CROCKER NATIONAL BANK, Plaintiff, Appellant and Cross-respondent, v. CITY AND COUNTY OF SAN FRANCISCO, Defendant, Respondent and Cross-appellant.
In this case we hold that the components of a bank's computer system can be classified and taxed as real property when found by the trial court to be fixtures in a special purpose building. We distinguish Allstate Ins. Co. v. County of Los Angeles (1984) 161 Cal.App.3d 877, 207 Cal.Rptr. 888 where the court held similar computer systems in a general purpose office building were not fixtures but were personal property as a matter of law.
Crocker National Bank (Crocker) appeals a judgment denying its claim for a tax refund from the City and County of San Francisco (City), contending computer components classified as real property are, as a matter of both law and fact, personalty not subject to taxation.
For each of six tax years, the City classified as fixtures, and assessed real property taxes on, computer components located in a building occupied by Crocker at 155 Fifth Street. Crocker's consolidated complaints for tax refunds were heard by the trial court which concluded the components were fixtures subject to real property tax and entered judgment in favor of the City.
Under Revenue and Taxation Code sections 23181 and 23182, banks pay real, but not personal, property taxes. Real property includes improvements (Rev. & Tax Code, § 104), and improvements include fixtures (Rev. & Tax Code, § 105). “[C]ases and authorities recognize that the annexation which renders [an] object a fixture may be not only actual [‘as by means of cement, plaster, nails, bolts, or screws' (Civ.Code, § 660) ], but also constructive.” (Seatrain Terminals of California, Inc. v. County of Alameda (1978) 83 Cal.App.3d 69, 75, 147 Cal.Rptr. 578.) Traditionally, whether personal property has become a fixture is a question of fact to be determined by the trier of fact whose findings must be upheld on appeal when supported by sufficient evidence. (Id., at pp. 79–80, 147 Cal.Rptr. 578.)
Thus, in Bank of America v. County of Los Angeles (1964) 224 Cal.App.2d 108, 114–115, 36 Cal.Rptr. 413, the court affirmed the judgment below, holding the trial court's conclusion the Bank's computer systems were fixtures “is supported by substantial evidence, and, absent error, is conclusive upon this court.” In Security Data, Inc. v. County of Contra Costa (1983) 145 Cal.App.3d 108, 122, 193 Cal.Rptr. 121, where the trial court determined the computer components retained their character as personal property, the court held the substantial evidence rule “controls here, and it requires affirmance of the judgment.” 1
However, in Allstate Ins. Co. v. County of Los Angeles, supra, where the court consolidated two separate appeals concerning classification for tax purposes of office computer systems, the contrary rulings of two trial judges on essentially analogous facts led the court to conclude “something more is required of us than a simple sufficiency of the evidence analysis of the individual decisions rendered below.” (Id., 161 Cal.App.3d at p. 885, 207 Cal.Rptr. 888.) Specifically, it found, “The prevalence of computers in modern society requires a statement of guidelines which will lead to the uniform application of taxation laws and prevent unjustified differences in classification which result in unequal tax burdens on similarly situated taxpayers.” (Id., at p. 889, 207 Cal.Rptr. 888.)
The Allstate court therefore held “that standardized off-the-shelf, general purpose computers and computer components, placed in general purpose office buildings, and connected to a power source by means of standardized plugs, and to each other by means of standardized cables, are and remain personalty regardless of whether or not use of a computer is essential to efficient and competitive operation of the business in which they are employed. Minor structural alterations to the realty in which such computers are situated, such as movable partitions or flooring, supplemental air conditioning units, and 220–volt wiring, do not alter the character of such computers from personalty to realty.” (Id., at pp. 891–892, 207 Cal.Rptr. 888.) Consequently, the court reversed the judgment against Allstate Insurance Company and affirmed that in favor of Security Pacific National Bank. (Id., at p. 893, 207 Cal.Rptr. 888.)
Crocker contends the computer components at 155 Fifth Street are personalty as a matter of law under Allstate. However, the trial court distinguished this case from Allstate because “the building herein is a special purpose building rather than a general purpose office building and was designed primarily to accommodate the Bank's computers.” Crocker challenges this characterization as a matter of law, asserting, “there are no meaningful differences ․ with respect to those features emphasized by the trial court” between 155 Fifth Street and Security Pacific National Bank's Glendale Operations Center [Security Pacific], which the Allstate court implicitly found to be a general purpose office building.
