own nonexempt property subject to an
assessment arguably raises a nonvaluation issue,8 the stipulation procedure
8 It is not always obvious when a dispute poses a valuation question and
when it does not. (Compare, e.g., El Tejon Cattle Co. v. County of San Diego
(1967) 252 Cal.App.2d 449 [regarding a dispute concerning the number of head of
livestock to be assessed as presenting a valuation issue] and Montgomery Ward &
Co. v. Welch (1936) 17 Cal.App.2d 127, 133-134 [treating a claim that the local
tax authority substantially overassessed warehouse inventory as presenting a
question of valuation] with Associated Oil Co. v. County of Orange (1935)
4 Cal.App.2d 5, 9 (Associated Oil) [concluding that exhaustion before the county
board was not required for a claim that the taxpayer had been assessed for 486,096
barrels of oil, when it had produced only 126,132 barrels of oil]; see also Oeser,
Equalization and Cal. Property Tax Exemptions (1972) 5 U.C. Davis L.Rev. 213,
223-224 [discussing the difficulties associated with distinguishing between
valuation issues and nonvaluation issues].) The challenges associated with line
drawing in this context provide additional justification for providing county boards
with an opportunity to assess whether a matter involves only nonvaluation issues,
(Footnote continued on next page.)
11
bespeaks a legislative determination that the county board should, in the first
instance, pass on this question, or decide that it need not do so. Indeed, the whole
stipulation process — part of a “carefully crafted statutory scheme the Legislature
has, within its constitutional authority, put in place” (Steinhart, supra, 47 Cal.4th
at pp. 1312-1313, italics omitted) — would be meaningless, and section 5142,
subdivision (b) would be surplusage, if an exhaustion requirement did not apply to
nonvaluation issues.9 If that were true, there would be no need for a taxpayer to
(Footnote continued from previous page.)
through the stipulation procedure at section 5142, subdivision (b), before a litigant
may resort to the courts. (Cf. Coachella Valley, supra, 35 Cal.4th at p. 1082
[advancing a three-factor test used to decide claims that an agency lacks
jurisdiction, when presented as a rationale to excuse exhaustion].)
9 Plaintiff asserts that section 5142, subdivision (b) applies only to
“taxpayers who are required by section 1605.5 to apply for reduction in
assessment because their dispute involves a change in ownership issue.” The
language of section 5142, subdivision (b), as related in the text, does not admit of
this limitation. Nor, as explained below, does the legislative history of the statute
(Stats. 1993, ch. 387, p. 2214 et seq.) that codified the stipulation procedure.
As plaintiff observes, in the legislative session before the one in which the
stipulation procedure was enacted, a measure was considered that would have
specified that pursuit of an administrative appeal was not necessary to exhaust
administrative remedies for change in ownership disputes. (Sen. Bill No. 1557
(1991-1992 Reg. Sess.) as amended July 30, 1992, § 5 (Senate Bill No. 1557).)
This measure failed to pass. (Steinhart, supra, 47 Cal.4th at p. 1312.)
Enacted in the next legislative session, the Morgan Property Taxpayers’
Bill of Rights (Sen. Bill No. 143 (1993-1994 Reg. Sess.) (Senate Bill No. 143))
codified section 5142, subdivision (b)’s stipulation procedure and an
accompanying affirmation of the generally applicable exhaustion requirement,
which appears at section 5142, subdivision (c). (Stats. 1993, ch. 387, § 8,
p. 2218.) The legislative history for this measure does not manifest an intent that
the stipulation process would apply only to change in ownership disputes. On the
contrary, the pertinent discussions of this provision within legislative materials
speak in more general terms. (E.g., Sen. Revenue & Taxation Com., analysis of
Sen. Bill No. 143 (1993-1994 Reg. Sess.), as introduced Jan. 28, 1993, p. 4
[“Currently a taxpayer may not file a refund claim in court until administrative
(Footnote continued on next page.)
12
seek a stipulation in order to obtain judicial review of a challenge to an assessment
when the dispute did not involve a valuation issue.
Application of the exhaustion rule to the circumstances present here also
advances the purposes served by the exhaustion of administrative remedies
requirement in general. A challenge brought on the ground of nonownership of
assessed property will typically entail a question of fact, as to which
administrative exhaustion through the assessment appeal process would facilitate
the development of a record conducive to judicial review. The parties also might
resolve their disagreement over ownership through the administrative process.
Such an outcome could eliminate the need to pay the tax under dispute and bring a
refund action, and thereby lessen the burden on the courts. Recognizing an
assessment appeal as subsumed within the exhaustion requirement also supplies a
timeline for the presentation and resolution of disputes such as this one. There is a
(Footnote continued from previous page.)
remedies have been exhausted by filing and pursuing an appeal before the county
assessment appeals board. SB 143 would add a provision permitting the taxpayer
and the assessor to stipulate as to the lack of a question of value within a dispute.
The stipulation would satisfy the requirement of filing an application for
reduction, thus exhausting administrative remedies, as required, before going to
court.”].)
Plaintiff asserts that the Legislature did not intend for the stipulation
procedure enacted in 1993 to reach any further than the change in ownership
disputes that were the subject of Senate Bill No. 1557. But regardless of the
intentions that informed Senate Bill No. 1557, the Legislature’s ultimate decision
not to adopt language that would expressly or implicitly limit stipulations under
section 5142, subdivision (b) to change in ownership disputes, together with the
lack of indications within the legislative history of Senate Bill No. 143 that the
Legislature intended such a restriction, establish that the measure cannot be
limited in the manner plaintiff describes. (See Olson v. Automobile Club of
Southern California (2008) 42 Cal.4th 1142, 1155 [giving similarly limited weight
to the legislative history of an earlier, unsuccessful measure].)
13
time frame defined by statute for bringing and resolving an assessment appeal
through administrative channels. (§§ 1603, subds. (b)-(d), 1604, 1605, subds. (b)-
(e).) But no comparable deadline exists when the nullity exception applies.
Where exhaustion is excused, therefore, the predictable result is stale claims like
the one before the court in this case. The passage of time can make these claims
difficult to adjudicate; it also hinders counties’ ability to predict and budget for
revenue.
Plaintiff’s efforts to reconcile its failure to exhaust administrative remedies
with the statutory scheme, meanwhile, are unconvincing. Its arguments primarily
concern the perceived inability of a party in its position to complete the
application for reduction prescribed under section 1603. First, plaintiff asserts that
a taxpayer that does not have a taxable connection to property10 cannot fulfill
section 1603, subdivision (a)’s requirement that an application seeking a reduction
in an assessment include “the applicant’s opinion of the full value of the property.”
The inference plaintiff draws from this alleged roadblock is that a taxpayer that
disclaims such a connection is neither required nor even permitted to file such an
application. This reading of section 1603, subdivision (a) also informs plaintiff’s
construction of other aspects of the framework for assessment appeals. For
example, plaintiff asserts that section 5142, subdivision (b)’s stipulation procedure
applies only to those parties already required to file an application under section
1603, which (according to plaintiff), it did not have to do.
We disagree with this construction of section 1603, subdivision (a).
Although the language discussed above may reflect the reality that most
10 Under section 405, subdivision (a), “the assessor shall assess all the taxable
property in his county, except state-assessed property, to the persons owning,
claiming, possessing, or controlling it on the lien date.”
14
assessment appeals involve what are by any measure valuation disputes, the
requirement that the applicant venture an “opinion of the full value of the
property” (§ 1603, subd. (a)) does not in practice interpose an insuperable obstacle
to an administrative appeal of an assessment when a lack of ownership is asserted,
and we doubt that the Legislature intended it as such. An applicant that disputes
the ownership of assessed property nonetheless might have an informed opinion
about the property’s value. Also, where an applicant asserts that it does not own
some or all of the personal property that has been grouped within a single
assessment, the applicant could provide its estimate of the value of the specific
pieces of property, if any, it concedes it owns (as plaintiff appears to have done in
its 2007 applications). In a worst case scenario, an applicant that claims not to
own property might opine that the true value is unknown, and explain why. A
stipulation filed under section 5142, subdivision (b) must “[t]o the extent
possible . . . indicate the parties’ agreement as to the assessment amounts that
would result under their respective positions on the issue or issues in dispute.”
(Italics added.) Because “[t]he law never requires impossibilities” (Civ. Code,
§ 3531), a similar allowance presumably applies to applications under section
1603, subdivision (a).
Plaintiff also argues that because it disclaims ownership of the property
subject to assessment, it (and others in the same position) cannot execute the
certification required under section 1603, subdivision (f). This certification
provides, in relevant part, “I certify (or declare) under penalty of perjury under the
laws of the State of California that . . . I am (1) the owner of the property or the
person affected (i.e., a person having a direct economic interest in the payment of
the taxes on that property — ‘The Applicant[.]’ ” (See also Cal. Code Regs., tit.
18, § 301, subd. (g) [similarly defining a “ ‘person affected’ or ‘party affected’ ”
as “any person or entity having a direct economic interest in the payment of
15
property taxes on the property for the valuation date that is the subject of the
proceedings . . .”].) Yet regardless of its contention that it does not own the
property involved, plaintiff is a “person affected.” Having been identified by the
County as the party responsible for the tax, it has a “direct economic interest in the
payment of taxes on [the] property.” Plaintiff, and others in its position, therefore
can execute this certification with a clear conscience.11
C. The Nullity Exception and Parr-Richmond
Given that requiring plaintiff to exhaust the administrative remedy provided
by the assessment appeals process would comport with the statutory scheme and
advance the general purposes served by the exhaustion rule, this would be an easy
case but for our decision in Parr-Richmond, supra, 43 Cal.2d 157.
