ITT WORLD COMMUNICATIONS INC v. CITY AND COUNTY OF SAN FRANCISCO

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Court of Appeal, First District, Division 2, California.

ITT WORLD COMMUNICATIONS, INC., Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO and State Board of Equalization, Defendants and Respondents.

AO17703.

Decided: January 23, 1984

John K. Van de Kamp, Atty. Gen., Gary A. Larson, Deputy Atty. Gen., San Francisco, for defendant and respondent State Board of Equalization. George P. Agnost, City Atty., John J. Doherty, Deputy City Atty., San Francisco, for defendant and respondent City and County of San Francisco. Robert L. Dunn, Bancroft, Avery & McAlister, San Francisco, for plaintiff and appellant ITT World Communications, Inc.

ITT World Communications, Inc. (ITT) appeals from a summary judgment dismissing the complaint by which it sought from respondent City and County of San Francisco (County) refund of property taxes for the fiscal years 1978–79 and 1979–80.   The complaint alleged that respondent State Board of Equalization (Board) acted illegally in refusing to adjust the assessment of ITT's property to its 1975–76 value in accordance with article XIII A of the California Constitution.1  The Board refused to do so on the ground that article XIII A, section 2, subdivision (a), does not apply to state assessed public utility property.2

We conclude that the trial court erred in granting summary judgment for respondents and remand to the superior court with directions to remand to the Board to allow the Board to appraise appellant's real property under the provisions of article XIII A.

I.

ITT is a public utility owning real and personal property in California.   ITT pays property taxes to respondent County.   Respondent Board is charged with responsibility for annually assessing public utility property.  (Cal. Const., art. XIII, § 19;  Rev. & Tax.Code, § 721.) 3  As appraised by the Board, ITT's unitary property 4 was valued at $14 million in 1978 and $18 million in 1979.   Pursuant to the Board's formulary allocation, $2,997,970 was allocated as the assessed value of appellant's unitary property located in the County for 1978 and $3,815,750 was allocated as the assessed value of appellant's unitary property in the County for 1979.

ITT filed a petition for reassessment of 1978 taxes with the Board on June 2, 1978.   In that petition ITT attacked the Board's valuation of ITT property in excess of its Reproduction Cost New Less Depreciation (RCNLD).5  Article XIII A, then popularly known as Proposition 13, was adopted by the voters on June 6, 1978.   Little more than a week later, on June 14, 1978, the Board held a hearing on ITT's petition for reassessment.   On June 21, 1978, ITT filed a Supplemental Petition for reassessment raising the issue here presented by contending that article XIII A required the rollback of the assessed value of ITT's property to 1975–76 values.   The Board refused to adjust its assessments, and in so doing rejected the contention that the valuation formula established in section 2, subdivision (a), applied to state assessed property in the same manner as it applies to most other property.   On May 31, 1979, ITT submitted a petition for reassessment for 1979.   The petition, which raised the same arguments as the 1978 petition, was accepted for consideration without a hearing on June 19, 1979.   The petition was denied on June 28, 1979.

ITT filed its complaint for refund of property taxes paid to the County for fiscal years 1978–79 and 1979–80 on September 26, 1980.

Summary judgment was entered by the superior court in favor of respondents' and ITT's complaint was dismissed on April 13, 1982.   This appeal followed.

II.

As recognized by the California Supreme Court in Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 149 Cal.Rptr. 239, 583 P.2d 1281, article XIII A “changes the previous system of real property taxation and tax procedure by imposing important limitations upon the assessment and taxing powers of state and local governments.”  (Id., at p. 218, 149 Cal.Rptr. 239, 583 P.2d 1281.)

In rejecting an equal protection challenge, the court held that there was no constitutional or statutory mandate that the taxation of property be on a current value basis.   Rather, it upheld the “acquisition value” approach to taxation newly prescribed by article XIII A.  “By reason of section 2, subdivision (a), of the article, except for property acquired prior to 1975, henceforth all real property will be assessed and taxed at its value at date of acquisition rather than at current value (subject, of course, to the 2 percent maximum annual inflationary increase provided for in subdivision (b)).”  (Id., at p. 235, 149 Cal.Rptr. 239, 583 P.2d 1281.)

Article XIII, section 19, of the California Constitution, which charges the State Board of Equalization with the responsibility for annually assessing public utility property, also requires that the property of state assessees “shall be subject to taxation to the same extent and in the same manner as other property.”

Because article XIII A and article XIII, section 19, are provisions of equal constitutional dignity, our task is to integrate and harmonize their conjunctive operation.  (Select Base Materials v. Boart of Equal. (1959) 51 Cal.2d 640, 645, 335 P.2d 672.)   All efforts to this end, short of doing violence to the plain language and natural operation of the provisions, are legitimate and desirable.  (Moyer v. Workmen's Comp. Appeals Bd. (1973) 10 Cal.3d 222, 230, 110 Cal.Rptr. 144, 514 P.2d 1224;  see Board of Supervisors v. Lonergan (1980) 27 Cal.3d 855, 869, 167 Cal.Rptr. 820, 616 P.2d 802.)   The purpose of such process is to avoid a finding that an existing provision has been implicitly repealed by the enactment of a more recent section.   Repeals by implication are disfavored and are accepted only when there is an irreconcilable conflict between equally valid measures and “ ‘the two cannot have concurrent operation.’ ”  (In re White (1969) 1 Cal.3d 207, 212, 81 Cal.Rptr. 780, 460 P.2d 980, quoting Penziner v. West American Finance Co. (1937) 10 Cal.2d 160, 176, 74 P.2d 252.)   Since the real property of state assessees is being taxed by the Board on the basis of current valuation and (with exceptions not here pertinent) all other real property is being taxed on the basis of a 1975–76 valuation, the property of state assessees is obviously not being taxed to the same extent and in the same manner as other property.

There is a strong presumption against implied repeal.  (Board of Supervisors v. Lonergan, supra, 27 Cal.3d 855, 868, 167 Cal.Rptr. 820, 616 P.2d 802.)  “[T]he law shuns repeals by implication, particularly where, as here, ‘the prior act has been generally understood and acted upon.’  (Penziner v. West American Finance Co. [supra] 10 Cal.2d 160, 176 [74 P.2d 252] ․)”  (Board of Supervisors v. Lonergan, supra, at p. 868, 167 Cal.Rptr. 820, 616 P.2d 802.)   The court is bound to attempt to harmonize the two constitutional provisions.   As stated in Lonergan, supra, “ ‘[w]here a modification will suffice, a repeal will not be presumed.’  [Citation.]”  (Id., at p. 869, 167 Cal.Rptr. 820, 616 P.2d 802.)

Respondent Board seeks to avoid any inquiry by us into the proper interpretation of the rollback provision of article XIII A by arguing that the method of annual unitary assessment of public utility property at current fair market value is not inconsistent with section 19.   The Board argues that, as between state and locally assessed property, only the tax rate (a maximum of one percent under article XIII A, section 1) and the relation of assessed value to full cash value 6 must be substantially the same in order to comply with the mandate of section 19.   This argument is, however, difficult to reconcile with recent statements of the Supreme Court in pertinent cases interpreting article XIII A.

In Amador, the Supreme Court recognized that the “total real property tax is a function of both rate and assessment ․”  (22 Cal.3d at p. 231, 149 Cal.Rptr. 239, 583 P.2d 1281.)   In Pacific Gas & Elec. Co. v. State Bd. of Equalization, supra, 27 Cal.3d 277, 165 Cal.Rptr. 122, 611 P.2d 463, where it addressed the effect of invalidating the assessment, the Supreme Court stated that “assessment of real property is an integral part of the taxing process.”   (Id., at p. 280, 165 Cal.Rptr. 122, 611 P.2d 463.)

Cases decided prior to the adoption of article XIII A considering section 19 and its predecessor, section 14, interpreted those provisions to require that utility and common property “bear the same burden of taxation in proportion to value.”  (Southern Cal. Tel. Co. v. Los Angeles (1941) 45 Cal.App.2d 111, 114–115, 113 P.2d 773;  cf. Dawson v. County of Los Angeles (1940) 15 Cal.2d 77, 80, 98 P.2d 495;  City of Livermore v. Pacific Gas & Electric Co. (1981) 120 Cal.App.3d 1001, 1005, 175 Cal.Rptr. 100.)

