Opinion
1-17-1950
CITY AND COUNTY OF SAN FRANCISCO v. SAN MATEO COUNTY. Civ. 13915.
CITY AND COUNTY OF SAN FRANCISCO
v.
SAN MATEO COUNTY.
Jan. 17, 1950.
Hearing Granted March 16, 1950.
Subsequent Opinion 222 P.2d 860.
Dion R. Holm, City Attorney of the City and County of San Francisco, A. Dal Thomson, Public Utilities Counsel of the City and County of San Francisco, San Francisco, attorneys for appellant.
Louis B. Dematteis, District Attorney of San Mateo County, John A. Bruning, Assistant District Attorney of San Mateo County, Keith Sorensen, Civil Deputy District Attorney of San Mateo County, A.S. Whitmore, Associate Counsel, Redwood City, attorneys for respondent.
PETERS, Presiding Justice.
The City and County of San Francisco filed this action to recover 1946-1947 real property taxes paid under protest to the County of San Mateo. The demurrer of the County was sustained, without leave to amend, on the ground that the complaint failed to state a cause of action. From the judgment based on that order this appeal is taken.
Since 1930, San Francisco has owned an area of land known as the San Francisco Airport, located in San Mateo County. Over the years additional adjacent lands have been acquired by appellant for the purpose of expansion. A large portion of this land was marsh, tidal and submerged land which had to be filled, in order to be utilized for airport purposes. The complaint alleges that appellant, prior to March, 1946, expended the sum of $6,753,529.00 in filling this area, and in providing for drainage; that San Mateo County has refused to recognize these operations as tax exempt improvements under Section 1, Artice XIII of the California Constitution, and accordingly, in assessing the value of the realty as of the first Monday in March, 1946, included the increased value of the property caused solely by the dirt fill; that on December 5, 1946, appellant paid as the first installment of the taxes so assessed, the sum of $14,084.84; that on April 17, 1947, a second installment of $14,084.98 was paid; that both payments were made under protest. The protest reads, in part, as follows: "The ground of protest against the assessments * * * is that the assessed values used by the Assessor of San Mateo County, in determining the amount of taxes herein referred to, represent an unreasonable and illegal increase over the assessed values used by said Assessor in determining the amount of taxes on the same properties for the fiscal year 1943-1944 and previous fiscal years; and the amount of said taxes is excessive, unreasonable, illegally determined, and confiscatory. "It is not claimed that the whole of the assessments levied against the properties owned by the City and named in the tax bills hereinafter listed is illegally assessed; illegality is claimed only as to such portion of said assessments as are based on the improvements the City made to said properties in the way of filling the land to make it adaptable and useful for the conduct of an airport. In the fiscal year 1943-1944 the lands of City for which this protest is made were assessed in the sum of $100,785.00 and for the fiscal year 1946-1947 the self-same lands were assessed at the sum of $684,625.00. That all of the increased assessments are based solely upon the improvements made by City to the land that was formerly marsh area or wholly submerged lands, and without regard to the value of other lands owned by others than the City and which lands are contiguous or adjacent to the lands of City. That the action of the Assessor in so assessing City lands is contrary to and violates Section 1 of Article XIII of the Constitution."
The complaint asked judgment for the amount of the taxes paid upon the "improvements" plus 5 per cent interest from the dates of payment.
The principal grounds of the demurrer were that appellant failed to make application to the State Board of Equalization for the review, equalization and adjustment of the valuations and assessments in accordance with Section 1, Article XIII of the Constitution; and that whether or not the amount of said taxes was excessive, unreasonable, illegally determined, or confiscatory was purely a question of equalization, and appellant must first exhaust its administrative remedy. The second basic contention of respondent was that the fill of dirt by dredging and dry-fill operations upon the land did not constitute an "improvement" within the meaning of the constitutional section.
Section 1, Article XIII of the Constitution provides, in part, as follows: "All property in the State except as otherwise in this Constitution provided * * * shall be taxed in proportion to its value, to be ascertained as provided by law, or as hereinafter provided. The word 'property,' as used in this article and section, is hereby declared to include * * * all other matters and things, real, personal, and mixed, capable of private ownership; * * * provided, that property * * * as may belong to this State, or to any county, city and county, or municipal corporation within this State shall be exempt from taxation, except such lands and the improvements thereon located outside of the county, city and county or municipal corporation owning the same as were subject to taxation at the time of the acquisition of the same by said county, city and county, or municipal corporation; provided, that no improvements of any character whatever constructed by any county, city and county or municipal corporation shall be subject to taxation. All lands or improvements thereon, belonging to any county, city and county or municipal corporation, not exempt from taxation, shall be assessed by the the assessor of the county, city and county or municipal corporation in which said lands or improvements are located, and said assessment shall be subject to review, equalization and adjustment by the State Board of Equalization."