“The doctrine requiring exhaustion of administrative remedies is subject to
exceptions.” (Coachella Valley, supra, 35 Cal.4th at p. 1080.) “These exceptions
are flexible.” (Campbell, supra, 35 Cal.4th at p. 322.) Departures from the
general rule that demands exhaustion therefore are recognized in situations such as
“when the administrative agency cannot provide an adequate remedy” and “when
the subject of [a] controversy lies outside the agency’s jurisdiction.” (Ibid.)
This case does not implicate any of the generally applicable exceptions to
the general exhaustion rule, however. The assessment appeal process does offer
an adequate administrative remedy to a party that claims it was taxed for
11 Although a taxpayer is charged with knowledge of the law, clear notice
regarding both the need to exhaust administrative remedies and the avenues that
exist for doing so will reduce the chance that the taxpayer will inadvertently
violate the law. Therefore, it is advisable for a county to inform a taxpayer in
relevant notices and forms not only of the need to exhaust administrative remedies
through an application for an assessment reduction under section 1603, but also of
the prospect of a stipulation under section 5142, subdivision (b) when a
nonvaluation issue provides the basis of the taxpayer’s challenge.
16
nonexempt property it did not own. And the statutory scheme’s incorporation of
provisions that expressly or implicitly recognize that county boards have authority
to rule on nonvaluation questions in connection with an application seeking a
reduction in assessment on the local roll forecloses any argument that these bodies
lack jurisdiction over these issues.
The nullity exception is instead specific to tax disputes. We have described
this judicially designed rule as follows: “Ordinarily a taxpayer seeking relief from
an erroneous assessment must exhaust available administrative remedies before
resorting to the courts. [Citations.] An exception is made when the assessment is
a nullity as a matter of law because, for example, the property is tax exempt,
nonexistent or outside the jurisdiction [citations], and no factual questions exist
regarding the valuation of the property which, upon review of the board of
equalization, might be resolved in the taxpayer’s favor, thereby making further
litigation unnecessary [citations].” (Stenocord, supra, 2 Cal.3d at p. 987.)
Parr-Richmond, supra, 43 Cal.2d 157, applied this exception to situations
“where the taxpayer attacks the assessment as void because he does not own the
property on which the tax demand was made, there is no question of valuation
which must be presented first to the board of equalization for correction as a
condition for judicial relief.” (Id., at p. 165.) As we explain, insofar as Parr-
Richmond excused a failure to present a claim of nonownership of nonexempt
property for review through the assessment appeal process, we believe it has been
overtaken by developments in the statutory scheme for assessment appeals.
Prior to Parr-Richmond, this court had been circumspect about recognizing
any exception to the already longstanding rule requiring exhaustion of
administrative remedies (see Fall v. City of Marysville (1861) 19 Cal. 391, 393) in
situations where a taxpayer asserted nonownership of assessed property. Henne v.
Los Angeles County (1900) 129 Cal. 297, 299, flatly rejected such an exception,
17
endorsing instead the principle that “ ‘great mischiefs would follow if we were to
hold that an excess of valuation would render an assessment illegal and void. And
it is immaterial whether the excess is caused by including in the valuation property
of which the person taxed is not the owner, or that for which he is not liable to be
taxed. In both cases the remedy is the same. . . . His only remedy is application
for abatement.’ ” (Quoting Osborn v. Danvers (Mass. 1827) 6 Pick. 98, 100.)
In 1911, however, Brenner v. Los Angeles (1911) 160 Cal. 72 (Brenner)
partially repudiated this view. The court in Brenner announced that “we are of the
opinion that, in so far as Henne v. County of Los Angeles places in the same
category the mere over-valuation of property in an assessment thereof, and the
inclusion in such an assessment of property not taxable at all, that case should be
overruled.” (Id., at p. 76, italics added.) In Brenner, an assessment of real
property did not deduct from the valuation the amount of a mortgage owned by the
University of California, which was exempt from taxation. (Id., at pp. 73, 79.)
The taxpayer “had no notice of the assessor’s error until long after the possibility
of seeking relief from the board of equalization had passed.” (Id., at p. 75.)
Brenner held that under the circumstances presented, the taxpayer’s failure to seek
relief from the board of equalization did not bar the filing of a refund action. The
court resolved, “it is time to renounce the doctrine that money paid under protest
for taxes on property not liable to assessment cannot be recovered unless
application is made for correction of the assessor’s error before the period of
equalization fixed by law has passed.” (Id., at p. 76, italics added.) In summing
up the consequences of its affirmance of the judgment below, Brenner reiterated
that “[b]y the judgment of the superior court herein the city of Los Angeles lost
not a cent of taxes rightfully due upon plaintiff’s property, while upon the opposite
conclusion, plaintiff would be muleted, not for taxes due from some one else
18
which through error or carelessness he had paid, but for a charge upon property
free from any legitimate assessment by the city at all.” (Id., at p. 80, italics added.)
Brenner, the principal wellspring of the nullity doctrine, is therefore
distinguishable in two respects from this case: It involved a taxpayer who had no
knowledge of the factual basis for his assessment dispute until after the window
for challenging the assessment had closed, and the assessment was imposed on
exempt property beyond the authority of the local board to tax, i.e., property that
was “not taxable at all” and “not liable to assessment.” (Brenner, supra, 160 Cal.
at p. 76.) Here, it is not asserted that the farm equipment that is the subject of the
dispute is “not taxable at all.” Instead, the question is who should pay the tax.
This difference matters because it affects the policy considerations that, in turn,
inform construction of the exhaustion doctrine. Property that is exempt as a matter
of law lies beyond the power of a local government to tax at any time. By
contrast, had plaintiff timely presented and pursued an assessment appeal and
established that it was not the owner of this equipment, the County could have
identified the actual owner and imposed escape assessments on it, instead. Now it
would be too late. (See § 532, subds. (a), (b) [relating the standard deadlines for
imposition of escape assessments].)
Security-First Nat. Bk. v. County of L.A. (1950) 35 Cal.2d 319 confirmed
that the exception to the exhaustion requirement that we recognized in Brenner,
supra, 160 Cal. 72, was both informed and limited by public policy considerations.
In Security-First, this court held that a bare assertion that property was exempt
from taxation would not justify a failure to exhaust administrative remedies. As
Brenner had, Security-First premised its exhaustion analysis on whether the
property associated with the allegedly improper assessment lay beyond the legal
authority of the board to tax. The taxpayer in Security-First asserted that it was
not required to exhaust administrative remedies prior to filing suit to challenge an
19
assessment imposed on its bank vault doors and counterlines, because these
fixtures were “ ‘exempt’ from taxation under constitutional principles.” (Security-
First, at p. 321.) After recognizing what it described as the “nullity” exception to
the general exhaustion requirement, the Security-First court rejected this effort to
expand the Brenner rule, explaining that “[t]he vault doors and counterlines
admittedly were located within the county, city and district in which they were
assessed. Clearly, they were property of a nature taxable by defendants.
[Citation.] The fact that similar property of others had been systematically
misclassified as personalty and therefore relieved of the burden of special
assessment district taxes would ordinarily require that plaintiff also be excused
from paying such taxes. [Citation.] It does not follow, however, that plaintiff’s
vault doors and counterlines were tax exempt as claimed.” (Security-First, at
p. 321.) The court continued, “although plaintiff would have been entitled to
recover a discriminatory tax upon its vault doors and counterlines, such property
was nevertheless taxable. In fact, the board of equalization could have eliminated
the discrimination by directing the assessor to enter the misclassified fixtures
owned by others as real property upon the assessment roll [citation], in which case
plaintiff would not be excused from paying, or entitled to recover, the special
district taxes. Plaintiff’s failure to make timely application for relief before the
board precluded the adoption of that means of equalization.” (Id., at p. 322,
italics added.) Security-First thus emphasized the consequences that avoiding
exhaustion had not only for the taxpayer, but also for local government and its
collection of revenue.
Parr-Richmond, supra, 43 Cal.2d 157, also involved a taxpayer’s claim that
property was exempt from taxation. There, the plaintiff brought two actions to
recover taxes paid under protest. The gist of the plaintiff’s claim was that it had
been taxed as if it was the owner of a fee interest in two parcels of real property,
20
when in fact at the relevant times it had only a “ ‘qualified and contingent
possessory interest’ ” in the property. (Id., at p. 159.) The true owner, according
to the plaintiff, was the federal government, which had not yet transferred title to
it. (Id., at p. 160.) As was true in Brenner, the government’s fee interest in Parr-
Richmond would have been tax exempt. The county argued that the plaintiff’s
action was barred because it raised “a question of valuation which should have
been presented to the board of equalization [as a prerequisite to] judicial review.”
(Id., at p. 164.)12 The plaintiff retorted that it was not alleging an overvaluation,
“but rather . . . a claim of illegality . . . in toto as based on an erroneous
ownership — the fee interest . . . , not its revocable possessory interest in the
property, a separate taxable item which was not recognized and assessed at all.”
(Ibid.)
Parr-Richmond, supra, 43 Cal.2d 157, determined that the “[p]laintiff is
correct in its distinction as to the necessity for recourse to the board of
equalization prior to resort to the court. Where the owner of property rights claims
that the tax assessment overvalued what he owned, he may not attack the
determination of a board of equalization in court unless he has fully and fairly
presented the question of the value of his property to the board. [Citations.] But
where the taxpayer attacks the assessment as void because he does not own the
property on which the tax demand was made, there is no question of valuation
which must be presented first to the board of equalization for correction as a
12 The plaintiff in Parr-Richmond, supra, 43 Cal.2d 157, alleged in its
complaint that it had filed petitions for cancellation of the assessments with the
local board of equalization, only to have these petitions denied. Before the trial
court, however, the plaintiff stipulated that these allegations regarding “ ‘demand
and refusal’ ” were surplusage, and could be struck. (Id., at p. 164.)
