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BAUER-SCHWEITZER MALTING CO., INC., a corporation, Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO, a body politic and corporate, Defendant and Respondent.
Plaintiff taxpayer has appealed from a judgment entered in favor of defendant city and county after the issues presented in plaintiff's complaint to recover personal property taxes paid under protest and the defendant's answer thereto were submitted on the pleadings, briefs and argument. The taxes in question represent taxes levied against amounts which the assessor found the taxpayer's personal property had been underassessed for the years 1964, 1965 and 1966, and were placed upon the 1966 unsecured tax roll on March 28, 1967, long after the rolls for each of said years was subject to equalization. The background giving rise to the making of the deficiency assessments is detailed in Knoff v. City etc. of San Francisco (1969) 1 Cal.App.3d 184, pp. 190–193, 81 Cal.Rptr. 683 and People v. Wolden (1967) 255 Cal.App.2d 798, pp. 801–802, 63 Cal.Rptr. 467 [cert. den. (1968) 391 U.S. 965, 88 S.Ct. 2032, 20 L.Ed.2d 877]. The taxpayer contends that the purported increases in its assessments for the years in question were illegal and void because there is no statutory authority for making such additional assessments, and because the mandate imposed upon the city and county, its board of supervisors, its board of equalization and its assessor by Knoff v. City etc. of San Francisco, supra, does not, as contended by defendant, preclude the taxpayer from contesting an assessment which is illegally imposed. The taxpayer also contends that each of the additional assessments was discriminatory in that it was made at a ratio of cash value which was grossly in excess of the prevailing ratio for the year in question, and that it was denied due process of law under the State and United States Constitutions, because the defendant's board of equalization summarily denied the taxpayer's timely application for equalization of the contested assessments. Defendant contends that the assessments were authorized by law under general constitutional and statutory provisions; that it was so adjudicated in Knoff; and that the taxpayer is bound by the decision in Knoff because it appeared therein as an amicus curiae, and because that decision, which purports to direct the conduct of public officers, binds the public generally. The defendant concedes that the taxpayer may have had a right to seek equalization of the contested assessment, but asserts that its right to do so has been lost by failure to present proof of any discrimination in this action.
It is concluded that the defendant's contrary position in Knoff does not preclude it from attempting to uphold the legality of the deficiency assessment in these proceedings; that Knoff did not authorize the assessor or the board of equalization to reassess property or levy taxes other than as provided by law; that there is no express authorization for reassessment because the assessor unilaterally erroneously applied an improper ratio to the correctly reported and ascertained cost of personal property; that the constitutional requirements that property shall be assessed at its full cash value, and in proportion to its value does not authorize assessments or taxes in a manner not provided by the Legislature; that the taxpayer is not barred from contesting the assessment by any principle of stare decisis or res judicata; that the issue of whether the reassessments were discriminatory is not properly before this court at this time; and that the judgment must be reversed and the case must be remanded for a determination of whether legal grounds exist for the deficiency assessments.
The pleadings establish the nature and capacity of each of the parties. It is admitted, by failure to deny, that in each of the years 1964 and 1965 the assessor, in order that he would be fully apprised of the cost of the taxpayer's personal property as of the first Monday in March of each of those years, reviewed the taxpayer's books and records and prepared from them a confidential analysis of inventory accounts and equipment which correctly set forth the cost of all of the taxpayer's personal property on each of those lien dates; that a copy of each such analysis was furnished to the taxpayer by the assessor to enable the taxpayer to report the cost of the personal property as so determined by the assessor in its property statement for each of those tax years; that within the time personal property as so determined by the assessor in its property statement for each of those tax years; that within the time permitted by law the taxpayer filed property statements in the form prescribed by the assessor, which in 1964 set forth the costs as so determined by the assessor, and which in 1966 fully and accurately set forth the cost of all of the taxpayer's taxable, tangible property save and except for the inadvertent omission of tangible personal property having a cost of $2,716.1 The taxpayer's allegation that he filed a property statement for 1965 which set forth the costs of its personal property as determined by the assessor was denied, and the trial court found that the taxpayer had failed to prove that allegation. In any event, it is admitted that an audit concluded in 1966 of the books and records of the taxpayer relating to the costs of the taxable, tangible personal property held by it on the respective lien dates in 1964, 1965 and 1966 confirmed that plaintiff's costs, with the exception noted above, had been fully disclosed. Although the taxpayer alleged that the assessor (presumably the new assessor) conducted this audit, the defendant denied that the assessor made the audit, and alleged that certified public accountants made the audit as provided in and required by the writ of mandate in the Knoff case. It would appear it was conducted by governmental authority in any event, and the trial court failed to find on this apparently inconsequential issue.
The taxpayer's allegation that the full cash value of its personal property on the lien dates in question did not exceed the following amounts respectively: 1964—$782,800; 1965—$861,000; and 1966—790,800, is uncontroverted. It is also conceded that the assessments of the taxpayer's taxable personal property which were included upon the defendant's assessment rolls and were unchanged by defendant's board of equalization during any of the regular equalization periods were respectively: 1964—$300,140; 1965—$335,250; and 1966—$309,678.
Thereafter, on March 28, 1967, following the 1966 audit referred to above, the assessor included upon the 1966 unsecured tax roll additional assessments for the years in question as follows: 1964—$96,859; 1965—$72,596; and 1966—$57,347, of which $1,358 is not contested (see fn. 1 above). The taxpayer refers to each of these additional assessments as ‘a purported escaped property assessment.’ Defendant alleged ‘that the escape assessment was imposed because the writ of mandate in Knoff . . . so required’ and denied any contrary allegations.