It is true that the Board's use of the capitalized earnings approach and unitary valuation has in several cases been upheld as appropriate for public utilities despite the fact that such valuation techniques might result in a different value than that produced by one of the other value approaches utilized by a county assessor, such as the cost or market data approach.  (See ITT World Communications, Inc. v. County of Santa Clara, supra, 101 Cal.App.3d 246, 162 Cal.Rptr. 186 [upholding Board's use of capitalization of income approach even where such exceeded a cost approach];  and Southern Cal. Tel. Co. v. Los Angeles, supra, 45 Cal.App.2d 111, 113 P.2d 773 [approving unitary valuation and formulary allocation to counties although the value exceeded that which would have been ascribed by the county assessor through use of a summation approach].)   However, the Board's utilization of a different approach to value for state assessed property than might be utilized for county assessed property was upheld in those cases because it was found that the challenged method of valuation sought to determine “full value,” “full cash value,” “fair market value” (see ITT World Communications, Inc. v. County of Santa Clara, supra, at p. 251, 162 Cal.Rptr. 186) or “actual value” (see Southern Cal. Tel. Co. v. Los Angeles, supra, at p. 114, 113 P.2d 773).   In other words, the different approach, which was designed to accommodate unique problems in the valuation of public utility property, was justified because it sought to approximate the current fair market value of such property and thereby achieve comparability with the value of locally assessed property.7

Pursuant to section 1 of article XIII, “[a]ll property is taxable and shall be assessed at the same percentage of fair market value.”   Prior to adoption of article XIII A all property subject to general tax assessment was assessed at 25 percent of fair market value.  (Former Rev. & Tax. Code, § 401.)   The same 25 percent assessment also applied to state assessed property.  (Former Rev. & Tax. Code, § 722.)  “Full cash value” or “fair market value” was at that time defined in Revenue and Taxation Code section 110 as “the amount of cash or its equivalent which property would bring if exposed for sale in the open market under conditions in which neither buyer nor seller could take advantage of the exigencies of the other and both with knowledge of all of the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions upon those uses and purposes.” 8

Thus, the concept of current value was applicable to all properties and (with a few exceptions for special properties specifically exempted by constitutional provisions which were to be valued at less than their highest and best use) the various approaches utilized by county assessors and the Board were all aimed at discovering that current value.   Local assessors and the Board were permitted to utilize several different approaches in appraising property in order to arrive at a range of value, ultimately giving greatest weight to the approach which was most suited to determination of the current value of the particular type of property involved.   The capitalized earnings approach and a unitary valuation are utilized for state assessed utility property because such property is subject to regulations limiting its earning potential and because there is a lack of comparable market value data for such property.   It is for present purposes useful to emphasize that despite utilization of a different appraisal methodology in valuing state assessed public utility property, such property not only bears the same assessed value in relation to actual value and the same tax rate as locally assessed property, but the value arrived at through utilization of the particular methodology is to approximate current full value.

Actual application of the cost approach, the market approach, or the income approach could well result in different values for a particular property.   However, the choice is to be made on the basis of an administrative determination as to which approach or which of several approaches is the most useful and accurate in valuing a particular type of property given its characteristics and the valuation data available.  (See generally, Bertane, The Assessment of Public Utility Property in California (1973) 20 UCLA L.Rev. 419.)

With the advent of article XIII A, the system changed from a current value system to an acquisition value system.  (See Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d 208, 235, 149 Cal.Rptr. 239, 583 P.2d 1281.)  Section 1 of article XIII A provides that “[t]he maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property ․”  It is not disputed that this tax rate limitation applies to state assessed real property.  “By reason of section 2, subdivision (a), of the article, except for property acquired prior to 1975, henceforth all real property will be assessed and taxed at its value at date of acquisition rather than at current value (subject, of course, to the 2 percent maximum annual inflationary increase provided for in subdivision (b)).”  (Amador, supra, at p. 235, 149 Cal.Rptr. 239, 583 P.2d 1281.)

Under section 2, subdivision (a), the assessor no longer seeks fair market value as defined in former section 110, unless there is a change in ownership of the property.  Revenue and Taxation Code section 110.1 defines the term “full cash value” of real property as utilized in article XIII A, section 2.   That value is no longer the cash or its equivalent which could be secured under open market conditions as defined in section 110.   Rather, “full cash value” as applicable to property covered by article XIII A means:

“․ the fair market value as determined pursuant to Section 110 for either:

“1. The 1975 lien date;  or,

“2. For property which is purchased, is newly constructed, or changes ownership after the 1975 lien date:

“(A). The date on which a purchase or change in ownership occurs;  or

“(B) The date on which new construction is completed, and if uncompleted, on the lien date.”  (Rev. & Tax. Code, § 110.1.)

To value locally assessed real property by an acquisition value method and state assessed real property by a current value method clearly subjects those properties to different burdens in violation of article XIII, section 19.

The Board's argument that the burden is the same because the one percent rate applies to all properties and because the assessed value of all property under article XIII A is full cash value is specious.   The one percent of “full cash value” as defined in section 2, subdivision (a) is not substantially equivalent to “fair market value” as determined by the Board for state assessed public utility property.   The latter is essentially a current value.   The difference is that section 2, subdivision (a), places a lid on full cash value by tying it to 1975–76 full cash value until a change of ownership and thereafter by tying it to acquisition value.  (See Rev. & Tax. Code, § 110.1;  Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d 208, 149 Cal.Rptr. 239, 583 P.2d 1281.)   The fair market value utilized by the Board for public utility properties is indisputably a current value.

The County argues that all property under the acquisition value system prescribed by article XIII A is subject to different tax burdens and that uniformity is no longer required with respect to assessed values of comparable properties.   Implicit in this contention is the view that section 19 no longer applies to require the same tax burden be imposed on state assessed property as encumbers locally assessed property, so long as the rate and proportion of assessed value to full cash value (however full cash value is defined) are the same.   To accept this argument would, in our view, effect an implied repeal of section 19.

We therefore may not accept respondent's position without a clear indication that section 2, subdivision (a), was not to apply to state assessed real property.  (See, e.g., Board of Supervisors v. Lonergan, supra, 27 Cal.3d 855, 868, 167 Cal.Rptr. 820, 616 P.2d 802.)

Our necessary effort to harmonize the rollback provision of article XIII A, section 2, with article XIII, section 19, which requires that state assessed property and other real property bear the same burden of taxation, compels us, at this point in our inquiry, to adopt the assumption that the rollback provision of article XIII A is applicable to state assessed property.   We can abandon this assumption only if persuaded that it is manifestly inconsonant with the plain meaning of article XIII A or if we find that the Board's refusal to apply the rollback provision to state assessed property is consistent with the intent of the voters or that of the Legislature.

III.

Respondents' contention that the plain meaning of article XIII A compels the conclusion that it does not apply to public utility property is predicated upon the phrase “county assessor's valuation,” in section 2, subdivision (a).   Since public utility property is not assessed by the county assessor at the local level, but rather by the Board at the state level, respondents insist that such property is simply not within the ambit of article XIII A.   More specifically, respondents contend that the phrase “county assessor's valuation,” which they view as a term of art, has the necessary effect of limiting the broad language of section 2, subdivision (a), and only authorizes the granting of a rollback to that property actually valued by a county assessor.

This argument would be persuasive if the phrase upon which respondents rely could be considered in a vacuum.   It is a cardinal rule of construction, however, “that words or phrases are not to be viewed in isolation;  instead, each is to be read in the context of the other provisions of the Constitution bearing on the same subject.  [Citation.]  The goal, of course, is to harmonize all related provisions if it is reasonably possible to do so without distorting their apparent meaning, and in so doing to give effect to the scheme as a whole.  [Citations.] ․”  (Kehrlein v. City of Oakland (1981) 116 Cal.App.3d 332, 337, 172 Cal.Rptr. 111 [construing section 4 of article XIII A], quoting Fields v. Eu (1976) 18 Cal.3d 322, 328, 134 Cal.Rptr. 367, 556 P.2d 729.)

 Considering article XIII A as a whole, we are persuaded that the phrase “county assessor's valuation of real property as shown on the 1975–76 tax bill under ‘full cash value’ ” was intended only to designate a specific numerical figure to which property owners may look in order to easily determine the new basis upon which the value of their property is to be calculated for future tax purposes.   We doubt that the framers of the measure were concerned with the precise method by which the valuation figure on the 1975–1976 tax bill was arrived at or that it was of any importance to them whether such valuation was set by the Board or a county assessor.   Moreover, if the framers of article XIII A intended to exclude state assessed property from the new tax scheme it seems highly doubtful they would have gone about it so indirectly.   In any case, it seems obvious to us that such an exclusion was not intended by the language in question, the purpose of which was instead simply to direct property owners to a particular figure on their 1975–1976 tax bill which would henceforth constitute the full cash value of such property, as long as no change of ownership occurred.

