An Assessor Must Consider A Claim For Prospective Property Tax Relief Involving Condemned Property Even If The Owner Files The Claim Beyond The Statutory Time Limitation

In Olive Lane Industrial Park, LLC v. County of San Diego (July 18, 2014, D063337) -- Cal.App.4th --, the Court of Appeal considered whether the owner of property acquired by eminent domain could attain prospective property tax relief even if the owner filed the claim for relief beyond the statutory time period.

Article XIIIA, of the California Constitution, allows the owner of property taken by eminent domain to transfer that property's "base year" valuation to replacement property for taxation purposes.  Revenue and Taxation Code section 68 further provides that the owner must file the claim for the valuation transfer within four years of the condemnation, and that upon such filing, the valuation will apply retroactively as of the condemnation.  Olive Lane filed its claim more than four years after the condemnation.  The trial court determined Section 68 did not allow the assessor to consider the untimely claim.  The Court of Appeal disagreed and held that the assessor could grant prospective relief to the property owner despite the filing deadline of Section 68. 

Background

Article XIIIA, as enacted through the adoption of Proposition 13, governs the calculation of property taxes.  In general, an assessor must calculate property taxes according to a property's "base year" value plus a specified annual percentage increase.  The base year value increases to the current market value only in certain situations including when there is a change in ownership of the property.

Voters subsequently adopted Proposition 3 amending Article XIIIA "to provide that property acquired to replace property taken by eminent domain does not constitute a change in ownership that permits base year value reassessment."  Thus, the owner of property acquired by eminent domain is allowed to transfer the base year value of the former property to the replacement property for taxation purposes.  The owner can therefore avoid increased property taxes when his or her property is acquired by eminent domain.

Upon adoption of Proposition 3, the Legislature enacted Revenue and Taxation Code section 68 which provides that "the taxpayer shall file a request for the transfer of the base year value to an eminent domain replacement property within four years after the eminent domain order, and allow for retroactive application of the transferred base year value based on the date of acquisition of the replacement property."  However, Section 68 is silent as to the prospective application of the base year transfer if the property owner files a claim after the four year period.

Facts

On July 8, 2003, the State acquired by eminent domain property owned by Olive Lane.  Olive Lane then purchased replacement property on December 14, 2006.  On December 18, 2008, Olive Lane filed a claim with the County to transfer the base year value of the condemned property to its replacement property.  The County denied the claim since Olive Lane did not file the claim within four years of when the State condemned its property.

After unsuccessfully pursuing its administrative remedies, Olive Lane filed a judicial action claiming the time limitation of Section 68 was unconstitutional or, in the alternative, it should at least receive prospective relief even if it did not file its claim within the four year period specified by Section 68.  The trial court rejected both of Olive Lane's arguments.

Decision

On appeal, the court affirmed that the time limit imposed by Section 68 is constitutional.  "It is well established that the Legislature may impose reasonable restraints on the exercise of constitutional rights . . . including on the rights associated with just compensation for a governmental taking." 

The court, however, rejected the trial court's determination that Section 68 precluded prospective relief.  Unlike time limits specified for other exclusions in Article XIIIA, the article did not specify any time limit for the eminent domain exclusion which suggests that voters intended to create a right that should be "liberally available to the taxpayer notwithstanding the passage of time."  Allowing prospective relief for base year value transfer claims filed after the four year statutory period is consistent with the voter's intent.  Additionally, Section 68 does not expressly prohibit prospective application, and its text does not prohibit an assessor from considering claims filed after the four year period.  Finally, allowing prospective relief advances the voters' intent to incorporate increased property taxes within the just compensation provided to property owners whose property is taken by eminent domain.

Although this holding conflicts with a State Board of Equalization annotation interpreting Section 68, the court noted it was not bound by the State Board's interpretation and declined to adopt it.  Thus, "[w]e conclude a taxpayer who acquires an eminent domain replacement property within the four-year timeline set forth in section 68 but fails to file the claim with the County within the four-year period is nevertheless entitled to have a request for prospective relief considered by the assessor."

 

Topics:  Condemnation, Eminent Domain, Proposition 13, Statute of Limitations

Published In: Civil Procedure Updates, Constitutional Law Updates, Commercial Real Estate Updates, Residential Real Estate Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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