On April 7, 1967 the taxpayer filed an application for equalization2 with defendant's board of equalization and the matter was regularly set for hearing. According to the taxpayer ‘at the time and place theretofore set for the hearing of Plaintiff's said Application for Equalization, the said Board of Supervisors sitting as a County Board of Equalization, acting arbitrarily and in wilful disregard of the law intended for its guidance and control, with the evident purpose of imposing an unequal burden upon Plaintiff, ruled that it would not grant Plaintiff any hearing upon its Application for Equalization and summarily denied Plaintiff's said Application, refusing to hear any evidence or to receive any statement of Plaintiff thereon.’ The defendant denied the foregoing allegations and alleged, ‘The Board of Equalization denied plaintiff's application because it was required to deny it in conformance with this Court's writ of mandate of March 28, 1966, and its order of April 3, 1967, in Knoff, supra. . . .'3 The court determined that the taxpayer had failed to prove the allegations of its complaint which are quoted above. Its statement of intended decision indicates that it accepted defendant's contention that the mandate in Knoff rendered a hearing before the board of equalization futile because the writ of mandate precluded the board from considering anything but a 50 percent assessment on ‘all San Francisco taxable properties that were unassessed or underassessed or otherwise escaped taxation for any reason, and especially because of the application to any taxable properties of an improperly low assessment ratio, i. e., one below 50%, causing an improperly reduced or low assessment valuation. . . .’
On April 27, 1967, when its application was denied, the taxpayer paid under protest the taxes levied on the additional assessments in the following sums: 1964—$9,848.62; 1965—$7,381.56; and 1966—$5,831.04, of which $138.08 represented the tax against property which had not been reported (see fn. 1 above). On September 18, 1967 this action was filed.
Other allegations, which are contained in the taxpayer's fourth, fifth and sixth causes of action and are directed to the failure to secure a hearing before the board of equalization and the alleged discriminatory nature of the additional assessment, are referred to below. The defendant in separate defenses asserted that the taxpayer could not collaterally attack the Knoff mandate of April 3, 1967 because the defendant had been denied writs to prevent its enforcement by the Court of Appeal and Supreme Court; that the taxpayer was estopped to question that mandate; that in the light of that mandate the complaint failed to state a cause of action; and that the superior court was without jurisdiction in this action to nullify the mandate and judgment in Knoff.
In a brief filed with the trial court prior to the decision in Knoff, the defendant, as was consistent with the position taken by it, by its board of supervisors, by its board of equalization and by its assessor in Knoff, stated that it agreed with the taxpayer that there was no legal basis for correcting the assessment. This statement was made, however, because at that time the city and county believed it should not take inconsistent positions. (See United Bank & Trust Co. v. Hunt (1934) 1 Cal.2d 340, 345, 34 P.2d 1001.) It was accompanied by a reference to the pending appeal in Knoff and a request that the decision of this case be deferred until the decision in Knoff. That course was followed, and the decision and judgment in this case were not rendered and entered until the appellate decision in Knoff became final. There is nothing in the record in this case, or in the Knoff case, which precludes the defendant from now contending that there is lawful authority for the deficiency assessments under the Constitution and laws of this state, or under the Knoff decision itself.
In Knoff v. City etc. of San Francisco, supra, the Court of Appeal reviewed the constitutional and statutory provisions concerning the assessor's duties and concluded: (1) that the assessor ‘. . . is obligated ‘not to allow anyone to escape a just and equal assessment through favor, reward or otherwise.’' (1 Cal.App.3d at p. 196, 81 Cal.Rptr. at p. 690; and see Cal.Const., art. XI, § 12; Rev. & Tax.Code, § 405; and County of Sacramento v. Hickman (1967) 66 Cal.2d 841, 845, 59 Cal.Rptr. 609, 428 P.2d 593); (2) he is obligated ‘to assess, upon discovery, ‘property belonging on the local roll [which] has escaped assessment.’ (Rev. & Tax.Code, §§ 531, 533–534)' (id.); and (3) ‘the assessor must ‘penally assess, on discovery, any property wilfully or fraudulently concealed to escape taxation.’ (See Rev. & Tax.Code, §§ 503–505.)' (Id.)
Knoff also upheld the following general mandate to the board of supervisors and the new assessor, ‘. . . the assessor and the board of supervisors, . . . had ‘an active duty to take timely and appropriate action, . . . through inquiry, examination and investigation respecting, and through undertaking recovery of, any uncollected property tax revenues' which had not been paid to the City and County due to the actions or omissions of a taxpayer or public officer thereof; and that these duties specifically required performance ‘[w]herever reasonable information shows probable or reasonable cause for an investigation . . . respecting the loss of property tax revenues, . . . or shows the reasonable probability that there has been such a loss.’' (Id., pp. 196–197, 81 Cal.Rptr., p. 690.) The court guardedly pointed out, ‘The judgment is explicit in terms of the steps to be taken by the public officers it reached, the objectives to be pursued, and the methods to be used, but it directs no specific result as to any individual assessments or taxpayers.’ (Id., p. 197, 81 Cal.Rptr., p. 691, emphasis added.) In determining that it was unnecessary for the petitioners in that action to first appeal to the board of equalization, the court distinguished between an action by a taxpayer in seeking judicial relief from a specific assessment of his own property and the action under review, which was brought to secure ‘examination and correction of wholesale deficiencies in the San Francisco assessment situation which reasonably require, not the adjustment of some specific assessments or the recovery of taxes paid upon them, but the examination of all assessments and the adjustment of those which require such action and can legally be reached.’ (Id., p. 199, 81 Cal.Rptr., p. 692, emphasis added.)
