COUNTY OF STANISLAUS v. POST NEWSWEEK CABLE INC (1988)

OPINION

STATEMENT OF THE CASE

Real party in interest and respondent Post–Newsweek Cable, Inc. (Post–Newsweek),¹ applied to defendant County of Stanislaus Assessment Appeals Board (Board) to reduce its property tax assessments for the years 1982–1983 through 1985–1986.   This application was in response to the county assessor's adjustment of the 1982 roll value from $5,455,599 to $16,125,446 in 1985.   The assessor applied to the Board to increase the assessed value of Post–Newsweek's real and personal property from $16,125,446 to $18,350,000.

After a hearing, the Board denied the assessor's request and reduced the assessed value of Post–Newsweek's real and personal property for the 1982–1983 tax year to $5,455,599.

Appellant County of Stanislaus (County) thereafter applied to the superior court for issuance of a peremptory writ of mandate ordering the Board to set aside its decision.   This application was denied.   Appellant appeals from the judgment denying the peremptory writ.

The issue before this court is whether a cable television franchise is subject to real property tax.   We hold that it is as to any possessory interest in real property.

STATEMENT OF FACTS

Post–Newsweek is the holder of nonexclusive franchises granted by the County and the cities of Modesto and Oakdale to construct, operate and maintain a community antenna television (CATV) system in Modesto, Oakdale and certain unincorporated areas of Stanislaus County.   This system consists of antennae, coaxial cables, wires, electronic devices, conductors, equipment and facilities designed, constructed and used for the purpose of providing television and FM radio service by cable or through related facilities.   Although these franchises are nonexclusive, no franchising authority in Stanislaus County has granted more than one such franchise in the same area.   Each franchise requires the franchisee to pay fees for the rights and privileges granted.   The ordinances authorizing the franchises provide that these fees are in lieu of any business license, occupation tax or similar levy.

In 1982, Post–Newsweek began receiving statements for assessments attributed to its possessory interests in Stanislaus County.   Thereafter, the board of supervisors adopted a resolution consenting to the reassessment of Post–Newsweek's real and personal property at $16,125,446.

At the hearing before the Board, the County took the position that although the franchises were intangible assets which could not be separately assessed, the tangible assets were enhanced by the franchises and should be assessed at $18,350,000.   The parties stipulated that the 1982 value for the entire system, including all taxable and nontaxable property, was $19.4 million.   The Board found the franchises to be intangibles that could not be taxed and, although the assessor used a valid method of valuation, he erroneously taxed the value of the franchises.

DISCUSSION

A. Standard of review.

The County asserts this case should be reversed because the Board failed to include Post–Newsweek's franchise rights as assessable property.   Post–Newsweek, however, contends this court is precluded from deciding whether any aspects of the CATV franchises are subject to property tax due to the County's failure to raise this issue at the Board hearing.   As pointed out by Post–Newsweek, the County conceded the franchises were nontaxable intangibles.   At the hearing the County took the position the franchises had no value apart from the tangible property but the franchises did enhance the value of the tangible assets.   Post–Newsweek argues the County cannot now change its tax theory to assess additional property, and therefore, the “sole issue on this appeal is whether substantial evidence supports the Board's decision as to the 1982 fair market value of the assessed real and personal property․”

In its factual findings, the Board stated:

“1. Intangibles cannot be taxed.

“2. The franchise of the taxpayer is an intangible.”

This conclusion was the starting point for the Board's valuation of Post–Newsweek's assessable real and personal property.   The County argues this conclusion is an incorrect statement of law.   By challenging the validity of the premise upon which the Board relied in reaching its decision, the County has presented this court with a question of law.  (Bret Harte Inn, Inc. v. City and County of San Francisco (1976) 16 Cal.3d 14, 23, 127 Cal.Rptr. 154, 544 P.2d 1354.)   Therefore, this court is not confined to determining whether substantial evidence supports the Board's decision.   Rather, we can reach the legal issue of the taxability of the franchises.  (Ibid.)

 The County's concession that the franchises were nontaxable intangibles has no bearing on our review.   When, as here, a conclusion is based on the interpretation of the Constitution and statutes, a party's statement regarding that conclusion is ineffective.   The law's interpretation is a subject within the court's authority, not the parties.  (Oakland Raiders v. City of Berkeley (1976) 65 Cal.App.3d 623, 629, 137 Cal.Rptr. 648.)