As ITT correctly points out, resort to a valuation figure on a 1975–1976 tax bill may be had just as readily by a state assessee as by any other property owner.   When a tax bill is prepared it is reflected on a secured roll, which includes properties assessed both by county assessors and by the Board.   (Rev. & Tax. Code, § 109.)   The value set by the Board is allocated to each taxing jurisdiction (Rev. & Tax. Code, § 745) and a state assessment roll is sent to the appropriate county auditor.  (Rev. & Tax. Code, § 756.)   The auditor then applies the same tax rate to the secured property tax roll.   (Rev. & Tax. Code, §§ 109, 2152.)   The local tax collector collects all property taxes (Rev. & Tax Code, § 2602) in the same manner by mailing a bill to each assessee, including state assessees.  (Rev. & Tax. Code, § 2610.5.)   The tax bills are paid to the tax collector (Rev. & Tax. Code, § 2613) and accounted to the auditor in the same manner regardless whether locally or state assessed.  (Rev. & Tax. Code, § 2616.)   The proceeds from taxes on all property, including state assessed property, are then paid by the tax collector to the county treasurer.  (Gov. Code, § 27401.)   In short, except for the initial assessment, state assessed public utility property is treated in the identical manner as locally assessed property.   And this reinforces our view that if the drafters of article XIII A intended that state assessees be treated in a materially different manner from other property owners they would have expressed such intent forthrightly and not in the oblique manner in which respondents contend this was done.

Moreover, if “county assessor's valuation” is construed to limit the application of section 2, subdivision (a), only to property assessed by a county assessor, absurd and unintended results might follow.   As examples, such an interpretation could conceivably exclude local property valued by a county board of equalization, rather than by a county assessor (Rev. & Tax. Code, §§ 1601, et seq.) and property assessed by a city that retains the power to perform its own assessment.  (Rev. & Tax. Code, § 757;  see Gov. Code, §§ 43000, et seq., 27421, 51300, et seq., 51501.)   Under the literal interpretation advanced by respondents, none of these properties would be considered as having a “county assessor's valuation,” and would thus be subject to annual re-valuation at current levels.   In light of the primary purpose of article XIII A, the limitation of taxes, such absurd results were certainly not contemplated by the framers of section 2, subdivision (a), and an interpretation that would authorize such results should not be judicially endorsed.  (Amador, supra, 22 Cal.3d at p. 245, 149 Cal.Rptr. 239, 583 P.2d 1281;  see also, Younger v. Superior Court (1978) 21 Cal.3d 102, 113, 145 Cal.Rptr. 674, 577 P.2d 1014;  People v. Barksdale (1972) 8 Cal.3d 320, 334, 105 Cal.Rptr. 1, 503 P.2d 257;  and Bruce v. Gregory (1967) 65 Cal.2d 666, 673–674, 56 Cal.Rptr. 265, 423 P.2d 193.)   As recently reiterated by the Supreme Court in Amador, a general constitutional provision, such as article XIII A, “ ‘․ is not to be interpreted according to narrow or super-technical principles, but liberally and on broad general lines, so that it may accomplish in full measure the objects of its establishment and so carry out the great principles of government.’ ”  (Amador, supra, at pp. 244–245, 149 Cal.Rptr. 239, 583 P.2d 1281, quoting Stephens v. Chambers (1917) 34 Cal.App. 660, 663–664, 168 P. 595.)

We are also mindful, in this connection, of the longstanding principle that “ ‘[i]n case of doubt [statutes levying taxes] are construed most strongly against the government, and in favor of the citizen.’ ”  (Pioneer Express Co. v. Riley (1930) 208 Cal. 677, 687, 284 P. 663, quoting Gould v. Gould (1917) 245 U.S. 151, 153, 38 S.Ct. 53, 62 L.Ed. 211;  see also, Edison California Stores v. McColgan (1947) 30 Cal.2d 472, 476, 183 P.2d 16;  Estate of Potter (1922) 188 Cal. 55, 64–65, 204 P. 826;  Wells Fargo Bank v. Cory (1980) 110 Cal.App.3d 242, 250, 167 Cal.Rptr. 778;  and Market St. Ry. Co. v. Cal. St. Bd. Equal. (1955) 137 Cal.App.2d 87, 93, 290 P.2d 20.)   This rule of construction, which is ordinarily applicable as well to the interpretation of constitutional provisions relative to taxation (Winchester v. Mabury (1898) 122 Cal. 522, 527, 55 P. 393;  County of Fresno v. Malmstrom (1979) 94 Cal.App.3d 974, 979, 156 Cal.Rptr. 777),9 provides yet another reason to reject the interpretation urged by respondents, which would exclude numerous taxpayers from the benefits of article XIII A.10

IV.

The opposing parties variously claim that certain extrinsic aids—particular statements in the voters pamphlet relative to Proposition 13 and the nature of implementing legislation enacted shortly after the vote—support their respective positions on the proper meaning of section 2, subdivision (a).

The Supreme Court in Amador recognized that “apparent ambiguities frequently may be resolved by the contemporaneous construction of the Legislature or of the administrative agencies charged with implementing the new enactment.  [Citations.]  In addition, when, as here, the enactment follows voter approval, the ballot summary and arguments and analysis presented to the electorate in connection with a particular measure may be helpful in determining the probable meaning of uncertain language.  [Citations.]”  (Amador, supra, 22 Cal.3d 208, 245–246, 149 Cal.Rptr. 239, 583 P.2d 1281.)

However, the Supreme Court has also expressed reluctance to rely on extrinsic aids “to supply a provision that is wholly missing from the enactment.”   (Board of Supervisors v. Lonergan, supra, 27 Cal.3d 855, 865–866, 167 Cal.Rptr. 820, 616 P.2d 802.)

After review of the extrinsic aids to which the opposing parties direct our attention, we conclude that none provide any assistance in determining whether the voters intended article XIII A, section 2, subdivision (a), to apply to or exclude state assessed property or whether the Legislature shared either of these alternative views.

Voters Pamphlet.   ITT contends that information presented to the voters indicates that the provisions of article XIII A, section 2, subdivision (a), apply uniformly to all real property owners.

ITT relies upon the statement in the voter's pamphlet by the Legislative Analyst that:  “This initiative would:  ․, (2) restrict the growth in the assessed value of property subject to taxation, ․”  (Emphasis added.)   ITT also refers to the Legislative Analyst's statement that “[i]nitially this measure would roll back the current assessed values of real property to the values shown on the 1975–76 assessment roll.”   ITT argues that the quoted language is significant because it contains no exceptions to the statement that assessed values will be “rolled back” and no indication that state assessed property will be treated any differently from other property.

ITT points out that the Legislative Analyst specifically referred to utilities in the background analysis of the measure explaining that state assessments were included in the “total local roll”:  “The total local property tax roll consists of county assessments on real property (land and buildings) and personal property (inventories) and state assessments on public utilities and railroads.”   ITT argues that a citizen who has read these statements would reasonably conclude that the valuation provision related to all property subject to taxation, including state assessed public utility property.

ITT finally directs our attention to the Legislative Analyst's summary of the main provisions of the initiative wherein, in the course of his analysis of the one percent tax rate limitation, the analyst states:  “This measure does not mention county assessed personal property (such as business inventories), or state assessed property (such as public utilities), but the Legislative Counsel advises us that the 1 percent limit would apply to all types of taxable property.”

However, as respondents are quick to point out, when analyzing the effect of the rollback provision in section 2, subdivision (a), the Legislative Analyst made no reference to state assessed public utility property.   Respondents contend that such an omission is significant precisely because the Legislative Analyst did state that the one percent tax rate limitation would apply to state assessed real property.   The fact that he did so without indicating the applicability of the rollback provision is, in respondents' view, dispositively indicative of the fact that the analyst must not have considered the rollback provision applicable to state assessed property.   Respondent Board finds additional support for this view in the fact that the analyst also referred to the county assessor's ability to adjust values shown on the 1975–1976 assessment roll.11

We are entirely unpersuaded by the efforts of the parties to impute opposite meanings to the voter pamphlet statement of the Legislative Analyst.   For present purposes, all that can conclusively be derived from the voter pamphlet is that application of the rollback provision to state assessed property is among the numerous ambiguities and uncertainties inherent in Proposition 13 that were not meaningfully brought to the attention of the voters.  (For illustration of another, see Armstrong v. County of San Mateo, supra, 146 Cal.App.3d at pp. 619–621, 194 Cal.Rptr. 294.)   To draw from the voter pamphlet either of the opposite inferences urged by the parties would require a level of sophistication in tax matters that, without any disrespect to California voters, few possess.   And the rare voter sufficiently knowledgeable to draw one inference would likely be aware that its opposite was equally plausible.   The voter pamphlet is therefore simply of no material assistance in determining the intent of the voters on the issue before us.

Implementing Legislation.

The efforts of the parties to impart significance to silence is also evident in their disparate attempts to persuade us that their respective positions are shared by the Legislature and should be judicially endorsed for that reason.

The facts pertinent to these countervailing contentions are as follows.

Almost immediately after passage of Proposition 13 the Board promulgated implementing regulations (Cal.Admin.Code, tit. 18, §§ 460–471) which, among other things, interpreted section 2, subdivision (a), so as to exclude state assessed property from the benefit of the rollback provision.  (Id., § 460, subdivision (a).)   The new regulations did not alter existing Board rules pertinent to the valuation of state assessed property.  (Id., §§ 901–906.)