In Knoff the court also addressed itself to the contention ‘that the judgment, and the peremptory writ issued pursuant thereto, ordered the affected public officials to act in excess of their legal powers.’ (Id., p. 201, 81 Cal.Rptr., p. 694.) With respect to the argument that the employment of experts would improperly delegate the assessment and valuation functions of the assessor and the board of equalization (see Rev. & Tax.Code, § 1721), the court observed, ‘The judgment and the peremptory writ contemplates that the experts would turn up individual cases requiring both such actions, but each would be performed by the assessor and by the board of equalization, respectively and as the law requires.’ (Id., p. 202, 81 Cal.Rptr., p. 694, emphasis added.) In a more general sense the court concluded, ‘The judgment nowhere conceives that appellants should or would exceed any of their legal powers in acting pursuant to the writ of mandate. (The writ, in fact, is explicit to the opposite effect: it repeatedly directs the affected officials to act ‘as authorized by law’ or subject to limiting words of similar import.) Whether they exceed their legal powers at any point is a matter to be resolved between them and the affected taxpayers at that time. Until then, various authorities cited by the appellants as limiting their powers to comply with the writ (e. g., Stafford v. Riverside County (1957) 155 Cal.App.2d 474, 478, 318 P.2d 172; Napa Sav. Bank v. County of Napa (1911) 17 Cal.App. 545, 548, 120 P. 449) are not in point.' (Id.)4
That time has now arrived, and the interested taxpayer contends that the increased assessments exceed the powers conferred by law on the assessor and the board of equalization. The taxpayer's right to do so was recognized in Koret of Cal., Inc. v. City etc. of San Francisco (1969) 2 Cal.App.3d 87, 81 Cal.Rptr. 698, where the same court as decided Knoff stated: ‘The Knoff decision leaves intact the right of any taxpayer in plaintiff's position to challenge the effect upon it of administrative compliance with the Knoff mandate. Having raised such challenge, plaintiff is entitled to prove the factual allegations upon which its position is based.’ (2 Cal.App.3d at p. 91, 81 Cal.Rptr. at p. 700. See also Silver v. Watson (1972) 26 Cal.App.3d 905, 103 Cal.Rptr. 576, as revised at 27 Cal.App.3d at 609a.)
From the foregoing it must be concluded that Knoff does not authorize the assessor or board of equalization to assess property or levy taxes other than as provided by law.
Three days after its decision in Knoff, the same court filed a decision (Stenocord Corporation v. City and County of San Francisco (1969) 2 Cal.App.3d 304, 81 Cal.Rptr. 735, vacated, Stenocord Corp. v. City etc. of San Francisco (1970) 2 Cal.3d 984, 88 Cal.Rptr. 166, 471 P.2d 966) reversing a judgment in favor of the City and County of San Francisco in an action in which a taxpayer sought recovery of taxes paid under protest on deficiency assessments, made in October 1964, of inventory and equipment for the years 1962, 1963 and 1964, in which the taxpayer had reported the property at full cost on forms provided by the assessor, and paid all of the taxes originally levied. The taxpayer had not sought equalization, but claimed that the assessment was a nullity as being outside the statutory grant of authority to the assessor. The Court of Appeal limited the issue as to whether the provisions formerly found in section 531.1 of the Revenue and Taxation Code5 were applicable so as to permit a deficiency assessment on the property as property which escaped assessment. It held that since the complaint alleged that the taxpayer had reported the costs accurately the section was not applicable, the assessment would then be a nullity, and that therefore the trial court erred in sustaining the defendant's demurrer on the theory the taxpayer failed to pursue his administrative remedies before the defendant's board of equalization. (81 Cal.Rptr. at p. 737. See Star-Kist Foods, Inc. v. Quinn (1960) 54 Cal.2d 507, 510–511, 6 Cal.Rptr. 545, 354 P.2d 1; Brenner v. Los Angeles (1911) 160 Cal. 72, 76–77, 116 P. 397; Stafford v. Riverside County (1957) 155 Cal.App.2d 474, 478–479, 318 P.2d 172; and Associated Oil Co. v. County of Orange (1935) 4 Cal.App.2d 5, 9–11, 40 P.2d 887.)
After granting a hearing the Supreme Court upheld the judgment of the trial court. The issue resolved by the Supreme Court was not that which the Court of Appeal decided.6 The latter court found allegations in the complaint which indicated the deficiency assessments were based upon revising the taxpayer's costs of goods upward, and concluded ‘plaintiff reasonably could have assumed that the reassessments were made on the theory that plaintiff had wilfully misrepresented the costs of its goods in reporting to the assessor’ thereby authorizing a penal assessment under Revenue and Taxation Code section 503.7 (2 Cal.3d at pp. 988–989, 88 Cal.Rptr. at p. 169, 471 P.2d at p. 969.) In the absence of an examination of the whole record in Stenocord, it is impossible to discern how an allegation that the taxpayer, during the years in question, had reported his property at full cost, can be twisted into a finding, on reviewing the pleadings, that it had wilfully misrepresented the costs of its goods. In this case the pleadings reflect no issue as to the cost of the goods. The only issue is the ratio to be applied to determine the assessed value of the goods, and whether a new ratio may be applied retroactively. It is conceivable that the defendant could make out a case for an assessment under the provisions of section 503 [now § 502] or section 532 [now § 503] as they read in March 1967 at the time of the deficiency assessment. (See fn. 7 above.) However, no such basis for reassessment is revealed by the record in this case.
In Stenocord the Supreme Court, in apparent disregard of the pleadings as reported by the Court of Appeal, also noted, ‘Similarly, plaintiff reasonably could have assumed that the reassessments were escape assessments under section 531.3, . . .’ (2 Cal.3d at p. 989, 88 Cal.Rptr. at p. 170, 471 P.2d at p. 970, and see fn. 5 above.) Here, with the exception of a small amount of property overlooked in 1966, there is nothing in the record to show that the provisions of section 531.1 are applicable.
In short, Stenocord fails to demonstrate that the facts pleaded in this case fall within the provisions for arbitrary and penal assessments, or assessments on property escaping assessment, which have been reviewed above. The case does indicate that on the pleadings in that case ‘a question of valuation was presented which should have been submitted to the [board of equalization] for review, equalization and adjustment.’ (2 Cal.3d at p. 989, 88 Cal.Rptr. at p. 170, 471 P.2d at p. 970.) It concluded, ‘Accordingly, the general demurrer was properly sustained and, upon plaintiff's refusal to amend, judgment was properly entered against it.’ (Id., at p. 990, 88 Cal.Rptr., at p. 170, 471 P.2d at p. 970.) This conclusion is of no service to defendant because if it be assumed that the deficiency assessment posed a question of the valuation of the taxpayer's property in this case, the taxpayer has further alleged that it sought and was denied a hearing before the board of equalization (see part VI, below.)
In construing those provisions (former § 501 et seq.) it has been held ‘that it is only where there has been no assessment at all that the provisions for escape assessments apply.’ (Stafford v. Riverside County, supra, 155 Cal.App.2d 474, 478, 318 P.2d 172, 174. See Napa Savings Bank v. County of Napa (1911) 17 Cal.App. 545, 548, 120 P. 449; and cf. De Luz Homes, Inc. v. County of San Diego (1955) 45 Cal.2d 546, 560–561, 290 P.2d 544; and Jensen v. Byram (1964) 229 Cal.App.2d 651, 653, 40 Cal.Rptr. 540.) Here the property was returned8 and assessed and a tax was paid thereon. The increase in the assessment cannot be termed an assessment on property which escaped assessment.