 Similarly, the assessor's earlier assertions that Post–Newsweek's possessory interests should not be separately assessed and that the franchises had no value apart from the tangible property does not preclude review of this issue.   In the collection of taxes, the general rule is the government cannot be estopped from collecting because of an administrative official's erroneous ruling.  (Burhans v. County of Kern (1959) 170 Cal.App.2d 218, 226, 338 P.2d 546.)   Further, the assessor's duty to assure uniformity in taxation bestows upon him the power to retroactively collect taxes due.  (General Dynamics Corp. v. County of San Diego (1980) 108 Cal.App.3d 132, 137, 166 Cal.Rptr. 310.)   Thus, the tax theories pursued by the assessor do not limit the County's ability to collect taxes to which it is entitled.

B. The right to use and to occupy a public right-of-way is a taxable possessory interest.

All property in California is taxable if not exempt under federal or state law.  (Cal. Const., art. XIII, § 1;  Rev. & Tax.Code, § 201.)   “ ‘Property’ includes all matters and things, real, personal, and mixed, capable of private ownership.”  (Rev. & Tax.Code, § 103.)   Real property includes a possessory interest in real property.  (Rev. & Tax.Code, § 104;  American Airlines, Inc. v. County of Los Angeles (1976) 65 Cal.App.3d 325, 328, 135 Cal.Rptr. 261.)   Such a possessory interest is defined as “(a) Possession of, claim to, or right to the possession of land or improvements, except when coupled with ownership of the land or improvements in the same person.  [¶] (b) Taxable improvements on tax-exempt land.”  (Rev. & Tax.Code, § 107.)

Since historically much of the land in California has been either federal or state owned and therefore not subject to direct taxation, the concept of a taxable possessory interest was created to tax persons who used that land for their own benefit.  (Freeman v. County of Fresno (1981) 126 Cal.App.3d 459, 462–463, 178 Cal.Rptr. 764.)   In Kaiser Co. v. Reid (1947) 30 Cal.2d 610, 184 P.2d 879, the California Supreme Court outlined three essential elements for determining if a possessory interest existed.  “The agreement had to confer use and possession (1) for a reasonably certain determinable period, (2) which was exclusive against all the world, including the rightful owner, and (3) which generated a valuable private benefit.”   (Freeman v. County of Fresno, supra, 126 Cal.App.3d at p. 463, 178 Cal.Rptr. 764.)

Applying this possessory interest concept to a CATV franchise, the court in Cox Cable San Diego, Inc. v. County of San Diego (1986) 185 Cal.App.3d 368, 229 Cal.Rptr. 839 held that a cable company's rights-of-way under the authority granted by the various public entities constituted “ ‘an assessable franchise’ ” subject to property tax.  (Id. at p. 378, 229 Cal.Rptr. 839.)   The Cox court found this conclusion to be supported not only by the general taxability language of the Constitution but also by case law.  (Ibid.) ²

California courts have long recognized the right to use the public highways for distribution systems constitutes assessable property.   In Stockton Gas etc. Co. v. San Joaquin Co. (1905) 148 Cal. 313, 83 P. 54, the court held the right or interest acquired by the gas and electric power company in the city streets to lay pipes and conduits, or erect poles, and supply the inhabitants of the city with artificial light could be assessed for purposes of taxation in the county where the franchise was exercised.   The court stated that such a franchise “is an incorporeal hereditament—is real estate in the nature of an easement pertaining to the streets of the city in which it is exercisable;  ․” (Id. at p. 319, 83 P. 54.)   Similarly, in Kern River Co. v. County of Los Angeles (1913) 164 Cal. 751, 130 P. 714, the court held the use of the public highways for the purpose of transmitting electrical power in lines constructed along certain highways was assessable as a franchise.   As noted by the court in Postal Telegraph–Cable Co. v. Los Angeles (1912) 164 Cal. 156, 128 P. 19, it is the settled law of California that a right to occupy the state's highways “is a privilege which is nothing more nor less than a franchise in such highways, a franchise having a local situs and assessable in each city or county in which such highways are situated.”  (Id. at p. 159, 128 P. 19.)

 Among the rights granted to Post–Newsweek by its franchises is the right to “erect, install, construct, repair, replace, reconstruct, maintain and retain in, on, over, under, upon, across and along any public street, such poles, wires, cable, conductors, ducts, conduit, vaults, manholes, amplifiers, appliances, attachments, and other property as may be necessary and appurtenant to the CATV system;  ․”   This right is nearly identical to those which were found to constitute assessable franchises in the above cases.