Shortly thereafter, on June 24, 1978, the governor signed an omnibus measure (Stats.1978, ch. 292) which defined critical terms and provided a comprehensive scheme for the implementation of article XIII A.   Although in enacting this measure the Legislature seems clearly to have been aware that the Board had earlier ruled specifically that state assessed property was not covered by section 2, subdivision (a),12 the Legislature did not itself address the question.

ITT contends that the failure of the Legislature to codify the Board's regulation excluding state assessed property from the ambit of article XIII A manifests a legislative intent to reject such an exclusion and to accomplish the opposite result.   In advancing this contention ITT points out that, among other things, the implementing legislation amended Revenue and Taxation Code section 110 and added section 110.1 both relative to the valuation of property.   The language of these provisions, as ITT emphasizes, does not distinguish between state assessed property and other property.13  ITT maintains that the failure of the Legislature to make such a distinction in these two statutes additionally supports its contention that the Legislature intended to and did reject the Board's determination that state assessed property was not covered by the rollback provision of article XIII A.

Not surprisingly, respondents' reach the opposite result from their analysis of the very same facts.   Briefly stated, respondents contend that the failure of the Legislature to expressly overrule the Board's administrative determination that section 2, subdivision (a), does not apply to state assessed property manifests legislative adoption of that interpretation.   Respondents contend as well that the failure of the newly adopted Revenue and Taxation Code section 110.1 or amended section 110 to explicitly include state assessed property as within the meaning of subdivision (a) of section 2 of article XIII A reflects a legislative construction excluding such property.

The competing contentions of the parties have equal force, attenuated as it may be;  but by reason of that equivalence they are, in the final analysis, equally untenable.   We simply cannot discern from the facts before us whether, as ITT asserts, the failure of the Legislature to adopt the Board's rule signifies rejection or, as respondents contend, the failure to reject signifies adoption.

A number of decisions have held, it is true, that the acquiescence of the Legislature through inaction following a judicial or administrative interpretation is entitled to some weight as evidence that the Legislature intended to adopt such interpretation.  (See, e.g., Gombos v. Ashe (1958) 158 Cal.App.2d 517, 528, 322 P.2d 933, disapproved on other grounds in Taylor v. Superior Court (1979) 24 Cal.3d 890, 900, 157 Cal.Rptr. 693, 598 P.2d 854.)  “But legislative inaction has also been called a ‘weak reed upon which to lean’ and a ‘poor beacon’ to follow in construing a statute.”   (2A Sutherland on Statutory Construction (4th ed.) § 49.10, p. 261, citing, inter alia, T.I.M.E. Inc. v. United States (1959) 359 U.S. 464, 79 S.Ct. 904, 3 L.Ed.2d 952, and Labor Board v. Radio Engineers (1961) 364 U.S. 573, 81 S.Ct. 330, 5 L.Ed.2d 302.)

This cautionary view, which has equal applicability to the construction of a constitutional provision, is particularly apt in the circumstances of the present case.   In implementing legislation enacted shortly after passage of Proposition 13, the Legislature explicitly ratified the Board's interpretation of certain provisions of article XIII A other than the rollback provision of section 2, subdivision (a).   For example, in 1978 and again in 1979 the Legislature unambiguously codified the Board's earlier expressed interpretation of the inflation factor provision of section 2, subdivision (b), of article XIII A.  (Compare Rev. & Tax.Code, §§ 110.1(f) and 51, enacted as urgency measures on June 24, 1978, and on July 10, 1979, respectively, with Board rule 460, Cal.Admin.Code, tit. 18, § 460, the consistency of which are discussed in Armstrong v. County of San Mateo, supra, 146 Cal.App.3d at pp. 606–607, 194 Cal.Rptr. 294.)   The Legislature's failure to similarly indicate its agreement with the Board's rule interpreting the rollback provision may suggest legislative disagreement with this particular interpretation.   But such putative disagreement must be based upon the inference that all administrative interpretations not expressly adopted are thereby repudiated.   Such an inference might be justified if the administrative interpretation were of long standing, or had been adopted by an appellate court or relied upon by the public.   But that is not the case here.   The Board's ink was still wet at the times the implementing statutes were enacted.   And the necessary speed with which the Legislature acted—through the utilization of urgency measures in most instances—belies the exercise of considered judgment on matters not explicitly addressed.   For this reason we are unwilling to find anything more than ambiguity in the Legislature's silence on the meaning of section 2, subdivision (a), of article XIII A.

Nor are we prepared to read into Revenue and Taxation Code section 722 the message discovered there by respondent County.   The County claims that in enacting this section shortly after the adoption of Proposition 13 the Legislature manifested an intention that the assessment of utility property by the Board was to continue on the basis of a current fair market value standard rather than the acquisition date standard newly prescribed by Proposition 13.   Section 722, as amended in 1978, provides as follows:  “State-assessed property shall be assessed at its fair market value or full value as of 12:01 a.m. on the first day of March.   The board shall annually prepare an assessment roll of the assessments made by it for transmittal to county auditors as hereinafter provided in this chapter.”

Prior to this amendment section 722 provided that “[s]tate assessed property shall be assessed at 25 percent of its fair market value ․”  The 1978 amendment simply deleted the language “25 percent of,” but otherwise reenacted section 722 in its original form.   Respondent County contends that this deletion reflects a legislative intent that state assessed property be assessed at 100 percent of current fair market value.   However, this argument ignores the fact that in 1978 the Legislature also amended section 110 and 110.1 to provide different definitions of “full cash value” or “fair market value” for property coming under the provisions of section 2, subdivision (a), of article XIII A, and other property.  Section 110.1 defines “full cash value” as the “fair market value” as of the date of the 1975–76 rollback or change of ownership.   Thus, the definition of “full cash value” or “fair market value” would depend upon whether the property were included under the provisions of section 2, subdivision (a).   We fail to discern any legislative intent to continue valuation of state assessed property at current value merely by the fact that the Legislature increased the assessed value ratio from 25 percent to 100 percent of fair market value where fair market value does not necessarily mean current value.14

All parties attempt to attribute significance to the Legislature's determination that special constitutional provisions concerning the valuation of non-profit golf courses (article XIII, section 10), restricted timberland (article XIII, section 3(j)), open space land, and historical property (article XIII, section 8) were not affected by Proposition 13.   Following adoption of Proposition 13, but prior to any legislative determination, the Board had ruled that such property would be covered by section 2, subdivision (a).  (Former Cal.Admin.Code, tit. 18, §§ 465, 470, 471.)   The Legislature, in a measure enacted in 1979, overturned the Board's rule regarding these properties and provided that such property would continue to be valued according to the specific constitutional provisions applicable to each and not according to article XIII A, section 2, subdivision (a).  (Rev. & Tax.Code, § 52.) 15

Respondents argue that the legislative overruling of the Board's interpretation of the applicability of article XIII A to these special types of property indicates that the Legislature adopted the Board's interpretation with respect to state assessed property as that interpretation was not explicitly overruled.   ITT argues, on the other hand, that had the Legislature intended to exempt state assessed property from the provisions of section 2, subdivision (a), it would have done so explicitly as it did with the aforesaid special properties.

Before going further, it is useful to reiterate and emphasize that the valuation for tax purposes of the special properties in question was in each instance authorized by specific constitutional provisions to be less than a fair market value as defined prior to enactment of article XIII A.   That is, for policy reasons we need not assay here, such properties were permitted to be valued at less than their highest and best use.   The Board's administrative determination that article XIII A applied to these special properties would, without any specific mandate from the voters or the Legislature, have vitiated the policy judgment reflected in the specific constitutional authorizations of less than a highest and best use valuation.16

No similar constitutional provision has ever authorized the valuation of state assessed utility property at other than its full cash value or fair market value.   Indeed, as earlier discussed, the constitutional provision applicable to state assessed real property provides that said property is to be subject to taxation to the same extent and in the same manner as most other real property.  (Cal. Const., art. XIII, § 19.)   Due to this rather fundamental distinction between the valuation of state assessed property generally and that of the special properties just described, the explicit legislative rejection of the Board's interpretation as to the special properties provides no clue as to legislative intent, if any, respecting state assessed property.

In sum, the legislation enacted to implement article XIII A displays no discernible legislative intent with respect to application of the rollback provision of section 2, subdivision (a).   The valiant efforts of the parties to infer some purpose from the failure of the Legislature to either ratify or repudiate the Board's interpretation are ultimately unavailing because the several inferences that may reasonably be drawn from this failure are inconsistent.   The circumstances of the present case are in this respect readily distinguishable from those in which the informed refusal or failure of the Legislature to change an administrative or judicial interpretation could reasonably support only one inference and was therefore treated as presumptive evidence of its correctness.  (See Kusior v. Silver (1960) 54 Cal.2d 603, 618, 7 Cal.Rptr. 129, 354 P.2d 657;  Alter v. Michael (1966) 64 Cal.2d 480, 482–483, 50 Cal.Rptr. 553, 413 P.2d 153, disapproved on other grounds in Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 190, 98 Cal.Rptr. 837, 491 P.2d 421;  Michels v. Watson (1964) 229 Cal.App.2d 404, 407–409, fn. 29, 40 Cal.Rptr. 464;  Gombos v. Ashe, supra, 158 Cal.App.2d 517, 528, 322 P.2d 933.)