The first question to be determined is whether appellant failed to exhaust its administrative remedies and should therefore be barred from judicial relief. It will be noted that the last portion of the quotation from the Constitutional provision provides that, except as to property "not exempt from taxation," the "assessment shall be subject to review, equalization and adjustment by the State Board of Equalization." If appellant was required to follow this procedure, its present action must fail. " * * * the rule is that where an administrative remedy is provided by statute, relief must be sought from the administrative body and this remedy exhausted before the courts will act." Abelleira v. District Court of Appeal, 17 Cal.2d 280, 292, 109 P.2d 942, 949, 132 A.L.R. 715; see, also, United States v. Superior Court, 19 Cal.2d 189, 194, 120 P.2d 26; People v. Keith Railway Equipment Co., 70 Cal.App.2d 339, 346, 161 P.2d 244.
The function of the State Board of Equalization is "to equalize the valuation of the taxable property in the several counties of the State for the purposes of taxation." Section 9, Art. XIII, California Constitution. " * * * it shall equalize the assessment of property as prescribed by law." Section 1831, Revenue and Taxation Code. Questions of valuation are the only matters properly brought before a board of equalization, whether State or County (see Judicial Review of Determinations by County Boards of Equalization, by W. Sumner Holbrook, Jr., 14 So.Cal.L.Rev. 276, 277), and it is well settled that where the taxpayer complains of an overvaluation of his property he must first seek relief from the Board of Equalization before applying to the courts. Dawson v. County of Los Angeles, 15 Cal.2d 77, 81, 98 P.2d 495; Associated Oil Co. v. County of Orange, 4 Cal.App.2d 5, 7, 40 P.2d 887; Montgomery Ward & Co. v. Welch, 17 Cal.App.2d 127, 131, 61 P.2d 790.
Since 1911, however, our courts have recognized that there is a distinction between "the mere overvaluation of property in an assessment thereof, and the inclusion in such an assessment of property not taxable at all". Brenner v. Los Angeles, 160 Cal. 72, 76, 116 P. 397, 399; see, also, Luce v. City of San Diego, 198 Cal. 405, 406, 245 P. 196; Associated Oil Co. v. County of Orange, supra, 4 Cal.App.2d at page 9, 40 P.2d at page 889; Los Angeles Shipbuilding & Dry Dock Corp. v. Los Angeles County, 22 Cal.App.2d 418, 422, 71 P.2d 282. While the courts have uniformly held that the administrative remedy must be pursued before recourse may be had to the courts in overvaluation cases, no such requirement exists in the case where exempt property has been assessed. In the latter situation, the taxpayer has a choice of remedies, several of which have been used by county, city and county, and municipal corporation taxpayers. One of the most common practices has been for them to proceed under old section 3804 of the Political Code, now found generally in sections 4986-4994 of the Revenue and Taxation Code, and petition the county board of supervisors, acting as a board of equalization, to cancel the assessment. If relief is there denied, the taxpayer may then bring a writ of mandamus against the board to compel cancellation of the assessment. Glenn-Colusa Irr. Dist. v. Ohrt, 31 Cal.App.2d 619, 88 P.2d 763; People v. Board of Supervisors, 126 Cal.App. 670, 15 P.2d 209; City of Los Angeles v. Board of Supervisors, 108 Cal.App. 655, 292 P. 539. A prior application to the Board is even then not always a prerequisite to an application for the writ. State Land Settlement Board v. Henderson, 197 Cal. 470, 241 P. 560. The governmental taxpayer has also been allowed injunctive relief against a tax collector seeking to collect taxes levied upon exempt property. Turlock Irr. Dist. v. White, 186 Cal. 183, 198 P. 1060, 17 A.L.R. 72. These, and several other procedures, appear available both to public and private taxpayers, no distinction being drawn between the two classes. See, 2 Witkin, Summary of California Law, 1220-1227.
The taxpayer also has the privilege of paying the taxes assessed, and then seeking redress in either of two ways. First, he may pay the challenged assessment, and then file a claim with, and seek a refund from, the Board of Supervisors under sections 5096-5102 of the Revenue and Taxation Code. We have been referred to no case where a governmental taxpayer has used this procedure.