The provisions in effect in 1964, 1965 and 1966 read, ‘Annually, the assessor shall assess all the taxable property in his county, except State assessed property, to the persons owning, claiming, possessing, or controlling it at 12 o'clock meridian of the first Monday in March. The assessor shall ascertain such property between the first Mondays in March and July.’ (Former § 405. Stats.1941, ch. 1240, § 2, p. 3111. Cf. present §§ 401.3 and 405.) ‘The assessor shall prepare an assessment roll, as directed by the board, in which shall be listed all property within the county which it is the assessor's duty to assess.’ (§ 601.) ‘On or before the first Monday in July, annually, the assessor shall complete the local roll. . . .’ (Former § 616. Amended, effective Oct. 6, 1966, Stats. 1st Ex.Sess.1966, ch. 147, § 52, p. 665 to provide for delivery of the local roll to the ‘auditor.’)
The following provisions covered the period for equalization of the local roll: ‘Annually, on the first Monday in July, the board of supervisors shall meet as the county board of equalization to equalize the assessment of property on the local roll. It shall continue in session for that purpose, from time to time, until the business of equalization is disposed of, but not later than the third Monday in July.’ (Former § 1603.9 ) The right to equalize assessments made outside the regular assessment period is conferred by section 1604 which provided and provides, ‘At any regular meeting, the board of supervisors, on the request of the assessor or any taxpayer, shall sit as the county board to equalize any assessments made by the assessor outside the regular assessment period for such assessments and during the calendar month preceding the month in which such meeting is held.’ This section merely authorizes and fixes the time for equalization of such assessments. It does not purport to authorize or regulate the time within which the assessor may assess.
In the assessment year 1966 and at the time (March 28, 1967) of the deficiency assessment, and of the abortive attempt of the taxpayer to secure equalization, section 1604.1 provided as follows: ‘An assessment made pursuant to Sections 501, 503, 531, 531.1 or 1061 of this code is not effective for any purpose, including its review, equalization and adjustment by the Board of Equalization, until the assessee has been notified thereof personally or by United States mail at his address as contained in the official records of the county assessor. Receipt by the assessee of a tax bill based on said assessment shall suffice as such notice. [¶] Upon application for reduction pursuant to Section 1607 of this code, such assessments shall be subject to review, equalization and adjustment by the county board of equalization.’ (Stats.1965, ch. 1278, § 1, p. 3161.)10 The references were to arbitrary and penal assessments for the taxpayer's neglect or refusal ‘to comply with any provision of law for obtaining information.’ (Stats. § 501, as amended 1045, ch. 1045, § 1, p. 2034. Cf. Stats.1966 1st Ex.Sess., ch. 147, § 47, p. 662; Stats.1967, ch. 1418, § 5, p. 3337; and Stats.1971, ch. 1633, § 4.8, p. 3521 which all amended § 501 to refer to failure ‘to comply with any provision of law for furnishing information’), or for wilfully concealing, removing, transferring or misrepresenting property to evade taxation (former § 503, as amended Stats.1945, ch. 1045, § 2, p. 2034. Cf. present § 502 as added by Stats.1967, ch. 1418, § 6, p. 333711 ), and to property escaping assessment (§ 531) or property for which the assessee omitted to report the cost accurately (former § 531.1, as added Stats.1959, ch. 1153, § 3, p. 3246. Cf. present § 531.5, as added as § 507, Stats.1967, ch. 1418, § 12, p. 3337, and renumbered and amended by Stats.1969, ch. 1557, § 1, p. 3164), and to a nonpertinent repealed section dealing with the effect of failure or neglect to return intangibles (former § 1061, repealed Stats.1967, ch. 1632, § 7, p. 3905.)
In short, a review of the statutes, as they existed at the time of the assessment under consideration in this case, reveals no express authorization for reassessment because the assessor unilaterally erroneously applied an improper ratio to the correctly reported and ascertained cost of the personal property.
Since 1933 the state Constitution has provided, ‘All property subject to taxation shall be assessed for taxation at its full cash value.’ (Former art. XI, § 12, the provisions of which were transferred to art. XIII, § 37, June 2, 1970.) Respondent contends that the provision is in effect self-executing and authorizes the deficiency assessments even though the defense interposed by the city does not, in the light of the admitted allegations of the complaint, demonstrate statutory authorization for the assessment. It relies on that portion of the decision in Knoff which upheld the petitioning taxpayer's right to secure a writ of mandamus to require the public officials to carry out the public duties involved under section 12 of article XI of the Constitution, sections 405, 531, 533–534 and 503–505 of the Revenue and Taxation Code, and Government Code section 25303 which charges the board of supervisors with the duty of supervising the official conduct of the assessor (1 Cal.App.3d at pp. 195–197, 81 Cal.Rptr. 683).
Article XIII, section 1 of the state Constitution states, ‘All property in the State except as otherwise in this Constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law, or as hereinafter provided . . .’ (Emphasis added.) Section 10 reads, ‘All property, except as otherwise in this Constitution provided, shall be assessed in the county, city, city and county, town or township, or district in which it is situated, in the manner prescribed by law.’ (Emphasis added.) Section 13 expressly provides, ‘The Legislature shall pass all laws necessary to carry out the provisions of this article.’ From the foregoing it may be assumed that the provisions for assessment and taxation of real and personal property are not self-executing, but must be found in the statutes and codes enacted by the Legislature. (See County of Sacramento v. Hickman (1967) 66 Cal.2d 841, 845–846, 59 Cal.Rptr. 609, 428 P.2d 593; and Millbrook Farm v. Watson (1968) 264 Cal.App.2d 512, 515–516, 70 Cal.Rptr. 745.) As pointed out above, Knoff expressly recognizes: ‘The judgment nowhere conceives that appellants should or would exceed any of their legal powers in acting pursuant to the writ of mandate.’ (1 Cal.App.3d at p. 202, 81 Cal.Rptr. at p. 695.) It did not create new legal powers.