21
condition for judicial relief.” (Id., at pp. 164-165, italics added.) Parr-Richmond
cited Brenner for this proposition. (Parr-Richmond, at p. 165.) Parr-Richmond
then quoted Associated Oil, supra, 4 Cal.App.2d at page 9: “ ‘While in one sense
it is true that almost any mistake which results in an excessive assessment amounts
to an overvaluation of the property of a taxpayer, we think there is a real and
distinct difference between those cases in which it may properly be said that the
error is one of overvaluation and those cases in which the overvaluation is a mere
incidental result of an erroneous assessment of property which should not have
been assessed.’ ” (Parr-Richmond, at p. 165.) “So here,” the Parr-Richmond
court concluded, “plaintiff’s theory of relief — from an illegal tax because it was
levied against a greater property interest than it allegedly owned . . . did not
require its prior application to the board of equalization before recourse to the
court.” (Ibid.)
As was true in Brenner, the dispute in Parr-Richmond concerned a property
interest that was exempt from taxation as a matter of law. Therefore, Parr-
Richmond did not need to expand the basic principle, announced in Brenner and
reaffirmed in Security-First, that the nullity exception applies in circumstances
where a taxpayer claims not to own assessed property or a property interest and it
is readily ascertainable that the property or interest lies beyond the county’s legal
authority to tax. When these conditions are met, a dispute will not squarely
implicate the county board’s valuation expertise, and the other public interests
advanced by exhaustion — including the ability of the government to timely
anticipate and collect revenue — would not be unduly compromised by allowing a
refund action to proceed without prior exhaustion through an assessment appeal.
By comparison, a simple disclaimer of ownership of properly taxable property, on
its own, does not meet these criteria. Even if this property is not owned by the
originally assessed party, it presumably remains taxable, and prompt resolution of
22
ownership issues through an assessment appeal will allow a county to identify the
proper owner and take appropriate steps to recover the taxes that are owed.
D. Subsequent Developments in the Law
Moreover, subsequent developments in the law have undermined the notion
that an assertion of nonownership of nonexempt assessed property provides a
sufficient basis on its own for avoiding the statutory assessment appeal process.
On this point, we observe at the outset that in the few instances where this court
has revisited the nullity exception since Parr-Richmond was decided, we have not
specifically identified, even in dicta, a bald disavowal of ownership of assessed
property as an independent ground for invoking the nullity exception. In Star-Kist
Foods, Inc. v. Quinn (1960) 54 Cal.2d 507 (Star-Kist), we explained that “[p]rior
application to the local board of equalization has not been required . . . in certain
cases where the facts were undisputed and the property assessed was tax-exempt
[citations], outside the jurisdiction [citation], or nonexistent [citations].” (Id., at
p. 510.) Our description in Stenocord, supra, 2 Cal.3d 984, of situations
implicating the nullity exception, though exemplary, also did not include claims of
nonownership. (Id., at p. 987.)
Furthermore, our intervening decisions construing the nullity exception
have established that invocation of this exception is inappropriate in situations
where an administrative appeal could eliminate the need for subsequent court
proceedings by clarifying the facts underlying a dispute. Star-Kist, supra, 54
Cal.2d 507, excused the plaintiff’s failure to bring an administrative assessment
appeal on the ground that the sole issue pressed by the plaintiff was that a tax
statute was “unconstitutional on its face,” and “[a]s in cases involving only the
question whether property is taxable, there is no question of valuation that the
local board of equalization had special competence to decide. There is no dispute
23
as to the facts and no possibility that action by the board might avoid the necessity
of deciding the constitutional issue or modify its nature.” (Id., at p. 511.) A
decade later, however, Stenocord, supra, 2 Cal.3d 984, clarified that this
“unconstitutional on its face” exception is limited, and subject to prudential
considerations. Stenocord observed that “[i]f any question of valuation exists, it
would be irrelevant that plaintiff also challenges the assessment as ‘arbitrary’ or
void on constitutional grounds. [Citations.] If prior recourse to the board on the
question of valuation might have avoided the necessity of deciding the
constitutional issue, or modified its nature, plaintiff’s action was properly
dismissed.” (Id., at p. 988.) Here, the parties and their supporting amici curiae
dispute whether plaintiff’s contentions of nonownership present “any question of
valuation.” Nevertheless, Stenocord’s rationale for requiring exhaustion
unquestionably applies — the County’s assessment appeals board was and is
capable of resolving disputed issues of ownership, and the resolution of this issue
could have eliminated the need for a refund action in the courts.
Reforms to the assessment appeal process since Parr-Richmond was
decided also establish that today, a simple claim of nonownership of nonexempt
property does not provide a sufficient basis for invoking the nullity exception. As
discussed ante, statutory adjustments to and clarifications of the assessment appeal
process, and in particular the addition of the stipulation procedure found at section
5142, subdivision (b), are inconsistent with the position that a naked claim of
nonownership of assessed property provides a sufficient basis for avoiding
exhaustion through a timely assessment appeal. Meanwhile, other changes in the
law have made the assessment appeal process a more effective remedy than it had
been at the time Parr-Richmond was decided, and in doing so have weakened the
case for applying the nullity exception in a situation such as this one.
24
When this court decided Parr-Richmond, the assessment appeal process
was informal and incorporated few features conducive to the development of a
robust record. Prior to 1962, county boards of supervisors performed the function
of local boards of equalization. (See Early, Local Equalization Practice in
California (1964) 4 Santa Clara Law. 147, 147.) As so constituted, these boards
were sometimes criticized as having insufficient time and expertise to competently
address assessment issues. (Id., at p. 163; see also Ehrman, Administrative Appeal
and Judicial Review of Property Tax Assessments in Cal. — The New Look (1970)
22 Hastings L.J. 1, 13 (Administrative Appeal).) Meanwhile, the limited ability of
taxpayers to develop a record before the county board made it difficult to
effectively challenge assessments through the appeal process. Few tools existed to
aid the taxpayer in mounting such a challenge, and some important information
could be difficult to obtain. For example, prior to 1961, a statute directed that
“information and records in the assessor’s office which are not required by law to
be kept or prepared by the assessor are not public documents and shall not be open
to public inspection.” (Former § 408, added by Stats. 1941, ch. 604, p. 2051.)
Describing these limitations on a taxpayer’s ability to challenge an assessment,
one commentator observed that “[b]efore 1967” a taxpayer “could not obtain
meaningful information from the assessor as to the basis of the assessment and
therefore had no handle for an attack.” (Administrative Appeal, supra, 22
Hastings L.J. at p. 7.)
In the 1960s, however, the Legislature took substantial steps to make the
assessment appeal process a more effective mechanism for challenging an
assessment, and to improve the ability of a taxpayer to develop an administrative
record that could usefully inform subsequent judicial proceedings. In 1962 and
1966, the state Constitution was amended to allow counties to create special
appointive appeals boards to hear taxpayer protests of their property tax
25
assessments. (Administrative Appeal, supra, 22 Hastings L.J. at p. 13; see Cal.
Const., art. XIII, § 16 [“[t]he county board of supervisors, or one or more
assessment appeals boards created by the county board of supervisors, shall
constitute the county board of equalization for a county”].) In 1961, the
Legislature amended the statutory disclosure rule to provide that “[t]he assessor
shall permit an assessee of property to inspect at the assessor’s office any
information and records, whether or not required to be kept or prepared by the
assessor, relating to the appraisal and the assessment of his property, except
information and records which also relate to the property or business affairs of a
person other than the assessee.” (§ 408, subd. (b), as added by Stats. 1961,
ch. 1076, § 1, p. 2809.) Other changes to the assessment appeal process entitled a
party to demand written findings of fact from the board, and imposed requirements
that assessment appeal proceedings be transcribed and a copy of the transcript be
provided to the taxpayer upon request. (§ 1605, as amended by Stats. 1966, 1st
Ex. Sess. 1966, ch. 147x, § 71, p. 672.) These and other related reforms were
described as amounting to a “procedural revolution,” with the effect that “for the
first time in the state’s history, a California taxpayer’s representative can invoke
laws that guarantee him access to and the time to gather the information he needs
to prepare a case, prescribe a specified standard for assessment, provide a means
to more expertise on the part of reviewing authorities, and expand the scope of
judicial review.” (Administrative Appeal, supra, 22 Hastings L.J. at p. 2.)13
13 More recent reforms to the assessment appeal process include the
recognition of a “rebuttable presumption affecting the burden of proof in favor of
the taxpayer or assessee who has supplied all information as required by law to the
assessor in any administrative hearing involving the imposition of a tax on an
owner-occupied single-family dwelling, the assessment of an owner-occupied
single-family dwelling pursuant to this division, or the appeal of an escape
assessment” (§ 167, subd. (a)), except “in the case of an administrative hearing
(Footnote continued on next page.)
26
In light of these developments, to the extent that Parr-Richmond, supra,
43 Cal.2d 157, regarded the nullity exception as applicable to basic claims of
nonownership of nonexempt assessed property, ample reason exists to revisit this
view. Back in 1954, Parr-Richmond may have regarded assessment appeal
proceedings before a board of equalization, when a claim of nonownership was
involved, as having little value in advancing the purposes served by the exhaustion
rule. But it is apparent that such proceedings before a county board can serve
useful purposes today. And, as discussed, we regard Parr-Richmond’s extension
of the nullity rule as inconsistent with modern manifestations of legislative intent
to channel disputes such as the one involved here toward county boards for initial
review. We therefore overrule Parr-Richmond Industrial Corp. v. Boyd, supra,
43 Cal.2d 157, to the extent that it extended the nullity exception to situations
where the sole basis for invoking the exception is an assertion of nonownership of
nonexempt property.
E. Prospective Application
Nevertheless, we recognize that a taxpayer in plaintiff’s position might
have reasonably relied on our decision in Parr-Richmond to believe it was
unnecessary to timely exhaust its administrative remedies through the assessment
appeal process before filing a tax refund claim and bringing a refund action
pressing a claim of nonownership of the assessed property. For this reason, we
conclude that our holding should apply only prospectively.
