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Court of Appeal, First District, Division 4, California.

STENOCORD CORPORATION, a Delaware corporation, Plaintiff and Appellant, v. The CITY AND COUNTY OF SAN FRANCISCO, Defendant and Respondent.

Civ. 24954.

Decided: October 30, 1969

Baker, Ancel & Redmond, Los Angeles, for appellant. Thomas M. O'Connor, City Atty., of the City and County of San Francisco, Donald J. Kropp, Deputy City Atty., San Francisco, for respondent.

For Opinion on Hearing, see 88 Cal.Rptr. 166, 471 P.2d 966.

Plaintiff Stenocord Corporation appeals from a judgment of dismissal entered after the court sustained respondent City and County of San Francisco's general demurrer to a complaint seeking recovery of taxes levied and paid for the fiscal years 1962, 1963 and 1964 on inventory and equipment maintained at the San Francisco branch of appellant.   The complaint alleged that appellant had, during the years in question, reported the property at full cost on the forms provided by the assessor.   All taxes were paid.   Nevertheless, in October 1964 appellant was notified of a tax deficiency totaling $5,885.70, representing increased taxes resulting from the assessor's determination that the value of the inventory and equipment was twice that reported by appellant, plus a 50 percent penalty for having understated the value, plus an 8 percent penalty for late payment.   The assessor later dropped the 50 percent penalty, leaving a deficiency of $3,523.33.   Tax bills totaling that amount and bearing the notation “PENAL ASSESSMENT” were sent to appellant.   After paying these bills appellant filed a claim for refund with the board of supervisors.   This claim was rejected and appellant commenced the present action.   The court sustained respondent's general demurrer on the ground that the complaint did not allege that appellant had exhausted its administrative remedy by seeking equalization of the new assessment before the Board of Supervisors sitting as a Board of Equalization.   Appellant declined to plead further, and a judgment of dismissal was entered.

 Appellant taxpayer contends that the levy complained of was a penal assessment under Revenue and Taxation Code, sections 501–505; 1  the city disputes that contention and argues that the complaint shows that the levy represented the capture of an escaped assessment.   Section 531 provides:  “If any property belonging on the local roll has escaped assessment, the assessor shall assess the property on discovery at it value on the lien date for the year for which it escaped assessment * * *.”   It was specifically provided by section 531.1 2 that where the taxpayer does not report the cost of personal property accurately the assessor may capture the resulting deficiency by assessing the property as an escaped assessment.   Such an assessment is subject to equalization by the board of supervisors sitting as a board of equalization (Rev. & Tax.Codes, §§ 1604, 1604.1) and that administrative remedy must be exhausted before an action attacking the assessment can be maintained (e.g., Security-First Nat. Bk. v. County of L.A. (1950) 35 Cal.2d 319, 217 P.2d 946;  El Tejon Cattle Co. v. County of San Diego (1967) 252 Cal.App.2d 449, 60 Cal.Rptr. 586;  Virtue Bros. v. County of Los Angeles (1966) 239 Cal.App.2d 220, 48 Cal.Rptr. 505, cert. den. 385 U.S. 820, 87 S.Ct. 45, 17 L.Ed.2d 58).   Here there is no allegation that appellant sought equalization.   Therefore the correctness of the court's ruling on the general demurrer depends upon the single, narrow question whether the complaint sought recovery of taxes levied under an allegedly excessive escaped assessment.   If it did, the demurrer was properly sustained.

We have already noted that section 531.1 extended the escaped assessment procedure to personal property only where the assessee “omits to report the cost of the property accurately, * * *.”  The complaint alleged that appellant in each of the years in question completed and filed an unsecured property affidavit, using forms provided by the assessor, and accurately reported thereon the cost of the inventories here in question.   If that allegation is true, Revenue and Taxation Code, section 531.1 was inapplicable and the assessor had no authority to treat the property as an escaped assessment.   Where an assessment is attacked, not on a theory that it is unequal but that it was a nullity as being outside the statutory grant of authority to the assessor, it is not necessary to seek equalization before pursuing a judicial remedy.  (Star-Kist Foods, Inc. v. Quinn (1960) 54 Cal.2d 507, 511, 6 Cal.Rptr. 545, 354 P.2d 1;  Stafford v. Riverside County (1957) 155 Cal.App.2d 474, 478, 318 P.2d 172.)   Respondent contends that the increased assessment resulted from ‘'revising the cost of appellant's goods upward * * * but that assertion was not to be considered by the court in ruling upon the demurrer, it being assumed for that purpose that the allegations of the complaint are true.

The city has not thus far contended that the levy can be sustained as having been made under a penal assessment pursuant to Revenue and Taxation Code, sections 501–505.

The judgment is reversed with directions to overrule the general demurrer.


1.   All statutory references herein are to the Revenue and Taxation Code before the 1967 amendments took effect.

2.   § 531.1:  “If the assessor requires an assessee to describe personal property in such detail as shows the cost thereof but the assessee omits to report the cost of the property accurately, notwithstanding that this information is available to the assessee, to the extent that this omission on the part of the assessee causes the assessor not to assess the property or to assess it at a lower valuation than he would enter upon the roll were the cost reported to him accurately, that portion of the property as to which the cost is unreported, in whole or in part, may be assessed as property that has escaped assessment.”  (See present section 507.)