 Post–Newsweek contends the Cox case was incorrectly decided because the nonexclusive nature of the franchise did not satisfy the requirement that the agreement confer exclusive possession of tax exempt land.   However, in Freeman v. County of Fresno, supra, 126 Cal.App.3d 459, 178 Cal.Rptr. 764, this court concluded “[t]he requirement that the use must be exclusive means that it must not be one shared by the general public․”  (Id. at pp. 463–464, 178 Cal.Rptr. 764.)   Since the special rights of access to public rights-of-way authorized by the franchises are not shared with the general public, the exclusive possession requirement is satisfied.   Thus, the fact the governmental entity may grant more than one CATV franchise in a single area does not preclude the imposition of a tax on the possessory interest conferred.

In light of the Constitutional and statutory mandate that all property must be taxed if not exempt under federal or state law and the long-term recognition that the authority to use public rights-of-way is an assessable possessory interest, this court will hold that Post–Newsweek's right to use and occupy the public rights-of-way constitutes a taxable possessory interest.   Since this conclusion is contrary to the Board's legal conclusion that the entire franchise was a nontaxable intangible, the case will be reversed for further proceedings.

C. Under the ordinances and agreements, the special franchise apart from the possessory interest component is not taxable.

Franchises such as the ones at issue here are comprised of two components:  the right to use the streets and the right to take tolls by reason of their use.  (Stockton Gas etc. Co. v. San Joaquin Co., supra, 148 Cal. 313, 321, 83 P. 54.)   As discussed above, the right to use the streets is assessable as a possessory interest.   Although there is a degree of inseparability between the two components of the franchises, the possessory interests are separately assessable and taxable.  (Cox Cable San Diego, Inc. v. County of San Diego, supra, 185 Cal.App.3d 368, 386, 229 Cal.Rptr. 839.)   The remaining question is whether the second component of each franchise, the right to charge a toll and to make a profit, is also assessable.

As noted above, the Board concluded the franchises were not taxable due to their being intangible assets.   In Roehm v. County of Orange (1948) 32 Cal.2d 280, 196 P.2d 550, the court held that intangibles are not subject to personal property tax unless the Constitution or a statute specifically provides otherwise.  (Id. at p. 290, 196 P.2d 550.)   However, the Roehm court noted that franchises are not included in this category of intangibles but, rather, are a separate subject of taxation.  (Id. at p. 286, 196 P.2d 550.) ³

Article XIII, section 27 of the California Constitution provides that “[t]he Legislature, a majority of the membership of each house concurring, may tax corporations, including State and national banks, and their franchises by any method not prohibited by this Constitution or the Constitution or laws of the United States․”  (Emphasis added.)   Pursuant to this section, the Legislature enacted Revenue and Taxation Code section 23154 which provides that the franchise tax imposed on corporations

“is in lieu of all ad valorem taxes and assessments of every kind and nature upon the general corporate franchises of the corporations taxable under this chapter but is not in lieu of any taxes or assessments upon special franchises owned, held or used by said corporations.   All such special franchises shall be assessed annually by the [State Board of Equalization], at their actual value, in the same manner as is provided for the assessment of other property to be assessed by said board under Section 19 of Article XIII of the Constitution of this State, and shall be subject to taxation to the same extent and in the same manner as other property so assessed by said board.”  (Emphasis added.)

Article XIII, section 19 requires State Board of Equalization assessment of specified categories of property lying within two or more counties and property (except franchises) owned or used by regulated railroads and utilities and provides that it “shall be subject to taxation to the same extent and in the same manner as other property.”

Thus, special franchises are assessable.   Further, on its face, Revenue and Taxation Code section 23154 requires that special franchises be assessed by the State Board of Equalization.   However, a CATV franchise is unusual since it is exercisable in a specific location only.

