Greenspan v. Cty. of L.A.

APPEAL from a judgment of the Superior Court of Los Angeles County, David Sotelo, Judge. Reversed and remanded, with directions. (Los Angeles County Super. Ct. No.19STCP03626)

Westland Real Estate Group, Asher B. Fried, and Bashir Eustache, for Plaintiffs and Appellants.

Dawyn R. Harrison, County Counsel, and Drew M. Taylor, Deputy County Counsel, for Defendants and Respondents.

MORI, J.

Proposition 13, adopted by voters in 1978, amended California’s Constitution to limit real property taxes to 1 percent of a property’s base-year value, with an annual 2 percent cap for inflation. A property’s base-year value may be reestablished only upon purchase, new construction, or a change in ownership. In addition, the assessed value of the property must be allocated between land and improvements.

In April 2014, appellants Yaakov and Sarah Greenspan purchased a 2,400-square-foot home in Long Beach for $900,000. The County of Los Angeles (County) appraised the property with a new base-year value of $900,000, allocating $540,000 to the land and $360,000 to the improvements. In 2016, the Greenspans demolished the original residence, except

the garage, and built a new single-family home on the property.

Under Revenue and Taxation Code sections 51 and 75.10,¹ the value of any structure removed by a homeowner is to be deducted from the prior base-year value. Once new construction is completed, the value of the new construction is appraised and assigned a new base-year value going forward, which is then added to the existing base-year value allocated to the land.

This is not what occurred in this case. Instead, the Los Angeles County Assessor (Assessor) took the value of the structure demolished ($320,000) and reallocated that entire amount to the land portion of the purchase price, leaving a $40,000 "credit" for the remaining garage. This resulted in a new allocation of the original purchase price of $860,000 to land and $40,000 to improvements. The Assessor then separately appraised the value of the new construction at $1,183,130 and added this amount to the reallocated land and improvements.

The County’s justification for the failure to give the Greenspans credit for the demolished residence was a policy allowing an assessor to reallocate to land any portion of the property substantially renovated within two years of the purchase date on the assumption the owner purchased the property for land value alone. The County argues that it can do this because section 51.5 allows for the correction of any errors or omissions made in the original determination of the base-year value.

The Greenspans filed separate applications to the Los Angeles County Assessment Appeals Board (Board) challenging (1) the County’s reallocation of their original purchase to primarily land as a practice contrary to statutory law, and (2) the County’s valuation of their new construction as excessive. After prevailing on their new construction challenge, the Greenspans filed suit against the County in superior court challenging the Board’s denial of their reallocation appeal and seeking repayment for any taxes overpaid. The trial court denied relief and entered judgment in favor of the County. On appeal, the Greenspans contend, and we agree, that the County’s reallocation of their base-year land and improvement value was contrary to statutory law. The Assessor’s automatic reallocation of the base-year value for the entire structure removed (with "credit" for the remaining garage) cannot be squared with sections 51 and 75.10, which command that a property owner receive a reduction in previously assessed base values for portions of any property removed. To the extent section 51.5 allows for error correction, that statute was enacted with an extensive legislative declaration stating any such corrections must be consistent with Proposition 13 and existing statutory valuation standards. In light of this statutory scheme, the Board’s denial of the Greenspans’ allocation appeal was legal error subject to our judicial correction.

We therefore reverse the trial court’s judgment and direct the trial court to enter a new judgment vacating the decision of the Board and remanding the matter for further proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Framework for Tax Refunds

[1] When a taxpayer seeks to challenge the assessment of its property, it

may petition the Board for a reduction. (Fisher v. County of Orange (2022) 82 Cal.App.5th 39, 51, 297 Cal.Rptr.3d 113 (Fisher).) "‘Although a local assessment appeals board decision arises from an administrative hearing process, the mechanism for seeking judicial review of the decision is "‘significantly different from that of other administrative agency decisions. Ordinarily, the aggrieved taxpayer’s remedy is not to seek administrative mandate pursuant to Code of Civil Procedure section 1094.5, but to pay the tax and file suit in superior court for a refund.""" (Ibid.; accord, William Jefferson & Co., Inc. v. Orange County Assessment Appeals Bd. No. 2 (2014) 228 Cal.App.4th 1, 10–11, 174 Cal.Rptr.3d 642 (William Jefferson).)