Respondent states that under the doctrine of stare decisis the superior court rendered the only permissible judgment. (See Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.) It points out that in the lower court the decision was delayed at the request of the city with the acquiescence of the taxpayer because the decision in Knoff would resolve the issue in this case under the doctrine of stare decisis, and that the taxpayer appeared as amicus curiae in Knoff. Since Knoff did not resolve the question of whether deficiency assessments could be legally made other than as provided by law, it did not in fact control this case.
Since the judgment in Knoff as interpreted by the appellate court did not purport to deprive any taxpayer of his right to adjudicate whether the public officials exceeded their legal powers at any point (1 Cal.App.3d at p. 202, 81 Cal.Rptr. 683), it is unnecessary to pursue the taxpayer's contention that in any event the Knoff judgment could not be res judicata as to this taxpayer, but could only be binding on the parties and their successors in interest. (See Code Civ.Proc., § 1908; Kimbrough v. Routh Trucking Co. (1966) 241 Cal.App.2d 401, 403–404, 50 Cal.Rptr. 518; Embassy Realty Associates v. Southwest Prod. Co. (1954) 126 Cal.App.2d 725, 729–730, 272 P.2d 899; and 4 Witkin, Cal. Procedure (2d ed. 1971) Judgment, § 234, p. 3367.)
The trial court indicated that the taxpayer was bound by the Knoff action (except as to the issue of discrimination discussed in part below) because, since the Knoff suit was authorized as a taxpayer's suit “on behalf of all other citizen-resident taxpayers of San Francisco” (1 Cal.App.3d at p. 198, 81 Cal.Rptr. at p. 692), it included the taxpayer who is the plaintiff in this action. This reasoning fails to distinguish between favored and unfavored taxpayers, and there is nothing to show that the interests of Knoff et al. and those of this plaintiff were the same with respect to the issues presented by this case. In fact if this taxpayer appeared as an amicus curiae on behalf of the city and county and its officials in the Knoff suit, it is obvious that its interests conflicted with those of Knoff et al.
Nor is respondent aided by the following principle as recognized in Price v. Sixth District Agricultural Assn. (1927) 201 Cal. 502, 258 P. 387: “In the absence of fraud or collusion, a judgment for or against a municipal corporation, county, town, school or irrigation district, or other local governmental agency or district, or a board or officers properly representing it, is binding and conclusive on all residents, citizens, and taxpayers in respect to matters adjudicated which are of general and public interest, such as questions relating to public property, contracts, or other obligations.' 34 Corpus Juris, § 1459, p. 1028. See, also, 23 Cyc., p. 1269.' (201 Cal. at p. 513, 258 P. at p. 391. See also, 2 Black, Judgments (1902) § 584, pp. 882, 883; and Rest., Judgments 2d, § 86, particularly Illustration 1, p. 419.) It may be assumed that the taxpayer is bound by the original Knoff mandate as interpreted on appeal, but as has been pointed out above, it may still contest assessments ostensibly made pursuant to that mandate which exceed the legal powers of the assessing officers.12
In Knoff the court dismissed the appeal of the city and county, the board of supervisors, the board of equalization and the assessor from an order entered April 3, 1967 which prescribed a 50 percent assessment ratio in determining deficiency assessments for years prior to the fiscal year 1967–1968. It neither affirmed nor reversed this order but concluded, ‘If the standard was wrong in the case of any affected taxpayer (e. g., because such person could show a competent court that he had received discriminatory treatment as a consequence of official compliance with the writ), only that taxpayer can complain . . ..’ (1 Cal.App.3d at p. 205, 81 Cal.Rptr. at 697. See also Koret of California, Inc. v. City & County of San Francisco, supra, 2 Cal.App.3d 87, 91, 81 Cal.Rptr. 698.) The taxpayer alleged that the assessments based on the 50 percent ratio, if legal, were inequitable because they exceeded ratios determined for the years 1964, 1965 and 1966 by the State Board of Equalization prior to April 24, 1967, when the taxpayer was denied an equalization hearing. This allegation was denied, and the court found in the judgment that the taxpayer had failed to prove its allegation.
The instant case was submitted on the pleadings and legal briefs and oral argument when the parties failed to provide a written stipulation of facts as originally contemplated. The taxpayer requested the court to take judicial notice of the reports of the State Board of Equalization for the years in question, which showed assessment ratios of 22.1 percent, 22.2 percent and 19.2 percent respectively.13 Respondent conceded that if Knoff were reversed the taxpayer would be entitled to hearing before the board of equalization, but pointed out that under the order of April 3, 1967 the board had properly denied a hearing because it would have been futile.
It is unnecessary to determine whether such relief should be granted now. The taxpayer has not argued the issue of discrimination on appeal, other than to point out that it attempted to and was refused the right to exercise any administrative remedy which was open to it. (Cf. Star-Kist, Foods, Inc. v. Quinn, supra, 54 Cal.2d 507, 510–511, 6 Cal.Rptr. 545, 354 P.2d 1; Flying Tiger Line, Inc. v. County of L.A. (1958) 51 Cal.2d 314, 322, 333 P.2d 323 [cert. den. (1959) 359 U.S. 1001, 79 S.Ct. 1140, 3 L.Ed.2d 1031; Brenner v. Los Angeles, supra, 160 Cal. 72, 77, 116 P. 397; and Associated Oil Co. v. County of Orange, supra, 4 Cal.App.2d 5, 7–11, 40 P.2d 887, with Luce v. City of San Diego (1926) 198 Cal. 405, 406–407, 245 P. 196; El Tejon Cattle Co. v. County of San Diego (1967) 252 Cal.App.2d 449, 457–458, 60 Cal.Rptr. 586; Marsh Wall Products, Inc. v. County of Los Angeles (1961) 193 Cal.App.2d 58, 62–64, 13 Cal.Rptr. 699; and Montgomery Ward & Co. v. Welch (1936) 17 Cal.App.2d 127, 131–134, 61 P.2d 790.) The taxpayer states the sole issue as ‘May escape property assessments be made wholly outside the statutes authorizing such assessments.’ It has, therefore, waived the right to question on appeal the ratio used in determining the deficiency assessment assuming there is legal authority for changing the assessment after the assessment period had expired.