 For the reasons just set forth we conclude there is no extrinsic evidence of the intent of the voters or of the Legislature which requires us to reconsider the previously expressed conclusion that the Board's literal interpretation of section 2, subdivision (a), is unjustified by a proper reading of that section in the context of the entire article of which it is a part and that such an interpretation would impermissibly work the implied repeal of section 19 of article XIII.   Although ordinarily a contemporaneous construction by the administrative agency responsible for implementation of a new enactment is entitled to great weight in resolving ambiguities (Amador, supra, 22 Cal.3d at p. 245, 149 Cal.Rptr. 239, 583 P.2d 1281), such an extrinsic aid does not carry great weight where, as here, there is no necessary ambiguity.  (Board of Supervisors v. Lonergan, supra, 27 Cal.3d at p. 866, 167 Cal.Rptr. 820, 616 P.2d 802.)   Since it would conflict with the clear mandate of article XIII, section 19, the Board's unduly narrow interpretation of section 2, subdivision (a), of article XIII A cannot stand.

We conclude that section 2, subdivision (a), may reasonably be construed to apply to state assessed real property, and we interpret the phrase “the county assessor's valuation of real property as shown on the 1975–76 tax bill under ‘full cash value’ ․” as merely intended to permit the taxpayer to look to his 1975–76 tax bill to determine the benefit he would receive under the rollback provision.17

This interpretation harmonizes the requirements of article XIII, section 19, with the provisions of section 2, subdivision (a).

V.

Respondent County alone asserts that ITT failed to exhaust its administrative remedies by seeking a rollback on the entire unitary valuation of its property rather than by requesting the Board to allocate values between real property and personal property, and seeking a rollback only on the real property.

The following facts are pertinent to this contention:  (1) at the 1978–79 hearing before the Board ITT did not introduce into evidence its total 1975–76 unitary valuation or any expert testimony as to the proper allocation between real property and personal property;  (2) at the 1979–80 hearing, ITT introduced only the total 1975–76 unitary valuation, without expert testimony as to allocation;  (3) with respect to both tax year protests, ITT could have demanded findings of fact and conclusions of law pursuant to Revenue and Taxation Code section 744, allocating ITT's unitary value between real property and personal property, but declined to do so.

The County argues, for these reasons, that while ITT may have commenced the pursuit of administrative remedies, it nevertheless failed to exhaust them.

We conclude that the foregoing contentions are without merit.

 “A taxpayer, questioning the correctness of assessed valuation, must fairly and fully present his showing to the Board as a prerequisite to a judicial attack upon the Board's determination.  ‘Were the rule otherwise, the taxpayer could make a perfunctory showing before the board and reserve his real showing for a subsequent appeal to the courts.   This is not permissible ․’  [Citation.]   That principle precludes the presentation before a reviewing court of evidence which with reasonable diligence could have been produced before the administrative agency but which was not there offered.”  (American Chemical Corp. v. County of Los Angeles (1974) 42 Cal.App.3d 45, 54–55, 116 Cal.Rptr. 751.)   The burden is upon appellant to plead and establish as part of its case in chief that it exhausted its administrative remedy by protest to the Board of Equalization or facts which excused that action.  (Westinghouse Elec. Corp. v. County of Los Angeles (1974) 42 Cal.App.3d 32, 37, 116 Cal.Rptr. 742;  Virtue Bros. v. County of Los Angeles (1966) 239 Cal.App.2d 220, 231–232, 48 Cal.Rptr. 505.)

 In the instant case the supplemental petition ITT filed with the Board raised the fundamental constitutional issues pertinent to the applicability of article XIII A.   This petition was timely filed shortly after passage of the initiative.   Although respondent County correctly asserts that that petition sought reassessment of all ITT's unitary property, rather than merely reassessment of ITT's real property, this fact alone does not compel the conclusion that ITT failed to fully present its case.   The early case of Mackay v. San Francisco (1900) 128 Cal. 678, 61 P. 382, resolved a similar question in favor of the taxpayer.   In that case the Supreme Court concluded that one-half the tax upon certain bonds was void.   Defendant City and County of San Francisco contended that plaintiff taxpayers were not entitled to recover anything less than the whole tax because their protest was directed to the whole tax, rather than to the invalid portion only.   The court ruled that the protest was sufficient.  “The protest, while it specified and pointed out that the whole assessment was void, did not for that reason fail to point out and show that the assessment of all the property owned by Mackay was void.   The greater includes the less, and, although the whole assessment was claimed to be void, the protest showed that the whole assessment as to Mackay was void.   The notice was a substantial compliance with the statute.”  (Id., at p. 686, 61 P. 382.)

Although arguably petitioner could have requested allocation at the 1978 hearing itself or in its supplemental petition, it does not appear that its failure to do so resulted in the failure of the Board to give full consideration to the issue of the applicability the rollback provision of article XIII A.   Further, allocation between real and personal property would only have become important if the Board determined, as it did not, that the rollback provision applied.

The issue ITT brought to the superior court was whether the Board erred in determining that section 2, subdivision (a), of article XIII A did not apply to state assessed public utility property.   This issue presented a pure question of law.   Again, the failure of ITT to request allocation by the Board between its real and personal property could have no impact upon the resolution of this fundamental legal question because, as noted, allocation would not even be at issue unless the rollback provision were held to apply.   It is clear from the lengthy record that the legal issues basic to this case were fully raised at all stages below.   The trial court properly treated the issue as one appropriate for summary judgment as there were no material issues of disputed fact.  (See also, Georgia-Pacific Corp. v. County of Butte (1974) 37 Cal.App.3d 461, 476–477, 112 Cal.Rptr. 327.)

In Simms v. County of Los Angeles (1950) 35 Cal.2d 303, 217 P.2d 936, the court faced a similar problem with respect to the difficulties of allocation.   In that case the county board of equalization assessed bank vault doors and counterlines as improvements to realty, rather than as personal property.   The Court of Appeal held that the taxes were invalid to the extent they represented a levy upon fixtures installed in plaintiffs' buildings.   Plaintiffs contended that a substantial but uncertain amount on account of these fixtures was included in each building in a single assessment of improvements.   They argued, therefore, that the valid and invalid portion of the taxes levied thereon were incapable of separation and that for this reason they were entitled to recover the full amount on the tax.   The county, on the other hand, contended that the alleged indivisibility of the assessments resulted from the plaintiffs' failure to prove the value of the component parts of the property assessed and that plaintiffs were therefore precluded from recovering any amount.  (Id., at p. 315, 217 P.2d 936.)   The Court of Appeal rejected both contentions, stating that the proper procedure to be followed in such cases was to permit the county to retain the portion of the special district taxes allocable to the value of plaintiff's improvements minus the value of the bank vault doors and counter lines, and that plaintiff's recovery should be limited to the amount representing the tax on the latter items.  (Id., at p. 317, 217 P.2d 936.)   The court held that the trial court “should have ordered the case resubmitted to the board of equalization for determination of the value of plaintiffs' buildings without the included fixtures, retaining jurisdiction of the parties and subject matter until the appropriate judgment could finally be rendered in conformity with the terms of the board's rulings.”  (Id., at p. 318, 217 P.2d 936.)   The court reasoned that the all or nothing approach of the parties would be inequitable in that adoption of plaintiffs' contention that they were entitled to recover the whole amount “would require defendants to refund the valid portion of the special district taxes attributable to the value of plaintiffs' buildings, and to pay interest thereon, which would be contrary to the policy that the public should not be deprived of revenue necessary for the performance of governmental functions.   Defendants' contention is based upon the assumption that the courts will perform valuation or equalization functions which are vested exclusively in the local board of equalization.”  (Id., at p. 315–316, 217 P.2d 936.)

Thus, while it would be inequitable to allow ITT to recover taxes paid which were properly attributable to its personal property, the failure to produce evidence as to the proper allocation between real and personal property should not deprive ITT of the benefits of article XIII A as applied to its real property.

 The County next contends that the trial court erred in allowing into evidence the affidavit of Robert L. Carpenter, Assistant Secretary of ITT, in support of ITT's motion for summary judgment.   It is worth noting also that the Board and County prepared and relied upon similar affidavits and declarations in presenting their motion for summary judgment.

In Georgia-Pacific Corp. v. County of Butte, supra, 37 Cal.App.3d 461, 112 Cal.Rptr. 327, the court affirmed the trial court's decision to allow introduction of the testimony of witnesses bearing on the issue of law presented, i.e., the method of valuation utilized by defendants.   The Court of Appeal concluded that the trial court did not abuse its discretion in permitting the testimony of an additional witness where such testimony was limited to the specific legal issue involved.  (Id., at p. 474, 112 Cal.Rptr. 327.)   So too it is at least arguable that the affidavit of Carpenter assisted the court in determination of its issue of law.   Much of the information contained in the affidavit consisted of the procedural background of the case, including ITT's effort to exhaust its administrative remedies.   To the extent that affidavit contained additional factual matter going beyond the actual legal issue involved, it appears that its submission must have been harmless as the court decided the legal issue against ITT and in favor of respondents.