Appellant has chosen a second method--a method entirely different from that described above. It has heretofore been held that in certain cases at least either method is permissible. Brill v. County of Los Angeles, 16 Cal.2d 726, 729, 108 P.2d 443; Stewart Law & Collection Co. v. County of Alameda, 142 Cal. 660, 665, 76 P. 481. Under the method chosen in this case, the public taxpayer, like any taxpayer, pays the taxes under protest and then sues to recover the amount paid. Sections 5136-5143, Revenue and Taxation Code. In numerous cases in which the sole or primary issue was whether the property levied upon was exempt, this procedure has been followed and upheld. Rock Creek Water Dist. v. County of Calaveras, 29 Cal.2d 7, 172 P.2d 863; Metropolitan W. Dist. v. County of Riverside, 21 Cal.2d 640, 134 P.2d 249; scribed above. It has heretofore been held City and County of San Francisco v. San Mateo County, 17 Cal.2d 814, 112 P.2d 595; Laguna Beach County Water District v. County of Orange, 30 Cal.App.2d 740, 87 P.2d 46. In none of these cases does the opinion show that the governmental taxpayer first proceeded before the State Board of Equalization. These cases necessarily stand for the proposition that where exempt property is improperly taxed, redress may be had to the courts without first proceeding before the State Board of Equalization. The fact that in the above cases, all of the property assessed was claimed exempt, and that in the instant case only a clearly separable portion of the property is claimed exempt, is not a sufficient distinction to warrant a holding that the procedure there followed cannot be availed of by the taxpayer in the instant case.
It should be pointed out that the pleadings make it clear that appellant is not complaining of an overvaluation of his property by the assessor, but of the inclusion in the assessment of property exempt from taxation. This is of considerable importance. "While in one sense it is true that almost any mistake which results in an excessive assessment amounts to an overvaluation of the property of a taxpayer, we think there is a real and distinct difference between those cases in which it may properly be said that the error is one of overvaluation and those cases in which the overvaluation is a mere incidental result of an erroneous assessment of property which should not have been assessed." Associated Oil Co. v. County of Orange, 4 Cal.App.2d 5, 9, 40 P.2d 887, 889. Appellant concedes that part of the assessment was valid, and complains only of that portion of the assessment which was levied on the property claimed by it to be an improvement, and therefore exempt. It was alleged in the complaint that, on the theory that the dirt fill constituted an improvement, "said Airport real property has been evaluated and appraised by defendant for taxation purposes as of said date to the extent of 588% more than the appraisement which would have been made by the defendants were the improvements by said fill not to be considered." Since the case is before us on demurrer, these allegations must be regarded as true. The effect of the demurrer was to concede that the assessment levied upon the property involved would not have been as great had the value of the dirt fill not been included.
For these reasons, it must be held that when a county, city and county or municipal corporation taxpayer contests the validity of an assessment levied upon property claimed exempt from taxation under Sec. 1, Art. XIII of the Constitution, it may pay the taxes under protest and bring suit to recover without first seeking review by the State Board of Equalization. Such a procedure is permitted by Secs. 5136-5143 of the Revenue and Taxation Code. The constitutional provision requires the taxpayer to seek review by the Board only when the assessed property is "not exempt from taxation". Thus, if appellant's position that the fill is an "improvement" is correct, it is exempt from taxation, and no purpose would be served by first proceeding before the Board.
The next question to be determined is whether the dirt fill constitutes an improvement within the meaning of Sec. 1, Art. XIII of the Constitution.
Both appellant and respondent have relied upon code definitions of the word "improvements," and definitions found in the cases. The definitions are not consistent, and vary according to the purposes of the statutes and the specific questions under consideration by the court or Legislature.
It is a fundamental principle of statutory and constitutional construction that "while ordinary words should be given their natural and ordinary meaning, they may be enlarged in order to effectuate the obvious purpose of the statute. * * * Similarly, where a word of common usage has more than one meaning, the one which will best attain the purposes of the statute should be adopted, even though the ordinary meaning of the word is thereby enlarged or restricted, and especially in order to avoid absurdity or to prevent injustice." Crawford, The Construction of Statutes, p. 318. Interpreting the very constitutional section before us, the Supreme Court of this state has said: "It is fundamental that the objective sought to be achieved by a statute as well as the evil to be prevented is of prime consideration in its interpretation." Rock Creek Water Dist. v. County of Calaveras, 29 Cal.2d 7, 9, 172 P.2d 863, 865.