(Footnote continued from previous page.)
with respect to the appeal of an escape assessment resulting from a taxpayer's
failure either to file with the assessor a change in ownership statement or a
business property statement, or to obtain a permit for new construction” (id., subd.
(b)).
27
“ ‘Although as a general rule judicial decisions are to be given retroactive
effect [citation], there is a recognized exception when a judicial decision changes a
settled rule on which the parties below have relied. [Citations.] “[C]onsiderations
of fairness and public policy may require that a decision be given only prospective
application. [Citations.] Particular considerations relevant to the retroactivity
determination include the reasonableness of the parties’ reliance on the former
rule, the nature of the change as substantive or procedural, retroactivity’s effect on
the administration of justice, and the purposes to be served by the new rule.” ’ ”
(Claxton v. Waters (2004) 34 Cal.4th 367, 378-379.)
We believe that the present circumstances bring this case within the
exception to the general rule. The language in Parr-Richmond was unequivocal,
lending itself to reasonable reliance by plaintiff and others in its position.
Refusing to apply Parr-Richmond here, therefore, “would unfairly undermine the
reasonable reliance of parties on the previously existing state of the law.”
(Newman v. Emerson Radio Corp. (1989) 48 Cal.3d 973, 983.) Furthermore,
“[l]imiting the retroactivity of our decision is also indicated by the nature of the
change effected by the new rule. . . . Prospective application will not remove any
substantive defense to which defendants would otherwise be entitled. Retroactive
application of the change, on the other hand, would bar plaintiffs’ actions
regardless of their merits. Retroactive application of an unforeseeable procedural
change is disfavored when such application would deprive a litigant of ‘any
remedy whatsoever.’ [Citations.]” (Woods v. Young (1991) 53 Cal.3d 315, 330.)
In subsequent proceedings before the superior court, the County remains free to
argue that plaintiff did in fact have a sufficient taxable connection to the assessed
property at the relevant times. These facts “draw [this case] apart from the usual
run of cases,” making prospective-only application of our holding proper.
(Newman, 48 Cal.3d at p. 983.)
28
F. Statute of Limitations
Finally, the County argues that plaintiff’s action is barred by the statute of
limitations because plaintiff did not file its refund claim within three years of
submitting its applications for cancellation of assessments to the clerk of the board
of supervisors on June 13, 2007. The County’s argument derives from section
5097, subdivision (a)(3)(A)(ii), which provides that a plaintiff has one year to file
a tax refund claim, running from “the expiration of the [two-year] time period
specified in subdivision (c) of Section 1604 if the county assessment appeals board
fails to hear evidence and fails to make a final determination on the application for
reduction in assessment or on the application for equalization of an escape
assessment of the property.” The County regards this language as pertinent here,
so that plaintiff had until June 13, 2010 (one year after the close of the two-year
period) to pay the taxes and file its refund claim, making its 2012 filing untimely.
The fatal flaw in this argument is that section 5097, subdivision
(a)(3)(A)(ii) contemplates the prior filing of an application for assessment
reduction under section 1603. Here, plaintiff never filed such an application.
Instead, plaintiff attempted to file applications to cancel the assessments under
section 4986, and as we have determined, plaintiff reasonably relied on our Parr-
Richmond precedent in opting not to pursue a reduction in assessment through an
administrative appeal. Thus, the County cannot now persuasively assert that the
2007 filing implicates the limitations period set forth in section 5097, subdivision
(a)(3)(A)(ii).
29
III. CONCLUSION
Henceforth, a claim of nonownership of nonexempt assessed property, by
itself, will not provide a sufficient basis for invoking the nullity exception and
thereby avoiding the assessment appeal process when a taxpayer seeks a reduction
in an assessment on the local roll. We overrule our decision in Parr-Richmond
Industrial Corp. v. Boyd, supra, 43 Cal.2d 157, insofar as it related a contrary rule.
But because our holding operates only prospectively, we affirm the judgment of
the Court of Appeal, and remand this matter for further proceedings consistent
with this opinion.
CANTIL-SAKAUYE, C. J.
WE CONCUR:
WERDEGAR, J.
LIU, J.
CUÉLLAR, J.
KRUGER, J.
30
CONCURRING AND DISSENTING OPINION BY CHIN, J.
The majority emphasizes the benefits of administrative exhaustion, making
statements of policy that I embrace in principle but find to be irrelevant to the
matter before us. (Maj. opn., ante, pp. 6–7, 13–14, 16–17, 23–24, passim.) This
case is not about whether a taxpayer bringing a refund action under Revenue and
Taxation Code1 section 5140 must exhaust administrative remedies. Rather, it is
about whether such a taxpayer must pursue a specific avenue of exhaustion that,
by its own terms, does not apply to the type of claim plaintiff is making.
Section 5142 states the administrative prerequisites that apply to tax refund
actions. Subdivision (a) provides in relevant part: “No action shall be
commenced or maintained under this article [commencing with section 5140] . . .
unless a claim for refund has first been filed pursuant to Article 1 (commencing
with Section 5096).” Section 5096 authorizes the administrative refund of taxes
that are “[e]rroneously or illegally collected” or “[i]llegally assessed or levied,”
and section 5097 provides that taxes cannot be refunded except “on a claim[]
[¶] . . . [v]erified by the person who paid the tax, his or her guardian, executor, or
administrator.” The claim must be “in writing,” and it must specify “[t]he grounds
on which the claim is founded.” (§ 5097.02.) In limited situations (including
1 All further undesignated statutory citations are to the Revenue and Taxation
Code.
1
corrections of errors on the tax roll as to amount, cancellations of taxes after
payment, and assessment reductions after a hearing), the tax collector or the
auditor can refund taxes (§ 5097.2), but otherwise refund claims are decided by
the board of supervisors (see §§ 5099, 5140, and 5141). The board of supervisors
is of course empowered to hold a hearing, subpoena witnesses, and make findings
of fact, to the extent it deems those steps appropriate. (Gov. Code, §§ 25170,
25207.) Thus, a refund claim is, by itself, a fully adequate avenue of
administrative exhaustion, affording a full evidentiary hearing when one is
deemed necessary to resolve factual issues.2 The majority is simply wrong to the
extent its conclusions are driven by the perceived need to provide an “adequate”
(maj. opn., ante, pp. 5, 16; see id., pp. 23–27) means of administrative exhaustion.
Plaintiff here alleges that as of the lien date it did not own the property
being taxed and had no other obligation to pay taxes on the property. (See § 405,
subd. (a).) The majority does not dispute that plaintiff filed the requisite claim for
2 Although a refund claim is, by itself, a fully adequate administrative
remedy, I do not contend that a refund claim is the only administrative remedy that
a taxpayer must exhaust. To the extent the statutory scheme makes other
nonduplicative administrative remedies available, and to the extent the taxpayer
knows or should know of its claim during the relevant time frame, the taxpayer
must exhaust those other remedies, too. (See Coachella Valley Mosquito & Vector
Control Dist. v. California Public Employment Relations Bd. (2005) 35 Cal.4th
1072, 1080 [“In general, a party must exhaust administrative remedies before
resorting to the courts” and “an administrative remedy is exhausted only upon
‘termination of all available, nonduplicative administrative review
procedures.’ ”].) For example, a taxpayer who hopes to prosecute a refund action
under section 5140 arguing that the assessment was too high must first apply to the
county board for an assessment reduction under section 1603 before paying the
disputed tax and filing a refund claim. Similarly, a taxpayer who hopes to
prosecute a refund action under section 5140 arguing that the tax was in error or
illegal, and who knows of the error or illegality at the time the tax is levied, must
first apply to the auditor for cancellation under section 4986 before paying the
disputed tax and filing a refund claim.
2
a refund under section 5097, and that the claim met the requirements of section
5097.02. The majority insists, however, that before filing a refund claim, a
taxpayer denying ownership must file an assessment reduction application under
section 1603. Not so.
Section 1603, subdivision (a) provides in relevant part: “A reduction in an
assessment on the local roll shall not be made unless the party affected or his or
her agent makes and files with the county board a verified, written application
showing the facts claimed to require the reduction and the applicant’s opinion of
the full value of the property.” (Italics added.) Thus, an assessment reduction
application under section 1603 is, by its terms, a precondition to the county board
reducing the amount of an assessment on the local assessment roll, which occurs
during the period when the board is equalizing the assessment roll before the tax is
levied. Section 1603 does not state that it is a precondition of any other type of
decision or action a county might make with respect to the payment or refund of
taxes. It may be that the vast majority of claims that taxpayers bring before the
county seek to reduce the assessment amount, and therefore counties may be
accustomed to such claims, but if a taxpayer is not seeking to reduce the amount of
the assessment, section 1603 places no limitation on the county’s ability to provide
the taxpayer a remedy, and nothing in the statutory text obligates the taxpayer to
proceed under section 1603.3 The majority has no response to this textual
3 Defendant argues that, irrespective of how plaintiff has pleaded its claim,
the claim is really an assessment reduction claim. Defendant points out that in
assessing plaintiff’s personal property, it bundled that property and assessed it as a
whole. Plaintiff seeks to unbundle the assessment, arguing that on the relevant
lien dates, it did not own most of the personal property that defendant assessed,
but because plaintiff admits to owning at least some of that property, it has been
asking defendant to reduce the overall assessment. Defendant argues that because
plaintiff seeks to reduce the overall assessment, its claim is really an assessment
(Footnote continued on next page.)
3
argument. In fact, the majority misunderstands what an “assessment reduction” is.
A bit of statutory history will help to elucidate the point.
(Footnote continued from previous page.)
reduction claim that needed to be brought in the first instance before the local
board by way of an application under section 1603.