VI.

The parties agree that remand to the Board is a proper procedure in the event we conclude, as we do, that the Board erroneously failed to apply article XIII A, section 2, subdivision (a), to ITT's real property and that reversal is required.

As stated by the court in Georgia-Pacific Corp. v. County of Butte, supra, 37 Cal.App.3d 461, 112 Cal.Rptr. 327, in affirming the trial court's order for a remand to the county assessment appeals board for a new full evidentiary rehearing, “[p]laintiff's challenge to the administrative procedure utilized by defendant was and is a constitutional one․  Finding as we do that the method of valuation utilized by defendant was and is unconstitutional, we cannot predict what more appropriate and proper method of valuation may be adopted by defendant to conform to constitutional requirements.   Fairness to each of the parties demands a new determination consonant with law and with the views herein expressed.   This requires a new hearing as directed by the trial court.”  (Id., at p. 478, 112 Cal.Rptr. 327.)

The Board points out that no appraisal of the real property was ever made pursuant to the provisions of section 2, subdivision (a), of article XIII A.   The 1975–76 tax bill appears to contain a breakdown of values between real and personal property.   However, the evidence adduced at the superior court by the Board points to this allocation between real and personal property as being merely a formulary allocation with no necessary correlation between the relative values of real and personal property located in the County.   No evidence was presented below as to the actual value of the real property in 1975 as distinct from the unit value of the entire enterprise as allocated among counties.   Moreover, section 2, subdivision (a), itself provides for reassessment where necessary to arrive at full cash value for 1975–76 tax year.

Although the Board has claimed that it would be administratively difficult to go back to 1975 and realistically assess the value of just the real property, the Board also acknowledges that it could approximate a rollback by rolling back the unitary valuation to the 1975–76 base year level, extracting the personal property, adding on new construction and new ownership where appropriate and assessing personal property separately.

This court, like the court in Georgia Pacific Corp. v. County of Butte, supra, “cannot predict what more appropriate and proper method of valuation may be adopted by [the Board] to conform to constitutional requirements.”   We make the following observations to assist the Board in its task of revaluation in accordance with the mandate of article XIII A, section 2, subdivision (a):  (1) The Board's formulary allocations as indicated on the 1975–76 tax bill are not binding;  (2) the Board may continue to use either a unitary or summation approach to valuing the property;  (3) the Board may reappraise and reassess real property to arrive at 1975–76 values;  and (4) in arriving at the 1975–76 base value, continued use by the Board of the unitary valuation approach and a capitalized earning approach is acceptable, so long as any formula which the Board adopts for allocation of value to real property owned in 1975–76 is reasonable.

The judgment is reversed and the case remanded to the superior court with directions to remand to the State Board of Equalization for proceedings in accordance with the views expressed in this opinion.

I respectfully dissent.

Article XIII A, by its terms, concerns “any ad valorem tax on real property.”  (Cal. Const., art. XIII A, § 1, emphasis added.)   ITT World Communications, Inc. (ITT), the public utility plaintiff and appellant herein, contends that the rollback provision of article XIII A, section 2, applies to public utilities just as it applies to any other kind of property.   The majority of this court apparently agrees, having held that to decide otherwise would effect an implicit repeal of article XIII, section 19 which requires all state assessed property (including public utilities) to be taxed “to the same extent and in the same manner as other property.”   Accordingly, the majority holds that the rollback provision applicable to nonutility properties must likewise apply to the tax imposed upon public utilities.

It is my opinion, however, that the tax imposed upon public utilities is far broader than a mere tax on the value of the real property owned by public utilities.   Given that basic premise, the provisions of article XIII A are inapplicable to taxes imposed upon public utilities.1

By viewing the public utilities tax as an ad valorem tax, but not a real property tax, there is no conflict between article XIII, section 19 and the provisions of article XIII A.   In my view, it is the position of the majority which implicitly repeals section 19 by taking away the independent and separate authority of the SBE to assess public utility property on an annual basis.

Throughout California history, the tax placed on public utilities has required special procedures and special rules.   A review of the historical development of the public utilities tax tends to show that the tax has not traditionally been treated as a typical real property tax, except at its inception in 1849.   (See generally, City of Livermore v. Pacific Gas & Electric Co. (1981) 120 Cal.App.3d 1001, 1004, 175 Cal.Rptr. 100;  City of Oceanside v. Pacific Tel. & Tel. Co. (1955) 134 Cal.App.2d 361, 365–366, 285 P.2d 704.)

Under California's first constitution, public utilities were taxed in the same manner as any other kind of property.   The value for tax purposes was determined locally, by calculating the value of the land and improvements;  e.g., miles of track and roadbed, reels of telegraph wire, substations.  (See Bertane, “The Assessment of Public Utility Property in California,” 20 UCLA L.Rev. 419, 422.)

This method of determining value quickly proved unsatisfactory due to the widespread recognition that the substantial value of gas and electric companies, railroads, telephone and telegraph companies laid not in the cumulative worth of the physical assets, which tended to be of relatively little value, but in the system operation as a whole.   As a result, public utilities carried far less than their fair proportion of the tax burden.

In 1910, a constitutional amendment which added article XIII, section 14 (now article XIII, section 19) radically modified the property tax system in California.   A primary feature of the overhauled system was the separation of the sources of revenue for state and local government.   Taxes collected from public utilities supported state government, while other property taxes provided revenues for county and municipal purposes.   This public utilities tax was calculated on gross receipts from the operation of the company and was “in lieu of all other taxes and licenses, State, county and municipal,” upon the property above enumerated of such companies.”  (See City of Oceanside v. Pacific Tel. & Tel. Co., supra, 123 Cal.App.2d at p. 365, 285 P.2d 704.)

This system remained in effect until 1933 at which time another constitutional amendment again completely revamped the system.   The 1933 amendment, largely submitted as a means to improve economic stability during the depression (see A Plan for Tax Relief, Ballot Pamp., Proposed Sen. Const. Amend. No. 30, Special Election (June 27, 1933)), returned the public utilities tax to the local tax rolls, repealed the in lieu of tax on gross receipts and reinstated an ad valorem tax.   All property, other than franchises, owned or used by public utilities were to be annually assessed by the SBE at “actual value.”   (Cal. Const., art. XIII, § 14, as amended in 1933.)   The 1933 amendment, with only minor alterations, remains in the California Constitution as article XIII, section 19.

The key to understanding the nature of the public utilities tax is the concept of actual value.   While the “actual value” language of former section 14 was dropped from the new section 19, article XIII, section 1(a) mandates that unless otherwise provided “[a]ll property is taxable and shall be assessed at the same percentage of fair market value ․  The value to which the percentage is applied, whether it be fair market value or not, shall be known for property tax purposes as the full value.”

Revenue and Taxation Code section 110 defines “full cash value” or “fair market value” synonymously as “the amount of cash or its equivalent which property would bring if exposed for sale in the open market under conditions in which neither buyer nor seller could take advantage of the exigencies of the other and both with knowledge of all of the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions upon those uses and purposes.”  (Revenue and Taxation Code, section 110.1, added following the passage of Proposition 13, defines full cash value for purposes of article XIII A by the same terms as section 110, but specifies various lien dates.)

However, any valuation of public utility property for tax purposes is necessarily a manufactured figure.   There are a number of reasons why the value placed on such property bears no true relation to the value of the real property located in a particular taxing jurisdiction.   Problems arise first, in terms of what specifically is being valued and how that valuation is reached;  and too, with regard to the allocation among the various jurisdictions of the unitary value figure so determined.   These special circumstances which apply to public utility property will be discussed separately.

Title 18 of the California Administrative Code prescribes various methods of determining value.  (Cal.Admin.Code, tit. 18, § 3.)   As noted by the majority, they include (a) the comparative sales approach, (b) the stock and debt approach, (c) the replacement or reproduction cost approach, (d) the historical cost approach, and (e) the income approach.   Both county assessors and the SBE are authorized to use any or all these methods, so long as a fair assessment is reached.  (Cal.Admin.Code, tit. 18, §§ 1, 3.)

Because public utilities rarely, if ever, are exposed to sale on the open market, the comparative sales approach is not generally considered a useful indicator.   The other methods have been used to varying degrees.  (See Bertane, supra, at p. 427.)

California Administrative Code, title 18, section 8 states that the income approach to value (otherwise known as the capitalization of income approach) is the preferred approach for the appraisal of improved real properties and personal properties when reliable sales data for comparable properties are not available and the cost approaches are unreliable because the reproducible property is subject to legal restrictions on income that are unrelated to cost.   This language undeniably describes the regulated public utilities industry.   In keeping with this rule, the SBE relies primarily upon the income approach when assessing public utilities properties.