Nevertheless, since, as set forth below, the case must be reversed for a determination of whether facts exist which would warrant tardy reassessments, the taxpayer, who has consistently sought and been denied equalization, should be entitled to be heard on the issue of discrimination if its claim that the reassessments are illegal is not sustained. (See Koret of Cal., Inc. v. City etc. of San Francisco, supra, 2 Cal.App.3d 87, 91, 81 Cal.Rptr. 698; and Knoff v. City etc. of San Francisco, supra, 1 Cal.App.3d 184, 205, 81 Cal.Rptr. 683.)
The judgment must be reversed because the so-called Knoff mandate does not itself, as a matter of law, authorize assessments not otherwise provided for in the Revenue and Taxation Code, and because the facts as admitted do not establish a case for subsequent assessment. ‘As any tax proceeding is in invitum in nature, each step must be taken in compliance with law or the proceeding is void. The equalization stage is no exception to this rule.’ (Universal Cons. Oil Co. v. Byram (1944) 25 Cal.2d 353, 361, 153 P.2d 746, 751. See also County of Los Angeles v. Jones (1939) 13 Cal.2d 554, 561–562, 90 P.2d 802; East Bay Municipal U. Dist. v. Garrison (1923) 191 Cal. 680, 688, 218 P. 43; Birch v. Board of Supervisors (1923) 191 Cal. 235, 237, 215 P. 903.) In the case last cited the rule was applied to invalidate a purported reassessment which was made without the notice required by statute. (191 Cal. at p. 237, 215 P. 903. See also Gaumer v. County of Tehama (1967) 247 Cal.App.2d 548, 551, 55 Cal.Rptr. 777.)
In Southwest Land Co. v. Los Angeles Co. (1920) 46 Cal.App. 9, 188 P. 575, the court stated, with respect to an attempt to increase an assessment tenfold under the provisions of former section 3881 of the Political Code which limited the correction of clerical errors to those which were patent on the record, ‘The power of assessment in matters involving discretion as to the amount thereof was exhausted when the board of equalization finally adjourned. The extension of authority over the making of the assessment, after that date, was given by section 3881 for narrowly defined purposes, and was expressly limited.’ (46 Cal.App. at pp. 13–14, 188 P. at p. 576. See also S. D. & A. Ry. Co. v. California State Board of Equalization (1912) 164 Cal. 41, 43–44, 127 P. 153; and Clunie v. Siebe (1896) 112 Cal. 593, 597, 44 P. 1064. Cf. Savings & Loan Soc. v. San Francisco (1905) 146 Cal. 673, 676–677, 80 P. 1086; and Peterson v. Hopkins (1932) 124 Cal.App. 33, 35–37, 12 P.2d 104.) In Clunie v. Siebe, supra, the taxing authority alleged that the taxpayer had misrepresented the value of his property. The court held that with respect to a specific individual assessment (cf. Knoff v. City and County of San Francisco, supra, 1 Cal.App.3d at p. 199, 81 Cap.Rptr. 683) in the absence of a statute requiring a statement of cost or value (cf. Stenocord v. City & County of San Francisco, supra, 2 Cal.App.3d at p. 989, 88 Cal.Rptr. 166, 471 P.2d 966), the following rule would apply, ‘If [the owner] has erred in his estimation of this value, the statute has provided a board of equalization as the tribunal for the correction of such error, which, by section 3673 of the Political Code, is authorized to ‘make the assessment conform to the true value of such property in money,’ and if no correction is made by that body the valuation made by the assessor is final.' (112 Cal. at p. 597, 44 P. at p. 1065. See also Board of Supervisors v. De Lisle (1958) 160 Cal.App.2d 599, 601–602, 325 P.2d 584; Stafford v. Riverside County, supra, 155 Cal.App.2d 474, 477–478, 318 P.2d 172; and Napa Savings Bank v. County of Napa, supra, 17 Cal.App. 545, 548, 120 P. 449. Cf. De Luz Homes, Inc. v. County of San Diego, supra, 45 Cal.2d 546, 561, 290 P.2d 544; Whiting Finance Co. v. Hopkins (1926) 199 Cal. 428, 436, 249 P. 853; and Savings etc. Soc. v. San Francisco (1901) 131 Cal. 356, 358–359, 63 P. 665, where proceedings for reassessment commenced in period provided by law; and Farmers' etc. Bank v. Board of Equalization (1893) 97 Cal. 318, 325, 32 P. 312; and Jensen v. Byram, supra, 229 Cal.App.2d 651, 653, 40 Cal.Rptr. 540, where property in fact escaped assessment.) In Siebe v. Superior Court (1896) 114 Cal. 551, 46 P. 456, the court, in reviewing in another context the same alleged underassessment as was before it in Clunie v. Siebe, distinguished between wilful and corrupt misconduct in office which would be evidenced by the wilful failure and neglect to assess a taxpayer's property as its full cash value for the purpose and with the design of enabling the taxpayer to evade to evade taxation, and an underassessment made in the ordinary exercise of the assessor's official duty without any corrupt or illegal motive (114 Cal. at p. 553, 46 P. 456).
In Knoff the trial court in its order of April 3, 1967, as did defendant and the trial court in this action, assumed that it had power to equalize ‘all San Francisco taxable that were unassessed or underassessed or otherwise escaped taxation for any reason, and especially because of the application to any taxable properties of an improperly law assessment ratio, i. e., one below 50%, causing an improperly reduced or low assessed valuation, . . .’ In pleading the Knoff mandate as a defense to this action, the respondent cannot be deemed to have waived its right to assert such legal rights as its assessor and board of equalization may have had to reassess the taxpayer's property. Reliance upon several grounds, some of which may prove unfounded, should not eliminate the defense posed by one which the defendant may ultimately sustain. The pleadings, therefore, do not reflect an unqualified admission that the assessments in question were proper. The reversal, therefore, should be without prejudice to the defendant's right to amend its pleadings to specifically show the statutory basis on which it asserts a right to tardily reassess the taxpayer's personal property, and to give it an opportunity to establish the facts on which it relied.