Defendant’s argument is not persuasive. Defendant is correct that a single
bundled assessment of all personal property is permitted (§ 602, subds. (d) & (i);
El Tejon Cattle Co. v. County of San Diego (1967) 252 Cal.App.2d 449, 459), but
a county cannot, by bundling various items of personal property that a taxpayer
does not own with other items that the taxpayer owns, force the taxpayer to bring a
nonownership claim by way of a section 1603 application. As this court said in
Parr–Richmond, “ ‘[w]e think there is a real and distinct difference between those
cases in which it may properly be said that the error is one of overvaluation and
those cases in which the overvaluation is a mere incidental result of an erroneous
assessment of property which should not have been assessed.’ ” (Parr–Richmond
Industrial Corp. v. Boyd (1954) 43 Cal.2d 157, 165 (Parr–Richmond); see
Lockheed Aircraft Corp. v. County of L.A. (1962) 207 Cal.App.2d 119, 124, 127
[county assessed personal property as a bundle; taxpayer claimed that, as of lien
date, some property had been sold; taxpayer brought refund action without first
applying to county board for assessment reduction; court permitted judicial inquiry
into whether county had assessed property not subject to taxation; “Where, as
here, the assessor lumps in a single entry, ‘Personal Property $22,640,370,’
judicial review would be unnecessarily restricted if the court could not inquire as
to what property the assessor intended to include.”].) For the contrary rule,
defendant relies on El Tejon Cattle Co., supra, 252 Cal.App.2d 449, but that case
is easily distinguished because it involved numerous units of property having the
same generic character (see id. at p. 456), and the dispute was over the number of
such units. Thus, it was a valuation case.
Defendant also argues that plaintiff’s action is barred by the statute of
limitations (see § 5097, subd. (a)(3)(A)(ii)) because plaintiff did not file its refund
claim within three years of its belated filing of applications for assessment
reductions under section 1603. Defendant is referring to the time when plaintiff
submitted applications to the county board asking to cancel the disputed
assessments under section 4986. (See maj. opn., ante, p. 4.) The obvious problem
with this argument is that plaintiff never filed applications for assessment
reductions under section 1603, and plaintiff had no obligation to do so.
4
In 1939, the Legislature enacted the Revenue and Taxation Code,
incorporating into that code various tax provisions from the Political Code. What
is now section 1603 of the Revenue and Taxation Code was enacted in 1939 as
section 1607. (Stats. 1939, ch. 154, § 1607, p. 1302.) At that time, the assessor
had to complete the local assessment roll by the first Monday in July of each year
(id., § 616, p. 1293), and the board of supervisors, sitting as a board of
equalization, had until the third Monday in July (two weeks later) to equalize the
assessments on the roll (id., § 1603, p. 1302). Equalization is a process whereby
assessments on the roll are reduced or increased to comply with section 401’s
requirement that property be assessed at value, which in 1939 was defined, more
or less, as market value (Stats. 1939, ch. 154, § 110, p. 1277). (See Eastern–
Columbia, Inc. v. Los Angeles County (1943) 61 Cal.App.2d 734, 743 [“The
purpose of the board of equalization is to see that all properties in the county are
‘equalized’; that is to say that the assessor appraise all properties in the county at a
constant level of opinion as to market value and keep all properties in their proper
relationship one to the other.”].) In 1939, former section 1607 merely provided
that the county board could not reduce an assessment unless an interested party
filed an application with the board, showing facts in support of the reduction.
(Stats. 1939, ch. 154, § 1607, p. 1302.) Its placement among the statutory
provisions dealing with the equalization process confirms that it had to do with
assessment amounts and nothing else. County boards could increase assessment
amounts on their own initiative, but they could not reduce assessment amounts
without an application under former section 1607.
In 1939, former section 1607 did not contain any time limitation, but as a
practical matter, the application for an assessment reduction had to be filed during
the two-week period between the completion of the assessment roll by the assessor
and the county board’s deadline for equalizing the assessments, because three days
5
after that deadline, the clerk of the county board had to deliver the “corrected local
roll” to the auditor. (Stats. 1939, ch. 154, § 1614, p. 1303.) The state Board of
Equalization then met until the third Monday in August (a month later), providing
intercounty equalization of the assessment roll (id., § 1831, p. 1305), after which
the tax was levied (id., §§ 2151, 2152, p. 1307) and sections 4986 and 5096 came
into play.
When enacted, former section 4986 empowered the board of supervisors to
cancel an uncollected tax if it was levied “[e]rroneously or illegally” (Stats. 1939,
ch. 154, § 4986(b), p. 1366), and former section 5096 empowered the board of
supervisors to refund a collected tax if it was “[e]rroneously or illegally collected”
(Stats. 1939, ch. 154, § 5096(b), p. 1370).
Thus, the statutory scheme envisioned at least three forms of administrative
relief that a taxpayer might pursue at distinct stages in the process, each applicable
to the issues under consideration at the stage in question: During the equalization
of the assessment roll before the tax was levied, the taxpayer could apply for an
assessment reduction, challenging the assessment amount as stated on the roll
(former § 1607). After the tax was levied, but before it was collected, the taxpayer
could apply for cancellation of the tax (former § 4986).4 And if those two
4 The statutory scheme does not make any express provision for the filing of
an application under section 4986, but decisions dating back to the 1930s hold
that, at least in the case of a party claiming to be tax exempt, section 4986 is not
self-executing and the tax-exempt party must apply before a tax can be cancelled.
(City of Pasadena v. Chamberlain (1934) 1 Cal.App.2d 125, 133–134 [construing
the predecessor section to section 4986; holding that the provision allowing for the
cancellation of a tax when the property is sold to a tax-exempt party after the tax
lien date is not self-executing].) Also, section 4986 has, since 1941, required
“satisfactory proof” (§ 4986, subd. (a)), which implies a contested proceeding
initiated by an interested party. Finally, section 4986 has, since 2004, referred to
the “initiat[ion]” of a “cancellation action” (§ 4986, subd. (c)), again implying a
(Footnote continued on next page.)
6
alternative remedies were inadequate to resolve the claim, then after collection of
the tax, the taxpayer could seek a refund of the payment (former § 5097). Thus, it
appears that former section 4986 (followed, if necessary, by a refund claim under
former §§ 5096 & 5097) was intended as the avenue of administrative exhaustion
for taxpayer claims alleging errors or other issues that did not call into question the
amount of the assessment, whereas former section 1607 (again followed, if
necessary, by a refund claim under former §§ 5096 & 5097) was intended for
taxpayer claims disputing the assessment amount. (See Montgomery Ward & Co.
v. Welch (1936) 17 Cal.App.2d 127, 131 [“In the case of an erroneous or illegal
assessment the board of supervisors may refund [under former § 5096] the amount
paid under protest or cancel the entire assessment under [former § 4986,
but] . . . in cases of mere overvaluation of property, relief is to be obtained by
making timely objection [under former § 1607] before the board of supervisors
sitting as a board of equalization.”].)
Several changes in the law were made in 1966. For example, the voters
adopted a constitutional amendment that year, authorizing counties to create
specialized assessment appeals boards to equalize the assessment roll, and most
(Footnote continued from previous page.)
contested proceeding. Thus, it is clear that a taxpayer must invoke section 4986
by applying for cancellation.
It is not clear, however, whether a taxpayer can apply for cancellation of an
uncollected tax after delinquency. In my view, a taxpayer cannot. If a taxpayer
could allow a tax to become delinquent and then bring a cancellation application
without having to pay the tax, the taxpayer could delay indefinitely without
concern for the rapidly accumulating, nonrefundable penalties that apply to the
redemption of property after tax default (see § 4103). Rather, the statutory scheme
has always contemplated that once a tax becomes delinquent, the taxpayer is
obligated to pay it (along with all applicable penalties) before seeking
administrative relief.
7
counties have done so.5 (Cal. Const., art. XIII, § 16.) These assessment appeals
boards must be comprised of members who have relevant professional experience
(such as experience in property appraisal, since the valuation of property is the
essence of the equalization process). (§§ 1624, 1624.05.) The creation of the
assessment appeals boards relieved the burden on the boards of supervisors as
regards a type of taxpayer claim that was particularly common (assessment
reduction claims), but it did not imply that application to the board of supervisors
for resolution of other types of claims was somehow an inadequate administrative
remedy. Moreover, because these assessment appeals boards were created by a
constitutional amendment that transferred governmental authority previously
granted only to the boards of supervisors, the assessment appeals boards only have
the power that the state Constitution grants to them, which is the power to
“equalize the values of all property on the local assessment roll by adjusting
individual assessments.” (Cal. Const., art. XIII, § 16.) Thus, the majority, by
expanding the authority of the assessment appeals boards to hear nonownership
claims, not just equalization claims, ignores the express constitutional constraints
placed by the voters on such boards. If the voters had wanted to transfer
nonownership claims to the assessment appeals boards, it could have done so, but
it did not. (See ibid.) The majority has no answer for how either the Legislature
or this court can expand the jurisdiction of the assessment appeals boards to cover
claims that do not relate to assessment amount.
Also in 1966, the Revenue and Taxation Code was amended so that the
county boards no longer had to complete the work of equalizing assessments by
the third Monday in July; instead, they could “continue in session . . . , from time
5 In referring in this opinion to the “county board,” I mean either the local
board of equalization or the local assessment appeals board, as the case may be.
8
to time, until the business of equalization is disposed of.” (§ 1603, as amended by
Stats. 1966, ch. 147, § 70, p. 671.) And with that amendment, former section 1607
was also amended to require that applications for assessment reduction be filed by
September 15. (Stats. 1966, ch. 147, § 72, p. 672.) The latter deadline has been
revised several times in subsequent enactments, and in 1974, former section 1607
was renumbered as section 1603 (Stats. 1974, ch. 180, § 13, p. 359), but former
section 1607 (now § 1603) has always been directed to the equalization process,
and more particularly to reduction in the amount of the assessment.