The capitalization of income determination of value is calculated by the formula “Value = Earnings ÷ Capitalization Rate.”   That formula makes clear that the capitalization of income figure has little to do with the true value of real property.   Like the gross receipts in lieu of tax of the period between 1910 and 1933, the capitalization of income figure relies upon income, not the quantity, quality and nature of the real property itself.

Additionally, it should be noted that even the income figure is not completely independent due to the regulated nature of the industry which places a ceiling on allowable earnings.  “In the valuation of public utility property, it is important to keep in mind that the price of the product sold is government regulated and thus the value of the property as a whole is indirectly controlled.   A ceiling, in effect, is placed on the fair value obtainable from so-called ready, willing, able, and informed buyers.   Although less frequently quoted in legal definitions of value, the earnings concept of value is deemed more meaningful in appraising practice.”  (Ring, Valuation Principles (1972) 25 Nat.Tax.J. 233, 235;  see also ITT World Communications, Inc. v. County of Santa Clara (1980) 101 Cal.App.3d 246, 255, 162 Cal.Rptr. 186.)

The Court of Appeal has approved the use of the capitalization of income approach to value, despite the acknowledged fact that such determination may often exceed the replacement cost value.   In ITT World Communications, Inc. v. County of Santa Clara, supra, this appellate district had the opportunity to clarify some of the confusion surrounding the valuation of state assessed properties.   As in the present case, ITT challenged the assessment of the SBE under the provisions of article XIII, section 19, although in the former case, the focus of ITT's challenge was the language exempting corporate excess or franchise from property tax.   The challenge arose because the SBE assessment primarily relied upon the capitalization of income approach, resulting in a figure undisputably higher than the replacement cost value.   ITT's position was that by using the higher yielding capitalization of income approach, the SBE was taxing their corporate franchise in violation of article XIII, section 19.

The appellate court disagreed, recognizing that the capitalization of income approach might well be the most useful indicator of the value of public utility property (ITT World Communications, Inc. v. County of Santa Clara, supra, 101 Cal.App.3d at p. 255, 162 Cal.Rptr. 186), and holding that it cannot be said as a matter of law that the replacement value establishes the ceiling for tax appraisal purposes.  (Id., at p. 256, 162 Cal.Rptr. 186.)   In so concluding, the court commented, “ ‘in determining the value of property, assessing authorities may take into consideration earnings derived therefrom, which may depend upon the possession of intangible rights and privileges that are not themselves regarded as a separate class of taxable property.’ ”   (Id., at p. 254, 162 Cal.Rptr. 186, quoting Roehm v. County of Orange, (1948) 32 Cal.2d 280, 285, 196 P.2d 550.)

In summary, courts, commentators and the SBE have agreed that the capitalization of income approach is often the most appropriate means to assess public utility properties, and is the method most often used.   That figure, however, is merely a calculation of earnings divided by the capitalization rate.   It is not intended as a statement of the value of the real property owned by the company in a particular taxing jurisdiction, nor does it bear any true relation to such value.

The unitary valuation system used to assess public utility properties imposes a further artificiality upon the valuation of such properties.   The trial court received evidence by way of affidavit of Neilon M. Jennings, Division Chief of the Valuation Division of the Property Tax Department of the SBE, which explained the concept of unitary valuation and discussed its appropriateness in dealing with public utility property.   That affidavit provides in pertinent part:  “The Board of Equalization assesses properties by use of the unitary value concept.   The unitary valuation concept means that a collection of tangible assets functioning as an operating unit are to be appraised as a whole without reference to the separate value of the component parts.  [¶]  In appraising unitary property, four indicators of value are used by the Board, whenever possible.   They are:  (1) Historical cost new less depreciation (HCNLD);  (2) Reproduction cost new less depreciation (RCNLD);  (3) Capitalized earnings (CEA);  and (4) Value of stock and debt ․  [¶]  The Board set the value for property owned by ITT World Communications in the tax years 1975, 1978, and 1979 based upon a measure of an operating whole pursuant to the theory of unitary valuation and relied primarily on the capitalization approach.   The justification for the unitary valuation is that there are certain values which must be measured by the operation as a whole and cannot be ascertained by measuring the real and personal property value individually in each county.   The value of the whole property simply does not equal the summation of the valuation of its individual parts.   The logic of this conclusion can be understood by observing that the net income generated is by the utility as a whole and not from real or personal property separately, therefore, the resulting value indicator represents the whole and not the parts.  [¶]  Public utilities comparable to ITT World Communications, Inc. are rarely if ever sold and thus a valuation determined by considering the sales of comparable properties is essentially impossible.   Such property must be valued by other valuation techniques.  [¶]  A local market value assessment shown on the tax bill is intended to depict the market value of the subject property, while in contrast, the value amount shown on the tax bill for property assessed by the Board of Equalization is simply an allocation of a total value to various taxing jurisdictions.   Even though included on a tax bill and depicted as value, such Board allocation is not intended to depict the market value of any particular property within the county.   It is only a formulary allocation of the unitary value to the various counties and it would be purely coincidental if such allocation were to accurately represent the market value of the subject property.   While an allocation procedure has to be more or less arbitrary, the allocation of the unit value to each of the component parts must be, as nearly as possible, made in proportion to the amount that the part contributes to earnings from the whole property.   Since earnings are the very essence of the value, the Board of Equalization has decided that the unitary assessed value should be allocated in proportion to the reproduction cost new less depreciation (RCNLD) of each component part of the property.   After the Board sets the assessment for the whole or unit property, the Board then allocates the total value to the taxing jurisdictions and prepares Board rolls for each county and for each city having its own assessor.”

As the affidavit makes evident, the value figure reflected on a tax bill is not intended to reflect the amount of property located in the jurisdiction.   Rather, the value figure merely states the somewhat arbitrarily calculated proportion of the value of the whole operating system which is located in that particular taxing jurisdiction.   The unitary value figure itself and the allocation proportion both contribute to creating a figure that does not purport to express a true value for the property in the jurisdiction.   Instead, it indicates an assessed value for purposes of public utility taxes.

This entire system differs markedly from the valuation system for nonutility properties.   Nevertheless, this distinction, due largely to the unique character of public utilities and the substantial valuation problems inherent in valuing properties without the benefit of relevant market data, has been judicially approved despite the mandate of article XIII, section 19 (formerly article XIII, section 14) that state assessed property be taxed “to the same extent and in the same manner as other property.”  (See Southern Cal. Tel. Co. v. Los Angeles (1941) 45 Cal.App.2d 111, 113 P.2d 773.)

Admittedly, the tax on public utilities does, to some degree, encompass the value of real property.   However, the real property value is minimal compared to the value of the operation as a whole.   As I have discussed, it is precisely that latter value on which the public utility pays tax.   This tax is not, therefore, a real property tax.   It is an ad valorem tax, specially carved out in recognition both of the unique character of the public utilities and of the constitutional requirement that state assessed properties, too, be subject to taxation “to the same extent and in the same manner as other property.”  (Cal. Const., art. XIII, § 19.)   Like nonutility property, public utilities are required to pay, and do pay, a specified percentage of full value.   But because the value figure is primarily a function of income (and regulated income, at that), it is not a real property tax, and therefore, not subject to the rollback provision of article XIII A, section 2.

Once this analysis is accepted one need not concern oneself with the clear meaning of article XIII A, section 2 that “[t]he full cash value means the county assessor's valuation of real property ․”  (emphasis added) or any apparent conflict between article XIII A and article XIII, section 19.   The simple answer is that SBE's tax on public utilities is not a real property tax and article XIII A, by its terms, only concerns taxes on real property.

Accordingly, I would hold that the judgment of the lower court and the decision of the SBE be affirmed.

FOOTNOTES

1.   Article XIII A, then widely known as Proposition 13, was adopted by initiative on June 6, 1978.   As amended, it presently reads in pertinent part:  “Section 1.  (a) The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property․ [¶] Section 2.  (a) The full cash value means the county assessor's valuation of real property as shown on the 1975–76 tax bill under ‘full cash value’ ․”Section 2, subdivision (a), is also known as the assessment “rollback” provision.

2.   The issue presented here was raised in Pacific Gas & Elec. Co. v. State Bd. of Equalization (1980) 27 Cal.3d 277, 165 Cal.Rptr. 122, 611 P.2d 463.   The trial court in that case denied mandamus and declaratory relief on the ground that the rollback provided by section 2(a) did not apply to state assessed property.   The Supreme Court did not reach the merits, but reversed the judgment with directions to dismiss the action holding that the utilities' action for mandamus and declaratory relief was barred as a procedural matter by article XIII, section 32, of the California Constitution and that the utilities' proper recourse was an action for refund under Revenue and Taxation Code sections 5096 and 5140.