Respondent argues that a dirt fill is not an improvement within the meaning of section 105(a) of the Revenue and Taxation Code, which declares that " 'Improvements' includes: (a) All buildings, structures, fixtures, and fences erected on or affixed to the land, except telephone and telegraph lines." Reliance is placed upon the case of San Pedro, L.A. & S.L.R. Co. v. Los Angeles, 180 Cal. 18, 179 P. 393, in which the court stated that a dirt fill was not an improvement within the meaning of that section. However, the court in that case was called upon to define the meaning of the word only as it was used in that particular code section. It was not called upon to define the word as it is used in the constitutional amendment involved in the case before us. That the word "improvements" as used in the constitutional amendment was intended to have a broader meaning from the same term as used in the statute is demonstrated when the object, purpose and history of the constitutional amendment is considered.
The object, purpose and history of the 1914 constitutional amendment have been considered by our courts on many occasions. City of Pasadena v. County of Los Angeles, 182 Cal. 171, 187 P. 418; City and County of San Francisco v. County of Alameda, 5 Cal.2d 243, 54 P.2d 462; City and County of San Francisco v. San Mateo County, 17 Cal.2d 814, 112 P.2d 595; Rock Creek Water Dist. v. County of Calaveras, 29 Cal.2d 7, 172 P.2d 863. In City and County of San Francisco v. San Mateo County, 17 Cal.2d 814, 818, 112 P.2d 595, 597, it was stated: "Prior to the amendment, the property of municipalities lying outside their corporate boundaries was exempt from taxation and that resulted in many instances in the county in which such property was situated losing large sources of revenue, a loss which it could ill afford. The aim of the amendment was to eliminate that condition." In Turlock Irr. Dist. v. White, 186 Cal. 183, at page 193, 198 P. 1060, at page 1064, 17 A.L.R. 72, the court stated: "The real purpose was to prevent abuses threatened and likely to recur from permitting private lands subject to taxation in one jurisdiction to be taken over for public uses by other communities, and, by depriving the territory in which the lands are situated of the revenue from this taxation, thus throw [sic] part of the burden of such public use upon territory not benefited by it."
Although, as a matter of policy, a strong argument might be made in favor of treating cities and counties who own property outside their boundaries in the same manner as private land owners for tax purposes, it is clear that the 1914 amendment did not make this equalization. The amendment specifically provides "that no improvements of any character whatever constructed by any county, city and county or municipal corporation shall be subject to taxation." (Italics added.) The intent of the amendment, which was obviously the result of a compromise between those counties seeking to acquire land outside their own boundaries and those counties in which such land was situated, was to allow the acquired land to remain on the tax rolls at the value it bore at the time of acquisition. Of course, in assessing the value of the property, the county in which it was situated might take into consideration, and benefit from, any natural rise in land values, but an increased value brought about by improvements made by the acquiring city or county could not be taxed by the assessing county.
That this was the purpose of the amendment is made clear by reference to the argument presented to the voters on its submission. Not only is it established that the court may look to the argument presented to the voters in determining the intention of the framers of the measure, Carter v. Comm. of Qualifications etc., 14 Cal.2d 179, 185, 93 P.2d 140; Abrams v. City and County of San Francisco, 48 Cal.App.2d 1, 7, 119 P.2d 197; Ducey v. Dambacher, 27 Cal.App.2d 658, 662, 81 P.2d 597, but it is significant that the courts have frequently resorted to the argument presented to the voters in construing the very amendment here under consideration. Turlock Irr. Dist. v. White, 186 Cal. 183, 184, 198 P. 1060, 17 A.L.R. 72; City and County of San Francisco v. County of Alameda, 5 Cal.2d 243, 246, 54 P.2d 462; City and County of San Francisco v. San Mateo County, 17 Cal.2d 814, 818, 112 P.2d 595.
The argument states: "This amendment does not seek to hinder in any way the development of enterprises by and for the benefit of counties or municipalities, in any part of the state, but to protect from loss those counties into which they may enter for such purposes. * * *
"The proposed amendment does not penalize improvements that the invading corporation may make. On the contrary, it expressly limits taxation to the property as acquired and excludes any improvements thereafter made."
The argument then stated that, under the then existing law, "It would be possible for an acquiring city or county to virtually destroy the government of a small county by acquiring, for one purpose or another, for municipal use, the substance of its revenue yielding property. * * *
"It is to remedy such a condition that this amendment was proposed. Uncertainty on the matter should be removed by a legal assurance that while natural resources within one county may be directly used for the upbuilding of another, lands or other property already upon the invaded county's tax roll shall continue to bear its share of maintaining the local government."