 One of the fundamental principles of taxation is that property which has had the protection and benefit of municipal government must pay its share of the expenses required to insure these advantages.  (Stockton Gas etc. Co. v. San Joaquin Co., supra, 148 Cal. 313, 317, 83 P. 54.)  “[W]here a franchise, or the right acquired by an exercise of it, is of a local character, [this principle] requires that it shall be assessed in the locality which is burdened with its exercise, and upon which is cast the duty of protecting the property embraced in such exercise.”  (Id. at pp. 317–318, 83 P. 54.)   Applying this principle, the CATV franchises arguably should be assessed by the County.   The purpose of requiring assessment by the State Board of Equalization is to prevent inconsistent assessment of property assessed in more than one county and of regulated public utility property.  (Cal. Const., art. XIII, § 19.)   This purpose would not be served by requiring state assessment here.

 Although the CATV franchises are wholly assessable by the County in the abstract, the franchise agreements (as well as the ordinances under which the franchises were granted) all provide that the franchise fees paid by Post–Newsweek (or any other franchisee) are in lieu of any business license, occupation tax, or similar levy.   An occupation tax is a tax imposed on the privilege of doing business within the jurisdiction and the derivation of benefits from the advantages especially afforded by the municipality.  (In re Groves (1960) 54 Cal.2d 154, 157, 4 Cal.Rptr. 844, 351 P.2d 1028.)   Aside from the possessory interest, it is the right to make a profit from that possessory interest, i.e., the right to carry on the cable television business, which gives value to the special franchises.  (Stockton Gas etc. Co. v. San Joaquin Co., supra, 148 Cal. 313, 321, 83 P. 54.)   Thus, a tax on the value of the special franchises, excluding the possessory interest, has already been imposed through the franchise fees.   To avoid the possibility of double taxation (cf. Associated Home Builders etc., Inc. v. City of Walnut Creek (1971) 4 Cal.3d 633, 642, 94 Cal.Rptr. 630, 484 P.2d 606) and in the interest of fairness, the County may assess only the possessory interest components of Post–Newsweek's CATV franchises.

The County further argues that because the Board based its decision on incorrect legal conclusions and also arrived at a figure which was not supported by either the assessor or Post–Newsweek, it did not exercise its independent duty to assure that the full cash value of Post–Newsweek's taxable property was subject to assessment.   The Board adopted the assessor's original value for Post–Newsweek's property, a value higher than that urged by Post–Newsweek and considerably lower than that proposed by the County.   However, this is not a situation where the Board arrived at a value which did not fall within any acceptable range of the cognizable evidence and therefore shirked its responsibility by acting on speculation and conjecture.  (Madonna v. County of San Luis Obispo (1974) 39 Cal.App.3d 57, 61–62, 113 Cal.Rptr. 916.)   Both parties took the position that the value of the tangible assets was enhanced by the special franchises.   The Board merely did not agree with the County's position that this “enhancement” amounted to more than $13 million.   In any event, the Board's reliance on an incorrect legal conclusion requires the case be remanded for further consideration.

The judgment is reversed;  the matter is remanded for further proceedings consistent with this opinion.   Appellant to recover its costs.

FOOTNOTES

1.   Before January 1986 Post–Newsweek was known as Capital Cities Cable, Inc., but will be referred to as Post–Newsweek throughout this opinion.

2.   The Cox holding has been codified by the Legislature, effective January 1, 1989.  (See Assem. Bill No. 3234 (Hill) approved by the Governor Sept. 30, 1988 (Stats.1988, ch. 1630, p. ––––).  The statute appears to be retroactive, i.e., to clarify the application of existing law with respect to the taxability of a possessory interest granted by a cable television franchise.  (City of Redlands v. Sorensen (1985) 176 Cal.App.3d 202, 211, 221 Cal.Rptr. 728.))

3.   County contends that the Roehm decision was effectively overruled on the issue of the taxability of intangibles due to the repeal of both article XIII, section 14 of the California Constitution and Revenue and Taxation Code section 111.   However, the provisions of article XIII, section 14 which the Roehm court relied on are contained in substantially identical form in article XIII, section 2.   The court noted that Revenue and Taxation Code section 111 expressly stated what “appears from the constitutional provisions by clear implication.”  (Roehm v. County of Orange, supra, 32 Cal.2d 280 at p. 285, 196 P.2d 550.)   Since the Roehm court concluded there was a constitutional basis for its decision, and that basis still exists, the repeal of Revenue and Taxation Code section 111 did not necessarily overrule this decision.   However, this court need not decide this issue since a franchise is excluded from the general rule pertaining to the nontaxability of intangibles.

FRANSON, Presiding Justice.

ARDAIZ and SARKISIAN *, JJ., concur.