Not one of the features Crocker cites for comparison, however, supports its assertion. Neither the gross area of the building nor the percentage of raised flooring is among the seven computer-oriented features identified by the trial court as making 155 Fifth Street a special purpose building. On the other hand, neither emergency back-up power, nor UPS (uninterruptible power supply,) nor halon gas fire suppression, nor a security system, nor supplemental air-conditioning is even mentioned in Allstate 's description of Security Pacific. (Allstate Ins. Co. v. County of Los Angeles, supra, 161 Cal.App.3d at p. 884, 207 Cal.Rptr. 888.)2
Other salient features of 155 Fifth Street mentioned by the trial court—three one-ton electric motor generator sets and location with easy access to main transportation arteries—are likewise absent from Allstate 's description of Security Pacific. Moreover, at Security Pacific, “[t]here was no feature ․ that was essential to the operation of the computer components” (ibid.), whereas the trial court here found “all of the aforementioned computer-related improvements ․ are essential for computers.” While at Security Pacific “the computer components could be and were removed without ․ diminishing the value of the building” (ibid.), the trial court here found “removal of the computers would diminish the value of the building in that the usefulness and the value of the computer-related improvements would be impaired.” Finally, while Allstate held movable partitions or flooring, supplemental air conditioning units, and 220–volt wiring were “minor structural alterations” insufficient to affect the characterization of the computers (id., at p. 892, 207 Cal.Rptr. 888), the trial court here found, “The building design included extensive major structural improvements specifically constructed to accommodate computers (such as a special air-conditioning system [including a dedicated chiller and an unusual cross-over chilled water piping installation, in addition to supplemental air conditioning units], special power supply, and special fire suppression).”
Crocker argues the trial court improperly focused on the characteristics of the building rather than those of the components, citing Allstate 's conclusion that “as a matter of law, computer systems such as those which form the subject of the cases at bench must be classified as personalty and not as fixtures.” (161 Cal.App.3d at p. 885, 207 Cal.Rptr. 888.) This conclusion is true, however, only if computer systems “such as those” at issue in Allstate are “placed in general purpose office buildings” (id., at pp. 891–892, 207 Cal.Rptr. 888), a qualification which justifies the trial court's focus on the building's characteristics to distinguish this case from Allstate. Nor has the trial court thus reintroduced, as Crocker claims, “the very evil ․ the Allstate court sought to eliminate,” i.e., “a series of random and conflicting decisions ․ which are dependent upon the emphasis or lack of emphasis which individual triers of fact choose to give to a variety of analogous facts.” (161 Cal.App.3d at p. 889, 207 Cal.Rptr. 888.) That “evil” is inherent in the Allstate formulation itself which posits the placement of computer components in a “general purpose office building” without defining that term.
Finally, Crocker argues the trial court ignored the fact that “in these modern times” computer-oriented features are “ubiquitous” and do not necessarily indicate a special purpose building. Crocker ignores the fact that 155 Fifth Street was not constructed “in these modern times.” At trial, architect Willis Gortner described a continuum with bare bones general purpose office buildings at one end, and bank data processing centers built in the 1960's and early 1970's (155 Fifth Street was built in 1973) at the other. In the middle are newer “smart buildings,” designed with the flexibility to accommodate the “technological explosion in the computer industry” noted by the Allstate court and the resultant “prevalence of computers in modern society.” (161 Cal.App.3d at pp. 888–889, 891, 207 Cal.Rptr. 888.) If they all housed similar general-purpose, off-the-shelf, portable, fungible computer components, the Allstate rule would include the latter buildings (as well as older buildings such as San Francisco's City Hall, retrofitted to meet modern data processing needs), but exclude 155 Fifth Street.
The judgment is affirmed.
1. In Exchange Bank v. County of Sonoma (1976) 59 Cal.App.3d 608, 131 Cal.Rptr. 216, the only other California case applying traditional fixtures law to computer systems, the court affirmed the judgment below that a single IBM data processing unit was “exempt from local ad valorem taxation on personal property” (id., at p. 610, 131 Cal.Rptr. 216), but the only issue on appeal was exhaustion of administrative remedies.
2. Testimony at the trial herein comparing the two buildings is legally irrelevant. Whatever the actual features of Security Pacific, it cannot be assumed that those about which the Allstate opinion is totally silent were considered, much less relied upon, by the court in affirming the trial court's judgment. “It is the general rule that the language of an opinion must be construed with reference to the facts presented by the case, and the positive authority of a decision is coextensive only with such facts.” (River Farms Co. v. Superior Court (1933) 131 Cal.App. 365, 369, 21 P.2d 643.)
FOOTNOTE. See footnote *, ante.
KING, Associate Justice.
LOW, P.J., and HANING, J., concur.