The deadline for filing an assessment reduction application was added in
1966 because of the decision to relieve the county boards of the obligation of
completing the equalization process within two weeks. In the absence of that two-
week limitation, an end date was needed for the filing of assessment reduction
applications. There is no reason, however, for the deadline governing assessment
reduction applications to also govern other claims a taxpayer might raise, since
assessment reduction is related to the equalization process, which occurs before
the tax is levied, whereas other taxpayer claims will arise (or ripen) after the tax is
levied.6 But contrary to the view expressed by the majority (maj. opn., ante, pp.
13–14, 19, 22–23), taxpayer claims that do not relate to the assessment amount are
still governed by appropriate time constraints, as I discuss in more detail below.
(See pp. 20-24, post.)
In 1970, section 4986 was amended to permit the cancellation of collected
taxes as well as uncollected taxes. (Stats. 1970, ch. 129, § 3, p. 357.) With that
6 It merits noting that the expedited timeline that governs assessment
reduction applications is also warranted because such proceedings often concern
questions of market valuation, and market conditions can change rapidly. Other
types of taxpayer claims are not necessarily subject to the same urgency.
9
change, the line began to blur between section 4986 applications (which were
originally pre-collection proceedings) and section 5097 refund claims (which are
post-collection proceedings). As a result of the 1970 amendment, these two forms
of administrative exhaustion now overlap to some extent, allowing a taxpayer that
has paid a tax to bring a cancellation application in addition to a refund claim. In
2004, section 4986 was further amended to add subdivision (c), providing that if
the tax is collected more than four years after enrollment of the tax bill,
cancellation of the tax is permitted so long as the cancellation action is initiated
within 120 days of the payment of the tax. Thus, subdivision (c) expressly permits
cancellation and refund of an erroneously collected tax after the close of the four-
year period for correcting the tax roll (see §§ 51.5, subd. (b), 4831, subd. (a)(1)).7
Section 1603 (former § 1607) remains today in Part 3 of the Revenue and
Taxation Code, dealing with the equalization of the assessment roll. As noted, it
provides that no “reduction in an assessment” shall be made in the absence of an
application. (§ 1603, subd. (a), italics added.) It is important to recognize that the
jurisdiction of the county boards is constitutionally limited to “adjusting individual
assessments” (i.e., reducing or increasing them) (Cal. Const., art. XIII, § 16), and
that the remedy of reducing the assessment simply does not apply when, as here,
the taxpayer asserts that it does not own the property in question and that it has no
legal obligation to pay taxes on the property. When the wrong person or entity has
been named as assessee (see § 405, subd. (a)), reducing the assessment amount —
even reducing it to zero — will do nothing to correct the error that the assessor has
7 It is my view that such a cancellation action must relate to a claim of error
that could not have been brought prior to the tax becoming delinquent. In other
words, subdivision (c) does not revive a section 4986 cancellation claim that the
taxpayer could have, and should have, brought when the tax was first levied. (See
pp. 2, fn. 2, 6, fn. 4, ante.)
10
made, because even after reduction of the assessment amount to zero, the wrong
person or entity will remain listed on the assessment roll as the assessee, thus
violating section 405, and there will then be the additional error that the reduced
assessment amount no longer reflects the property’s “full value” as is required by
section 401.8 Thus, when the wrong person or entity has been assessed, the
appropriate remedy is not to reduce the assessment amount, but rather to assess the
right person or entity, while keeping the assessment amount unchanged. For this
reason, it simply makes no sense for a taxpayer claiming nonownership to apply
under section 1603 for a “reduction in [the] assessment.” (Italics added.) The
taxpayer might as well apply for violation of sections 401 and 405. The majority,
by arguing that section 1603 applies to nonownership claims like that of plaintiff,
only betrays a fundamental misunderstanding of what assessment reduction is and
what the county boards are constitutionally empowered to do.
Not surprisingly, the foregoing understanding of assessment reduction
applications was adopted by this court in Parr–Richmond, supra, 43 Cal.2d at
page 165. There, as here, the taxpayer asserted that it was not the owner of the
property being taxed. Specifically, the taxpayer in Parr–Richmond was in the
8 Even if the term “reduction” might be read to encompass requests to reduce
the assessment to zero, and thus to effectively cancel the assessment, that reading
is foreclosed by the procedure specified in section 1603 for making the request for
a reduction: The taxpayer is required to “show[] the facts claimed to require the
reduction and the applicant’s opinion of the full value of the property.” (§ 1603,
subd. (a), italics added.) The latter requirement makes no sense in the context of a
taxpayer that denies ownership of the property: Why would a taxpayer be
required to opine on the full value of property it claims not to own, and how would
such a taxpayer know the property’s full value? The majority attempts to answer
these questions (see maj. opn., ante, pp. 14–15), but the simplest and most
persuasive inference is that section 1603 is not designed as a vehicle for
challenges based on nonownership, but is instead directed at claims for the
reduction of the assessment amount.
11
process of purchasing the property, but as of the lien date, the change in ownership
had not become final, and the taxpayer held only a revocable possessory interest in
the property. (Id. at p. 163.) Thus, the situation presented in Parr–Richmond was
very much like the situation presented here — a taxpayer challenging a tax
assessment, arguing that it was not the owner of the property being taxed. This
court concluded that, under those circumstances, applying to the county board for
an assessment reduction under the predecessor statute to section 1603 was not
required. The court said: “[W]here the taxpayer attacks the assessment as void
because he does not own the property on which the tax demand was made, there is
no question of valuation which must be presented first to the board of equalization
for correction as a condition for judicial relief.” (Parr–Richmond, at p. 165.)9
Parr–Richmond was thoroughly supported by the text of the statute it
interpreted, and it was in full harmony with the surrounding statutory scheme.
Moreover, it built on a line of decisions dating back to 1911, holding that
application to the county board of equalization is not necessary where the
assessment amount is not in dispute, and where it is argued instead that the
property does not exist or is tax exempt. (See Associated Oil Co. v. County of
Orange (1935) 4 Cal.App.2d 5; Brenner v. Los Angeles (1911) 160 Cal. 72
9 Parr–Richmond held only that there was no valuation question that needed
to be presented by way of an application under former section 1607 (now § 1603).
This court did not hold that the taxpayer’s ownership dispute did not otherwise
need to be presented to the county for adjudication. Indeed, in Parr–Richmond,
this court noted that the taxpayer had unsuccessfully petitioned the board for
cancellation of the assessment (Parr–Richmond, supra, 43 Cal.2d at p. 164), and
therefore the county in that case could not argue that the taxpayer had neglected to
bring its claim before the board. Rather, it was limited to arguing that the
taxpayer’s claim had to be brought by way of an assessment reduction application
under former section 1607 (now § 1603). It was only that narrower argument that
our opinion rejected.
12
(Brenner).) Thus, Parr–Richmond was a quite unremarkable decision, and in the
more than 60 years that have transpired since this court issued it, there has been
neither an outcry from the counties, nor a legislative effort to abrogate its holding.
The majority imagines that Parr–Richmond has led to problems that need to be
resolved by overturning that decision (maj. opn., ante, pp. 13–14, 16–17, 23–27),
but it has not.
The majority argues that the 1993 addition of subdivision (b) to section
5142 (see Stats. 1993, ch. 387, § 8, p. 2218) broadened the scope of section 1603.
It asserts that while section 1603 may, at one time, have been limited to disputes
over assessment amount (see Parr–Richmond, supra, 43 Cal.2d at p. 165), with
the addition of subdivision (b) to section 5142, the law now requires that
nonvaluation issues, including plaintiff’s nonownership claim, be presented to the
county board by way of a section 1603 application. (See maj. opn., ante, pp. 10–
13, 24.) The majority argues, in other words, that the Legislature implicitly
abrogated the holding of Parr–Richmond when it added subdivision (b) to section
5142. Obviously, if the Legislature had done so intentionally, we would expect to
find some mention of it in the relevant legislative history. There is none. So
instead, the majority argues that even though the Legislature may not have enacted
section 5142, subdivision (b) with Parr–Richmond specifically in mind, the
enactment of section 5142, subdivision (b) — as well as other amendments related
to the assessment reduction scheme — changed the statutory landscape, and under
that changed landscape, Parr–Richmond’s holding is no longer valid. (See maj.
opn., ante, pp. 23–27.)
Section 5142, subdivision (b) provides that the requirement of filing a
section 1603 application can be satisfied by the filing of a simple stipulation
13
stating that valuation issues are not in dispute.10 The majority reasons that
because section 5142, subdivision (b) allows parties to stipulate that the dispute
involves “nonvaluation issues,” it implicitly expands section 1603, sweeping
within its scope all claims a taxpayer might bring, even ones, like plaintiff’s
nonownership claim, that do not relate to assessment reduction. The majority
argues that otherwise the stipulation provision would be surplusage. (Maj. opn.,
ante, pp. 12–13.)11
There are two problems with this approach. First, the majority never
explains how the Legislature could broaden the jurisdiction of the county boards,
whose constitutional authority is limited to “equaliz[ing] the values of all property
on the local assessment roll by adjusting individual assessments” (i.e., by reducing
or increasing them). (Cal. Const., art. XIII, § 16.) Second, the majority
10 Section 5142, subdivision (b) states: “When the person affected or his or
her agent and the assessor stipulate that an application involves only nonvaluation
issues, they may file a stipulation with the county board of equalization stating that
issues in dispute do not involve valuation questions. To the extent possible, the
stipulation shall also indicate the parties’ agreement as to the assessment amounts
that would result under their respective positions on the issue or issues in dispute.
The board shall accept or reject the stipulation, with or without conducting a
hearing on the stipulation. The filing of, and the acceptance by the board of, a
stipulation shall be deemed compliance with the requirement that the person
affected file and prosecute an application for reduction under Chapter 1
(commencing with Section 1601) of Part 3 in order to exhaust administrative
remedies. However, the filing of, and the acceptance by the board of, a stipulation
under this subdivision shall not excuse or waive the requirement of a timely filing
of a claim for refund.”