3.   Article XIII, section 19, provides in pertinent part:  “The Board shall annually assess (1) pipelines, flumes, canals, ditches, and aqueducts lying within 2 or more counties and (2) property, except franchises, owned or used by regulated railway, telegraph, or telephone companies, car companies operating on railways in the State, and companies transmitting or selling gas or electricity.   This property shall be subject to taxation to the same extent and in the same manner as other property.”

4.   “Unitary property” includes both real property and personal property.

5.   In ITT World Communications, Inc. v. County of Santa Clara (1980) 101 Cal.App.3d 246, 162 Cal.Rptr. 186, it was held that the Board could properly utilize a capitalization of earnings approach to valuation even where the result of such approach exceeded RCNLD.

6.   Prior to Proposition 13 assessors were required to assess all property subject to general property taxation at 25 percent of its full value.  (Former Rev. & Tax. Code, § 401.)   Section 401 was amended in 1978 following adoption of Proposition 13 to provide that “[e]very assessor shall assess all property subject to general taxation at its full value.”

7.   For this reason, we reject the proposition that, as applied to public utility property, utilization of a capitalized earnings approach somehow transforms an ad valorem real property tax into an ad valorem tax on personal property.   This method of appraisal does not ipso facto alter either the character of the underlying property or the nature of the tax that is being imposed.   The failure to recognize this, we respectfully submit, is the erroneous predicate of the dissent herein, which takes a position that is entirely inconsistent with, not supported by, the case it chiefly relies upon.  (ITT World Communication, Inc. v. County of Santa Clara, supra.)   As stated in that case, “․ it has not been established that an assessment [roughly approximate to the amount of the property's capitalized earnings ability, which is] in excess of RCNLD necessarily exceeds the actual value of the property.”  (Id., at pp. 253–254, 162 Cal.Rptr. 186.)   The opinion goes on to point out that, “[w]hile intangible property is exempted from property taxation, such property may enhance the value of taxable tangible property, and [for property tax purposes] this effect may be reflected in the valuation of the tangible property.”  (Id., at p. 254, 162 Cal.Rptr. 186, citing Roehm v. County of Orange (1948) 32 Cal.2d 280, 285, 196 P.2d 550;  Michael Todd Co. v. County of Los Angeles (1962) 57 Cal.2d 684, 693–694, 21 Cal.Rptr. 604, 371 P.2d 340;  and Western Title Guaranty Co. v. County of Stanislaus (1974) 41 Cal.App.3d 733, 741, 116 Cal.Rptr. 351.)   There is simply no suggestion in any of the pertinent decisions that employment of a capitalized earnings approach to appraise tangible property may render such property intangible or thereby convert the ad valorem property tax into an ad valorem tax on personal property, which seems to be the theory advanced here in dissent.

8.   In 1978 the phrase “Except as otherwise provided in section 110.1” was added to this section.  (Stats.1978, ch. 292, § 26, p. 608, urgency, eff. June 24, 1978.)

9.   Respondents dispute the application of this principle on the theory that here the language in need of interpretation constitutes an exemption from or limitation on an otherwise applicable tax and, as such, is to be strictly construed against the taxpayer.  (See Hospital Service of California v. City of Oakland (1972) 25 Cal.App.3d 402, 405, 101 Cal.Rptr. 800, and authorities there cited.)   The defect in this argument is that its major assumption—that the language in question is a limitation on the benefits of article XIII A—is the very issue in question.

10.   We note that, for reasons set forth in Armstrong v. County of San Mateo (1983) 146 Cal.App.3d 597, 194 Cal.Rptr. 294, the rule that uncertain tax provisions be construed most strongly against the government does not apply where a constitutional tax provision of doubtful meaning has been initially construed by the Legislature in favor of the government.   (Id., at p. 623–624, 194 Cal.Rptr. 294.)   This is not the case here, however, for, as later discussed, the Legislature has not in any statute endorsed either of the competing interpretations advanced by the parties before us.

11.   The analyst stated that, “[i]nitially this measure would roll back the current assessed values of real property to the values shown on the 1975–76 assessment roll.   However, county assessors could adjust the values shown on the 1975–76 assessment roll if these values were lower than the estimated market value as of March 1, 1975.”

12.   The staff of the Assembly Revenue and Taxation Committee referred to the recently promulgated Board rules in its report to the Assembly and pointed out that the Board had specifically ruled that state assessed properties were not covered by section 2, subdivision (a).   The staff report stated:  “The Board of Equalization, which has the responsibility for advising county assessors in legal questions involving property taxation, adopted a series of rules (# 460–471) which took effect on July 3, 1978, hard on the heels of the new legislation.   The Board rules addressed more broadly the issues raised by Proposition 13, including a rule defining ‘newly constructed property’ (Rule 463), which was not encompassed in the recently-enacted statutes.   The Board also ruled that personal property, and state assessed (utility) properties were NOT covered by the Section 2(a) assessment restriction of Proposition 13 which reads ‘full cash value means the county assessor's valuation of real property ’ (emphasis added).”  (Implementation of Proposition 13, vol. 1.   Property Tax Assessment;  10–29–79;  prepared by Staff of the Assembly Revenue and Taxation Committee, p. 6.)

13.   As pointed out earlier, section 110.1, which was newly enacted by the implementing legislation, provides in pertinent part as follows:  “(a) For purposes of subdivision (a) of Section 2 of Article XIII A of the California Constitution, ‘full cash value’ of real property, including possessory interests in real property, means the fair market value as determined pursuant to Section 110 for either:  [¶] (1) The 1975 lien date;  or, [¶] (2) For property which is purchased, is newly constructed, or changes ownership after the 1975 lien date:  [¶] (A) The date on which a purchase or change in ownership occurs;  or (B) The date on which new construction is completed, and if uncompleted, on the lien date.  [¶] (b) The value determined under subdivision (a) shall be known as the base year value for the property.”Section 110, as amended by the implementing legislation, now provides as follows:  “Except as is otherwise provided in Section 110.1, ‘full cash value’ or ‘fair market value’ means the amount of cash or its equivalent which property would bring if exposed for sale in the open market under conditions in which neither buyer nor seller could take advantage of the exigencies of the other and both with knowledge of all of the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions upon those uses and purposes.”

14.   The Legislature also made a similar conforming change with section 401 of the Revenue and Taxation Code, which applies to all property subject to general property taxation and provides that such property shall be assessed at “its full value” rather than at 25 percent of its full value.   It is not here contended that this change reflected a legislative construction that this property was exempt from section 2, subdivision (a).

15.   The staff to the Assembly Revenue and Taxation Committee recognized that these specific types of properties had long been accorded preferential assessment treatment under the constitution.  “Such properties were subject to valuation on current use, rather than their highest and best use, in some cases predicated on income from the property, rather than on sales of comparable properties.   In addition, the value of single family dwellings was based on that use only, if located on property zoned exclusively for that use.”  (Implementation of Proposition 13, vol. 1, supra, p. 1.)

16.   The staff report recommending the continued applicability of the special valuation provisions of article XIII, sections 8, 3(j), 10 and 11 to these special types of property reasoned as follows:  “The Task Force believes that specific constitutional authorization is controlling over general constitutional principles, even though the general provisions were more recently enacted.  [¶] Some property, primarily agricultural and open space land, is assessed pursuant to contractual obligations as authorized by section 8.   These contractual arrangements cannot be abrogated.  [¶] This special valuation procedure will carry out the will of the electorate when they enacted these specific provisions in the Constitution.   In the case of timberland property, certain changes made since the enactment of article XIIIA in an effort to conform assessment procedures to the provisions of that article, should be repealed to reinstate the prior law.”  (Report of the Task Force on Property Tax Administration;  Assembly Revenue and Taxation Committee;  1–22–79, p. 33.)

17.   As pointed out by the task force in their report to the Assembly, the use of the phrase “as shown on the 1975–76 tax bill under ‘full cash value,’ ” is ambiguous.   The task force noted that section 2611.5 of the Revenue and Taxation Code specifies that the term “full value,” rather than “full cash value,” be placed on the tax bill, although the committee recognized that the “actual practice appears to vary among counties.   Thus, in some counties the phrase ‘full cash value’ may not even have appeared on 1975–76 tax bills.”  (Report of the Task Force on Property Tax Administration, supra, p. 12.)

1.   The majority opinion correctly states that section 1 of article XIII A provides for a maximum 1 percent ad valorem tax on real property, and it is undisputed that this tax rate limitation applies to state assessed real property.  (Slip opn., p. 12.)   However, this statement cannot be read as a concession that article XIII A applies to public utilities.   Rather, because article XIII, section 2 provides in pertinent part that “the tax per dollar of full value shall not be higher on personal property than on real property in the same taxing jurisdiction,” it follows that if article XIII A, section 1 sets a 1 percent ceiling on real property taxes, such limitation must apply equally to an ad valorem tax on personal property.

KLINE, Presiding Justice.

ROUSE, J., concurs.