The judgment is reversed and the case remanded for further proceedings in accordance with the views set forth herein.
1. The inclusion of this property in the deficiency assessment resulted in an addition of $1,358 to the assessed value of the taxpayer's personal property, and an additional tax of $138.08 for the year 1966. This portion of the assessment and tax is not contested.
2. The complaint contains a copy of the application which requests that the proposed additional assessments be stricken because they were in excess of the powers of the assessor, and unauthorized by law. The taxpayer also attacked the factual basis for the assessments and claimed that they were discriminatory and in excess of the ratios applied to other property.
3. The answer contains a copy of the order of the court entered in Knoff%i on April 3, 1967 (see Knoff v. City etc. of San Francisco (1969) 1 Cal.App.3d 184, 204–206, 81 Cal.Rptr. 683). Defendant alleges, ‘Said mandate required that personal property (inventories) which had not been assessed at 50% of cost be treated as property which has escaped taxation, and that an escape assessment be imposed thereon on an amount sufficient to raise the assessment ratio thereon to 50%. . . . Plaintiff's inventories were assessed at only 34% (instead of 50%) of cost in 1964, 38n 1965, and 40% in 1966. Purpose of plaintiff's equalization application was to nullify the Knoff mandate in its application to plaintiff.’
4. The court dismissed a further appeal from the order of April 3, 1967 which prohibited the board of equalization from considering or adopting any assessment ratio lower than 50 percent in measuring the validity of new assessments involved in any pertinent applications for relief from ‘deficiency assessments' made by the new assessor for the prior years. It stated, ‘The main judgment and the peremptory writ of mandate issued pursuant thereto (the latter of which we have upheld by affirming the former) established only that the affected public officers must examine past (i. e., Wolden's) assessments and adjust them to the extent necessary and legally possible. The order of April 3, 1967, sets a standard for compliance with the peremptory writ in significant respects. If the standard was wrong in the case of any affected taxpayer (e. g., because such person could show a competent court that he had received discriminatory treatment as a consequence of official compliance with the writ), only that taxpayer can complain: the City and County of San Francisco cannot, the board of supervisors and the board of equalization cannot, the assessor cannot.’ (1 Cal.App.3d at p. 205, 81 Cal.Rptr. at p. 697, emphasis added.)
5. At the time of the deficiency assessment in Stenocord (October 1964) and at the time of the deficiency assessment in this case (March 28, 1967) the pertinent provisions were found in Revenue and Taxation Code section 531.1 (Stats.1959, ch. 1153, § 3, p. 3246) which read: ‘If the assessor requires an assessee to describe personal property in such detail as shows the cost thereof but the assessee omits to report the cost of the property accurately, notwithstanding that this information is available to the assessee, to the extent that this omission on the part of the assessee causes the assessor not to assess the property or to assess it at a lower valuation than he would enter upon the roll were the cost reported to him accurately, that portion of the property as to which the cost is unreported, in whole or in part, may be assessed as property that has escaped assessment.’ (Emphasis added.) Effective November 8, 1967 (Stats.1967, ch. 1418, §§ 12 and 14, pp. 3337–3338) section 531.1 was repealed and the provisions were re-enacted, as section 507, with the substitution of ‘shall be assessed as required by law’ for the words emphasized above, and with the addition of provisions relating to penalties and interest. Effective November 10, 1969 (Stats.1969, ch. 1557, § 1, p. 3164) section 507 was renumbered as section 531.3 without any change in the text.
6. The Court of Appeal stated, ‘Respondent contends that the increased assessment resulted from ‘revising the cost of appellant's goods upward . . . [subquote omitted] but that assertion was not to be considered by the court in ruling upon the demurrer, it being assumed for that purpose that the allegations of the complaint are true.’ (81 Cal.Rptr. at p. 737.) The Supreme Court, however, found and determined, ‘It is evident from the face of the complaint that the dispute herein involved a question of valuation which, if submitted to the board of equalization, might have obviated plaintiff's action. The reassessments were concededly based upon ‘the Assessor revising the cost of the goods of Stenocord upward. . . .’ Plaintiff knew that the assessor had challenged its reported cost figures, had reassessed those figures, and had levied a deficiency based upon the reassessments. Although the precise statutory basis justifying the reassessments and deficiency was not spelled out in the notice or tax bills, plaintiff reasonably could have determined that the assessor was claiming either a penal assessment (Rev. & Tax.Code, § 501 et seq.) or an escape assessment (Rev. & Tax.Code, § 531 et seq.). Under either theory, a remedy was available before the board of equalization. (Rev. & Tax.Code, § 1604.1.)' (2 Cal.3d at p. 988, 88 Cal.Rptr. at p. 169, 471 P.2d at p. 969.)
7. At the time of the deficiency assessment in Stenocord (October 1964), Revenue and Taxation Code section 503 read as follows: ‘Any property, including intangibles, wilfully concealed, removed, transferred, or misrepresented by the owner or his agent to evade taxation, shall be penally assessed on discovery.’ Effective October 6, 1966 (Stats.1966, 1st Ex.Sess., ch. 147, § 47.1, p. 662) and at the time (March 28, 1967) the defendants were assessed in this case, the section had been amended to read: ‘Any tangible property willfully concealed, removed, transferred, or misrepresented by the owner or his agent to evade taxation, shall be assessed on discovery as provided in Article 1 or 4 of this chapter.’At the same time the Legislature added section 532 (id., § 49, p. 603) which provided in part, ‘. . . Whenever it is discovered that any taxable property, or any portion thereof, is subject to an escape assessment, and the failure to regularly assess such property was caused in whole or in part by the fraudulent act or omission of the taxpayer or by fraudulent collusion between the taxpayer, his agent or representative, and the assessor or any or his deputies, the assessor shall within 18 months of the discovery levy an escape assessment upon such property, and shall also levy a penal assessment thereon pursuant to Section 504 . . ..’Effective November 8, 1967 (Stats.1967, ch. 1418, §§ 6 and 7, p. 3337) the provisions first referred to above (former § 503) were repealed and revised and reenacted in section 502, reading as follows: ‘If any person willfully conceals, fails to disclose, removes, transfers or misrepresents tangible personal peoperty to evade taxation which results in an assessment lower than that which would otherwise be required by law, the assessor on discovery shall assess the property in the lawful amount and impose the penalty provided for in Section 504.’At the same time (id., §§ 8 and 16, pp. 3337 and 3338) the provisions formerly found in section 532 were enacted in the following form as section 503: ‘If any taxpayer or his agent through a fraudulent act or omission causes, or if any fraudulent collusion between the taxpayer or his agent and the assessor or any of his deputies causes, any taxable tangible property to escape assessment in whole or in part, or to be underassessed, the assessor shall assess the property in the lawful amount and impose the penalty provided for in Section 504.’