11 The majority ignores the fact that section 1603 is worded as a constraint on
the power of county government to act. (§ 1603, subd. (a) [“A reduction in an
assessment . . . shall not be made unless the party affected . . . makes and files with
the county board a verified, written application . . . .”].) By concluding that
section 5142, subdivision (b) implicitly expands section 1603, sweeping within its
scope claims that do not relate to assessment reduction, the majority greatly limits
the power of counties to act on their own motion to correct errors on the tax roll.
14
misunderstands section 5142, subdivision (b)’s use of the phrase “nonvaluation
issues,” reading that phrase as referring to disputes that are not assessment
reduction disputes, and thus as an expansion of board authority, rather than
reading it as a description of a particular subset of assessment reduction disputes.
Section 1603 has always dealt with assessment reductions, not valuation
reductions. When Parr–Richmond was decided, this point was, as a practical
matter, a distinction without a difference, since property in California was
assessed in proportion to market value. Therefore, Parr–Richmond used the term
“valuation” as if it were synonymous with “assessment.” Today, property is still
assessed in a one-to-one ratio with “full value” (§ 401), but as a result of the
approval of Proposition 13 on June 6, 1978, full value is not always the same as
market value (§§ 110.1, 110.5; Cal. Const., art. XIII A, § 2), and therefore
assessment amounts no longer move in lockstep with market valuation. Hence,
when section 5142, subdivision (b) refers to the subset of section 1603
applications that involve “nonvaluation issues,” it is not implying that section
1603 is no longer limited to assessment reduction claims, and that despite its
express language and the applicable constitutional constraints (Cal. Const., art.
XIII, § 16), it now covers all taxpayer claims. Rather, section 1603 continues to
apply only to assessment reduction claims, as the plain language of that section
makes clear, and the purpose of section 5142, subdivision (b)’s reference to
“nonvaluation issues” is to single out those assessment reduction claims that relate
to the county’s right under Proposition 13 to reappraise the property, while
excluding those claims that relate to market valuation.
As most people in California are aware, Proposition 13 amended the
Constitution to limit the ad valorem tax on real property to 1 percent of “full cash
value,” and to define “full cash value” as “the appraised value of real property
when purchased, newly constructed, or a change in ownership has occurred” (Cal.
15
Const., art. XIII A, §§ 1, 2), with a separate provision permitting annual inflation-
based increases not exceeding 2 percent (id., § 2, subd. (b)). Because of
Proposition 13, there are now situations when a very significant increase in the
market value of real property is not disputed, but the taxpayer nonetheless seeks a
“reduction in [the] assessment” under section 1603, because the taxpayer claims
the county had no right under Proposition 13 to reappraise the property. It is those
assessment reduction claims that section 5142, subdivision (b) was enacted to
address. It should not be read as broadening section 1603 to include claims that do
not concern assessment reduction, thus contradicting section 1603’s plain
language and the state Constitution. In other words, section 5142, subdivision
(b)’s reference to “nonvaluation issues” does not refer to any nonvaluation issue
that a taxpayer might raise; rather, it refers to the subset of assessment reduction
issues that, because of Proposition 13, do not turn on market valuation.
When it is understood that the purpose of section 5142, subdivision (b) was
to create an administrative mechanism for adjudicating Proposition 13 reappraisal
disputes, it becomes apparent that the addition of subdivision (b) in 1993 cannot
be analyzed in isolation from the Legislature’s consideration in 1992 of a bill that
would have allowed taxpayers to bypass the county board when raising
Proposition 13 change-in-ownership disputes.
By way of background, section 1605.5, subdivision (a) provides that the
county board “shall hear” disputes concerning whether a change-in-ownership has
occurred for purposes of reappraisal under Proposition 13. In 1992, the
Legislature considered a bill that would have permitted taxpayers, at their option,
to bring such change-in-ownership disputes by way of a refund claim under
section 5097 without needing first to apply for an assessment reduction under
section 1603. (Sen. Bill No. 1557 (1991–1992 Reg. Sess.) as introduced Feb. 18,
1992, §§ 5, 8.) The 1992 bill was proposed in recognition of the fact that county
16
boards deal with valuation questions, not legal questions. (See Sen. Com. on Rev.
& Tax., Analysis of Sen. Bill No. 1557 (1991–1992 Reg. Sess.) Apr. 8, 1992, p. 4
[“change-[in]-ownership issues, often being issues of law, are not appropriately
handled by assessment appeals boards”].) The counties, however, opposed the
bill, arguing that the bill would give taxpayers an unfair procedural advantage.
(Id. at p. 5.)
A year later, section 5142, subdivision (b) was added to the Revenue and
Taxation Code. (Stats. 1993, ch. 387, § 8, p. 2218.) In light of its focus on those
assessment reduction claims that do not involve valuation issues — in other
words, those that relate to the county’s right under Proposition 13 to reappraise the
property — it seems apparent that section 5142, subdivision (b) was a renewed
attempt to solve the problem that the 1992 bill addressed. Significantly, section
5142, subdivision (b) achieves the same end that the 1992 bill would have
achieved (allowing change-in-ownership disputes to be brought as § 5097 refund
claims), but it does so only when the county stipulates that the assessment
reduction that the taxpayer is seeking does not turn on valuation (and when the
county board accepts the stipulation). In other words, section 5142, subdivision
(b) answers the concern the counties had regarding the procedural one-sidedness
of the 1992 bill.
The legislative history thus reveals that section 5142, subdivision (b)
impacts only the subset of assessment reduction disputes that concern the county’s
right under Proposition 13 to reappraise the property. To suggest that section
5142, subdivision (b) broadens section 1603 applications to include claims that do
not relate in any way to assessment reduction is a gross misreading. This point is
confirmed by the fact that the same bill that enacted section 5142, subdivision (b)
also added subdivision (b) to section 1605.5. (Stats. 1993, ch. 387, § 5, pp. 2216–
2217.) Section 1605.5, subdivision (b) requires disputes concerning certain types
17
of penalties to be brought by way of a section 1603 application. If, as the majority
argues, section 5142, subdivision (b) was designed to broaden section 1603
applications to include all nonvaluation issues that a taxpayer might raise, then
section 1605.5, subdivision (b) would have been unnecessary. As important,
section 1605.5, subdivision (b) makes plain that had the Legislature intended to
broaden section 1603 applications to include claims that do not relate to
assessment reduction, it knew how to do so.
Likewise, the provision of section 5142, subdivision (b) stating that the
parties should, “[t]o the extent possible,” agree as to the “assessment amounts that
would result under their respective positions” (italics added) shows that the focus
of section 5142, subdivision (b) is assessment reduction under section 1603, and
that issues that do not involve assessment reduction do not fall under section 5142,
subdivision (b).
The majority uses this provision of section 5142, subdivision (b) in a
different way. It notes that a taxpayer bringing a section 1603 application must
opine as to the property’s value (see § 1603, subd. (a); see also p. 11, fn. 8, ante),
and it concedes that a taxpayer that does not own the taxed property might have
difficulty doing so. The majority then draws a comparison to section 5142,
subdivision (b)’s statement that the parties filing a stipulation under that
subdivision should, “[t]o the extent possible,” agree as to the “assessment amounts
that would result under their respective positions,” and the majority concludes that
a similar allowance applies to a section 1603 applicant’s obligation to give an
opinion as to the taxed property’s value: The applicant need only do so to the
extent possible. (See maj. opn., ante, p. 15.)
The majority thus conflates the reference to “value” in section 1603,
subdivision (a) with the reference to “assessment amount” in section 5142,
subdivision (b). But when parties stipulate under section 5142, subdivision (b),
18
they are certainly not being asked to agree as to the “valuation amounts that would
result under their respective positions,” because by the very terms of the
stipulation, valuation is not being disputed. Rather, the parties are being asked to
agree as to the “assessment amounts that would result under their respective
positions” (§ 5142, subd. (b), italics added), because the “assessment amounts” are
what they are fighting about. This natural reading further confirms that the subject
of section 5142, subdivision (b) is the assessment amount, that section 5142,
subdivision (b) refers only to “nonvaluation issues” that arise in disputes over
assessment amount, and that section 1603 is not an avenue for other types of
claims that a taxpayer may raise.
Furthermore, as already discussed, the statutory scheme includes an
alternative mechanism designed to allow a taxpayer to raise claims that are
unrelated to assessment amount. Specifically, before a tax becomes delinquent, a
taxpayer can apply to the auditor for cancellation of an erroneously or illegally
levied tax under section 4986, and if that application is unsuccessful, the taxpayer
can pay the tax and bring a refund claim under section 5097.12 This alternative
avenue of administrative exhaustion is a fully “adequate” (maj. opn., ante, pp. 5,
16), affording the county an opportunity to hold an evidentiary hearing when
appropriate. Moreover, it is better suited than section 1603 to taxpayer claims that
are unrelated to assessment amount. For example, because such claims do not
concern equalization, there is no need for such claims to proceed along the
12 If the taxpayer knows, or should know, of the claim at the time the tax is
levied, he or she is obligated, in my view, to bring a section 4986 cancellation
application before the tax becomes delinquent. (See pp. 2, fn. 2, 6, fn. 4, ante.) In
other cases, the taxpayer can apply for cancellation after paying the tax. Note that
as a result of the 1970 amendment, section 4986 extends to cancellation of
collected taxes. (Stats. 1970, ch. 129, § 3, p. 357.)
19
timeline that applies to the equalization process. Most important, this alternative
remedy avoids expanding the jurisdiction of the county boards beyond their
constitutional limit. (See Cal. Const., art. XIII, § 16.)