From the background of the 1914 amendment, it is apparent that its purpose was to protect the tax rolls of invaded counties from the loss of taxable properties. City and County of San Francisco v. San Mateo County, 17 Cal.2d 814, 818, 112 P.2d 595. On the other hand, the invaded county was not to be allowed to assess the increased value of such properties when such increase came solely from expenditures made by the acquiring county. The status quo of the value of the property at the time of acquisition was to be maintained, save for an appreciation in value not arising from the expenditures made by the acquiring county or municipality. Thus, in City and County of San Francisco v. San Mateo County, supra, it was held that where San Francisco replaced a wooden flume which had been in existence at the time of the acquisition of land, with a concrete lined canal, and San Francisco claimed that the canal was not taxable, as it constituted a new improvement within the meaning of the constitutional section, San Mateo could properly assess the value of the canal, but "The assessed valuation upon which the tax levy was based was the same as that fixed when the Spring Valley Water Company owned the wooden flume." 17 Cal.2d at page 816, 112 P.2d at page 596. In other words, the property taxed was the old replaced wooden flume, not the new concrete lined canal constructed by the acquiring city.
The legislative history of the amendment reveals that the clause which provides "that no improvements of any character whatever constructed by any county, city and county or municipal corporation shall be subject to taxation", properly interpreted is equivalent to "no increase in value, attributable solely to expenditures made by the acquiring county, city and county, or municipal corporation shall be subject to taxation." Under this construction, the dirt fill constituted an improvement within the meaning of Sec. 1, Art. XIII of the Constitution, and is therefore not subject to taxation by San Mateo County.
The last contention of appellant is that, since part of the assessment is valid, and part is void, the entire assessment must be declared illegal. It should be mentioned that this contention is contrary to the theory of the complaint, and was not raised by appellant in its opening or reply briefs. The point was first mentioned at the oral argument, and later referred to indirectly in a supplemental brief filed after the oral argument. In any event, the point is without merit.
The principal case relied upon by appellant is San Pedro, L.A. & S.L.R. Co. v. Los Angeles, 180 Cal. 18, 179 P. 393. In that case a dirt fill, held not to be an "improvement" within the meaning of section 3617 of the Political Code, and a breakwater, held to be an "improvement," were assessed together. The court stated 180 Cal. at page 27, 179 P. at page 397: "It conclusively appears that the breakwater was not separately assessed, but included in the assessment with the fill with which unlawful assessment it is indivisible. Therefore, conceding the breakwater to be assessable, the assessment thereof, as shown by the record, is so blended with the assessment of the fill that it renders the entire assessment void. [Citing cases.] 'If the different parts, lawful and unlawful, are blended together in one indivisible assessment, it makes the entire assessment illegal.' State of California v. Central Pacific R. Co., 127 U.S. 1, 8 S.Ct. 1073, 32 L.Ed. 150." See, also, Teater v. Johnson, 95 Cal.App. 182, 272 P. 313, where the court held that an invalid assessment on two lots which were part of a quarter-section of land was so blended with the valid assessment as to render void the entire assessment; to the same effect see Santa Clara County v. Southern Pac. Railroad, 118 U.S. 394, 416, 6 S.Ct. 1132, 30 L.Ed. 118.
In all of the above cases the reason for holding the entire assessment void was that the valid and invalid portions of the assessment were inseparable. Here we are not confronted with that problem. Appellant has alleged that, due to the invalid portion of the assessment, its property has been appraised "to the extent of 588% more than the appraisement" which was proper, and the effect of respondent's demurrer was to admit the truth of this allegation. Therefore, by a simple mathematical computation the correct appraisal value can be determined, and there is no need for invalidating the entire assessment.
A further ground for upholding the assessment on that part of the property which is not exempt is found in section 5141 of the Revenue and Taxation Code. This section was enacted in 1941, Stats. 1941, chap. 663, § 2, p. 2113, and was not in existence at the time the cases relied upon by appellant were decided. The section provides that: "If the court finds that the assessment complained of is void in whole or in part, it shall render judgment for the plaintiff for the amount of the taxes paid on so much of the assessment as is found to be void. * * * The taxes paid on so much of the assessment as is not found to be void shall constitute valid taxes * *." The section indicates the clear intention of the Legislature to be that when the void portion of an assessment can be separated from the valid portion, so much of the assessment as is valid should be upheld.
The judgment is reversed.
WARD and BRAY, JJ., concur.