8. The trial court found that the taxpayer had not sustained the allegations of paragraph XVI in which it alleged it had filed a property statement setting forth the costs of its personal property as determined by the assessor from its books and records. Since the taxpayer submitted the matter on the pleadings without submitting any evidence, and the defendant had denied those allegations, the court's finding was correct. Nevertheless it was admitted with respect to each of the years in question that all of the taxpayer's taxable tangible property was assessed and placed upon the roll approved by the board of equalization. There was therefore no property which escaped assessment (§ 531) nor does the record reflect that any omission on the part of the assessee to report the cost of its property accurately caused the assessor to assess the property at a lower valuation than he would had the cost been reported (former § 531.1).
9. Section 1603 was amended, operative for the 1967–1968 assessment year, to read as follows: ‘Annually, on the third Monday in July, the board of supervisors or the assessment appeals board shall meet as the county board of equalization to equalize the assessment of property on the local roll. It shall continue in session for that purpose, from time to time, until the business of equalization is disposed of. [¶] Any taxpayer may petition said board for a reduction in an assessment and a proportionate reduction or refund of the taxes extended thereon by filing an application pursuant to Section 1607 or Section 5097.’ (Stats. 1st Ex.Sess.1966, ch. 147, §§ 70 and 103, pp. 671 and 683.)Effective November 8, 1967 the following paragraph was added to section 1603: ‘The county board shall have no power to receive or hear any petition for a reduction in an escaped assessment made pursuant to Section 531.5 nor a penal assessment levied in respect thereto, nor to reduce such assessments.’ (Stats.1967, ch. 148, § 6, p. 1215, emphasis added.) Effective November 10, 1969 the reference to section ‘531.5’ was changed to ‘531.5’ (Stats.1969, ch. 369, § 9, p. 896.) The reference is to an escaped assessment which is authorized because a veteran's exemption had been incorrectly allowed. (See Stats.1967, ch. 148, § 5, p. 1215; Stats.1967, ch. 1418, § 15, p. 3338; and Stats.1970, ch. 552, § 1, pp. 1096–1070.)
10. Effective November 8, 1967 the reference to the express sections of the code were deleted and ‘outside of the regular assessment period’ was substituted (Stats.1967, ch. 148, § 7, p. 1215; ch. 1418, § 20, p. 3340). This general reference was continued through amendments in 1968 (Stats.1968, ch. 759, § 1, p. 1461). In the same year a new section, section 1604.5, was added to become effective as an emergency measure July 5, 1967 (Stats.1967, ch. 559, §§ 1 and 3, pp. 1907 and 1908). It reads: ‘Notwithstanding any other provision of law to the contrary in any county in which assessment appeals boards have been created and are in existence, the time for equalization of assessments made outside the regular assessment period for such assessments, including assessments made pursuant to Sections 501, 503, 504, 531, 531.1 and 1061, shall be prescribed by rules adopted by the board of supervisors.’ The references here of necessity are to section 501 as it read after the 1966 amendment (see text following above), section 503 as it read prior to 1967 (see text above), section 504 which prior to 1967 provided for the penalties on assessments made pursuant to section 501 or section 503 (see Stats. 1st Ex.Sess.1966, ch. 147, §§ 47, 47.1 and 47.2, pp. 662–663), and to sections 531, 531.1 and 1061 as noted in the text following above.
11. It was not until 1966 (Stats. 1st Ex.Sess.1966, ch. 147, § 49) and 1967 (Stats.1967, ch. 1418, § 8, p. 3337) that the provisions now found in section 503 relating to property escaping assessment through fraudulent act, omission or collusion were enacted. (See fn. 7 above.)
12. The principle last asserted appears to warrant the conclusion that all taxpayers are bound by the following adjudication in Knoff, on April 3, 1967: ‘The assessment ratio of 50% was publicly designated and announced by former Assessor Russell L. Wolden as the proper assessment ratio and it in fact was actually adopted, used and applied by him to 93% of the San Francisco personal property taxpayers during the years 1962–1966.’ The existence of an assessment predicated upon a lesser ratio is certainly cause for investigation, and a fact to be considered with all other circumstances, including any relationship between the assessee-taxpayer and the assessor, in determining whether there is a legal basis for imposing a deficiency assessment in any particular case.
13. The taxpayer suggests that there is no question of valuation remaining because the respondent has admitted the full cash value—cost—of the taxpayer's property, and that there is no question concerning the ratio to be applied because section 1605, as amended in 1966 (Stats. 1st Ex.Sess.1966, ch. 147, § 71, p. 672), expressly provided for a relationship between the ratios found by the State Board of Equalization and the propriety of any given assessment, and the amount by which the local board could correct any discrepancies in assessments. (Cf. Glidden Company v. County of Alameda (1970) 5 Cal.App.3d 371, 379–381, 85 Cal.Rptr. 88, 86 Cal.Rptr. 464.) Those provisions were only effective commencing with the 1967–1968 assessment year (Stats. 1st Ex.Sess.1966, ch. 147, § 103, p. 683; and see Glidden Company v. County of Alameda, supra, at p. 377, fn. 3, 85 Cal.Rptr. 88, 86 Cal.Rptr. 464.) Moreover, as pointed out in the Knoff order of April 3, 1967, the state board's ratios, since they included assessments which were arrived at through the use of an improperly low assessment ratio which was applied to taxable property of a favored few, were themselves inaccurate.
SIMS, Associate Justice.
MOLINARI, P. J., and ELKINGTON, J., concur.
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