A taxpayer like plaintiff that denies ownership of the taxed property can ask
the auditor to cancel the tax under section 4986 immediately after the tax is levied,
asserting that the tax is erroneous. Thus, the taxpayer can promptly bring the error
to the county’s attention, and, assuming the taxpayer has a valid argument, the
matter can be efficiently resolved before the tax becomes payable, leaving the
county ample time to assess the correct party.13 And if that remedy fails, the
taxpayer can pay the tax and bring a refund claim. When one considers the limits
the state Constitution places on the jurisdiction of the county boards and also the
text, history, and general structure of the Revenue and Taxation Code, it is clear
that this alternative remedy is intended for the administrative adjudication of
taxpayer claims that are unrelated to assessment reduction, and that section 1603 is
intended only for the administrative adjudication of assessment reduction claims.
The majority argues, however, that no suitable time constraints apply to
claims under section 4986 and 5097, and therefore that the expansion of section
13 The majority distinguishes Brenner, supra, 160 Cal. 72, reasoning that the
property at issue in Brenner was tax exempt. Here, by contrast, if plaintiff had
proceeded under section 1603 and promptly established that it was not the owner
of the farm equipment, then county officials could have identified the correct
owner and made an escape assessment naming that owner. (See maj. opn., ante,
pp. 19 and 22–23.)
For the reasons stated in the main text, I disagree that a section 1603
application is the only way of ensuring that nonownership claims will be promptly
brought to the attention of county officials. Moreover, the majority overlooks the
likelihood that the actual owner of the farm equipment reported the equipment on
its tax statements, as is required by law (see §§ 441, 442, 445, and 461), and that
the equipment was therefore already assessed and taxed. In that case, taxing
plaintiff will result in the farm equipment being taxed twice.
20
1603 to cover all taxpayer claims is necessary — despite the limits placed by the
state Constitution, the plain meaning of the statute’s text, and longstanding
precedent — because a timeline governs section 1603 claims. (See maj. opn.,
ante, pp. 13–14, 19, 22–23.) The majority is concerned about the superior courts
being burdened by stale nonownership claims that lack a developed administrative
record. (See id., pp. 14 and 23–27.) This concern, however, is purely theoretical;
it does not stand up to scrutiny.
The absence of an administrative record in a particular case that might
come before the superior court is not the fault of some failing in the statutory
scheme, which, as noted, permits boards of supervisors to hold full evidentiary
hearings when deciding nonownership claims. Rather, it is the fault of the county
that does not take advantage of the administrative process that the statutory
scheme offers. Here, for example, the parties asserted at oral argument that in the
County of Fresno (County), administrative review of section 5097 refund claims
tends to be relatively perfunctory in practice. That may be true in the typical case
involving a dispute over the amount of an assessment, because such a dispute must
be initiated by way of a section 1603 application, and when the same matter is
later raised by way of a section 5097 refund claim,14 it has already been
adjudicated by the county board (§ 5097, subds. (a)(3) and (b)). There is no
reason, however, why review of a section 5097 refund claim needs to be
perfunctory if the claim raises a nonownership issue, and plaintiff here cannot be
blamed if the County did not choose to provide the full hearing that the statutory
scheme permits.
14 At the taxpayer’s option, a section 1603 application can itself serve as a
section 5097 refund claim. (§ 5097, subd. (b).)
21
As for the question of stale claims coming before the courts, the time
limitations that apply to a tax refund actions are set forth in section 5141, which
states in relevant part: “An action brought under this article [governing tax refund
actions] . . . shall be commenced within six months from and after the date that the
board of supervisors or city council rejects a [section 5097] claim for refund in
whole or in part.” (§ 5141, subd. (a).) Section 5097 provides in relevant part:
“An order for a refund under this article [governing tax refunds] shall not be made,
except on a claim: [¶] . . . [¶] . . . filed within four years after making the payment
sought to be refunded . . . .” (§ 5097, subd. (a).)15 Thus, a taxpayer must bring a
refund claim within four years of making the disputed tax payment, and the
taxpayer must sue in superior court within six months of the refund claim being
denied by the board of supervisors. It is true that a refund claim may be brought
even after payment of a delinquent tax (§§ 5096, 5097), and therefore it is
conceivable that a taxpayer will allow a tax to be delinquent for many years, and
then pay the tax and bring a refund claim. That possibility is one that the
Legislature expressly built into the statutory scheme. But the statutory scheme
also serves to limit the presentation of stale claims. Delinquency penalties are set
at 10 percent of the tax (§§ 2617, 2618, 2704, 2705, 2922) and after default on
July 1 (§ 3436), redemption penalties on real property begin to accumulate at a
15 Paragraph (3) of subdivision (a) of section 5097, which was omitted from
the quotation in the main text above, sets forth a shorter limitations period that
applies to refund claims when the taxpayer has applied under section 1603 for an
assessment reduction (and such applications are themselves subject to a short
limitations period (see §§ 1603, subds. (b)–(d), 1605, subds. (b), (c), & (e))). It is,
of course, my view that the limitation period set forth in paragraph (3) does not
apply when, as here, the taxpayer is not seeking an assessment reduction, for then
the taxpayer does not need to proceed under section 1603.
22
rate of 18 percent per year (§ 4103). Such penalties operate in practice to
minimize delay on the part of the taxpayer.
Moreover, tax assessments are based, in most cases, on self-reporting by
the taxpayer (§§ 441, 442, 445, 461 [requiring taxpayers to report personal
property, and imposing criminal penalties for willful falsehoods]; 480, 480.1,
480.2, 482 [requiring taxpayers to report changes in ownership or control of real
property, and imposing penalties for failure to do so]), and strong incentives also
encourage property owners to record real property conveyances (see Civ. Code,
§ 1214). Thus, when a taxpayer is named on the assessment roll as the assessee, it
is, generally speaking, because the taxpayer reported to the county that it was the
person or entity obligated to pay the taxes on the property in question, and in the
case of real property, the conveyance of the property to the taxpayer is, generally
speaking, a matter of public record that can be easily verified. As a result,
nonownership claims are most likely to arise, in practice, in situations like the one
here, where a county audits a taxpayer, concludes that the taxpayer owns personal
property that the taxpayer failed to report, and makes an escape assessment under
section 531. In such a case, the taxpayer is given notice of the audit results, and
the taxpayer will consequently know that the escape assessment relates to items of
property that the taxpayer claims not to own. Therefore, under normal
circumstances, the taxpayer who intends to dispute the assessment can apply for
cancellation under section 4986 as soon as the escape assessment is made,
presenting its proof of nonownership. As noted, it is my view that a taxpayer that
denies ownership of taxed property and that knows of its claim at the time the tax
23
is levied is obligated to apply for cancellation before the disputed tax becomes
delinquent (see pp. 2, fn. 2, 6, fn. 4, ante).16
Accordingly, the superior courts are not now overwhelmed with stale
nonownership claims, nor will they be if we reaffirm our longstanding holding that
taxpayer claims that are unrelated to assessment amount need not be brought by
way of assessment reduction applications under section 1603. The majority
articulates problems that simply do not exist, and then uses these hypothetical
problems to overturn a 60-year-old precedent that reflects the constitutional
imperative, that is in complete harmony with the statutory text, and that the
Legislature has not viewed as problematic. More than 60 years ago, Parr–
Richmond reached the unremarkable conclusion that section 1603 assessment
reduction applications have to do with assessment reduction, not denials of
ownership, and there is absolutely no crisis requiring us to jury-rig the statutory
language to permit a new approach.
The statutory scheme contemplates the use of section 1603 applications
followed by section 5097 refund claims to obtain administrative review of
assessment reduction claims, and it contemplates the use of section 4986
applications followed by section 5097 refund claims to obtain administrative
review of other types of taxpayer claims, and both avenues of administrative
16 Here, plaintiff submitted applications for cancellation of the relevant
assessments, and the County returned them unfiled. (See maj. opn., ante, p. 4.)
Therefore, the County cannot argue that plaintiff was obligated to file such
applications but failed to do so. Although plaintiff did not file these applications
before the disputed taxes became delinquent, the County also cannot argue that the
applications were filed late. From the outset, the County has litigated this case on
the theory that plaintiff failed to file timely applications for assessment reductions
under section 1603, not that it failed to file timely applications for cancellation of
the assessments under section 4986.
24
exhaustion are fully adequate, permitting counties to hold evidentiary hearings and
develop the administrative record. Thus, while the majority purports to vindicate
administrative exhaustion, it ignores the avenue of administrative exhaustion that
the Legislature has designated for the type of claim plaintiff is raising, instead
forcing that claim into an avenue of administrative exhaustion that, by its own
terms and by longstanding precedent, does not apply.
For that reason, I dissent from the views expressed by the majority,
although I concur in the judgment because the majority applies its holding
prospectively only.
CHIN, J.
I CONCUR:
CORRIGAN, J.
25
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Williams & Fickett v. County of Fresno
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 232 Cal.App.4th 1250
Rehearing Granted
__________________________________________________________________________________
Opinion No. S224476
Date Filed: June 5, 2017
__________________________________________________________________________________
Court: Superior
County: Fresno
Judge: Donald S. Black
__________________________________________________________________________________
Counsel:
Dowling Aaron Incorporated, Lynne Thaxter Brown and Ronald A. Henderson for Plaintiff and Appellant.
Daniel C. Cederborg, County Counsel, Michal R. Linden and Peter Wall, Deputy County Counsel, for
Defendant and Respondent.
Mary C. Wickham, Interim County Counsel (Los Angeles) and Albert Ramseyer, Principal Deputy County
Counsel, for California State Association of Counties as Amicus Curiae on behalf of Defendant and
Respondent.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Ronald A. Henderson
Dowling Aaron Incorporated
8080 N. Palm Avenue, Third Floor
P.O. Box 28902
Fresno, CA 93729-8902
(559) 432-4500
Peter Wall
Deputy County Counsel
2220 Tulare Street, Suite 500
Fresno, CA 93721-2128
(559) 600-3479