B. Property Purchase and Initial Assessment in 2014

On March 20, 2014, the Greenspans purchased a home on Locust Avenue in Long Beach, California for $900,000.² The change in ownership triggered a reassessment of the property. The Assessor appraised the property with a new base-year value (i.e., total taxable value) of $900,000, the purchase price, and allocated that value as follows: $540,000 for the land and $360,000 for the improvements on the property.

In February 2016, the Greenspans started a substantial renovation of their property, which was completed on December 28, 2016. The Greenspans assert that they initially did not intend to remove the original residence but found it was necessary to do so once renovation was underway. They ultimately demolished the original residence, except the garage, and built a new single-family residence on the property.

C. Reallocation of 2014 Base-Year Values

In 2017, based on the Greenspans’ demolition of the original residence, the Assessor modified the 2014 base-year value of the property, allocating more of the purchase price to the land than to the improvements that were on it. While the improvements were initially assessed at $360,000, the Assessor reduced that to $40,000 in recognition that only the original garage remained. This resulted in a base-year land value of $860,000, with $40,000 in remaining improvements.

The County then issued "an adjusted property tax bill" for the 2016–2017 roll year. Prior to the adjustment, the 2016–2017 base value for the property was a total of $931,979, with an allocation of $559,188 to land and $372,791 to improve- ments.³ After modification, the total value was $931,980, with $890,559 allocated to land and $41,421 allocated to improvements.⁴

In an email exchange with the Assessor’s office, the Greenspans asked why they did not "get credit for the old house." The Appraiser responded, "[W]e look at when you purchased the property and when you requested the permit to demolish. The purchased [sic] date we have is [April 29, 2014,] and the permit to demolish the property was requested on [Janu-

ary 19, 2016,] and the permit to build was requested on [February 5, 2016]. Unfortunately it did not go beyond the two years," After the Greenspans asked the County’s appraiser "to send … the code that references the [two-year] requirement," he responded that "[t]he [Revenue and Tax] code that allows us to reallocate the value from the improvement to land can be found on the [Board of Equalization] website … section 51.5b." He added, "[T]o be exact[,] the portion of the garage that was not demolished was given as credit."

D. Appraisal of the Newly Constructed Residence

In 2017, the Assessor also appraised the new residence the Greenspans constructed and issued a "supplemental property tax bill" for the 2016–2017 roll year. The notice reflected a "net assessed value" of $1,183,130 due to the "completion of new construction occurring [December 28, 2016]." The Assessor valued the new construction at $1,183,130, estimating the costs of the various improvements added to the property by the new construction. This amount was then added to the previously reallocated land value of $890,559 and improvements of $41,421, for a total sum value of $2,115,110.

E. The Appeal Before the Board

The Greenspans separately appealed (1) the Assessor’s modification of the initial base-year allocations between land and improvements, and (2) the supplemental assessment of the new construction completed on December 28, 2016. The Greenspans argued (1) the method used by the County in 2017 to retroactively reallocate the 2014 value of their original purchase between the land and improvements was based on an improper presumption and contrary to statutory law, and (2) the value the County assigned to their newly renovated home was excessive.

In their applications, the Greenspans set out their challenges to the valuation numbers as follows:

At an initial hearing on January 31, 2018, a Los Angeles County Assessment Hearing Officer agreed with the Greenspans’ position in both appeals. The hearing officer recommended to the Board that the value of the property be allocated between the land and improvements according to the values the Greenspans assigned to them in their applications for relief.

The Assessor rebutted the hearing officer’s...