L. A. Leadership Acad., Inc. v. Prang

46 Cal.App.5th 270

259 Cal.Rptr.3d 680

LOS ANGELES LEADERSHIP ACADEMY, INC., et al., Plaintiffs and Appellants,

v.Jeffrey PRANG, as Assessor, etc., et al., Defendants and Respondents.

B292613

Court of Appeal, Second District, Division 8, California.

Filed March 10, 2020

Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow, Thomas R. Freeman, A. Howard Matz, Hernan D. Vera and Fanxi Wang, Los Angeles, for Plaintiffs and Appellants.

Charter Schools Legal Defense Fund, Julie Ashby Umansky, for California Charter Schools Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Glaser Weil Fink Howard Avchen & Shapiro, Joel N. Klevens, Los Angeles; Mary C. Wickham, County Counsel, Nicole Davis Tinkham and Justin Y. Kim, Deputy County Counsel, for Defendants and Respondents.

GRIMES, J.

SUMMARY

Los Angeles Leadership Academy, Inc. is a nonprofit charter school that operates on property owned by two related nonprofit public benefit corporations. The three entities sued the Assessor of the County of Los Angeles and others for a refund of property taxes and special assessments, and for declaratory relief that they have no obligation to pay such taxes and assessments so long as the properties are held for the benefit of the school and its operation.

According to plaintiffs, the threshold question on this appeal is whether a nonprofit charter school should be treated as a public school district for purposes of applying the implied exemption, which they contend exempts public schools from having to pay both taxes and special assessments. Under the implied exemption doctrine, school districts are exempt from having to pay special assessments on properties used for public school purposes. The California Constitution expressly exempts public schools from having to pay taxes , and the courts have found public schools are impliedly exempt from having to pay special assessments . But there is no such thing as an implied exemption from taxation.

The trial court rejected plaintiffs’ claims and entered judgment for defendants after a court trial. We find no support in statutory or case law for plaintiffs’ implied exemption claim. Plaintiffs cannot establish that charter schools are public entities for purposes of exemption from taxation. Plaintiffs’ policy arguments to the contrary—that charter schools should be treated like public entities because monies taken for taxes and special assessments reduce monies available for educating students, and put charter schools at a competitive disadvantage with other public schools—are properly addressed to the Legislature, not to this court.

The judgment is affirmed.

FACTUAL AND LEGAL BACKGROUND

We begin with pertinent legal principles and facts that illuminate our conclusions.

1. Background Legal Principles

Property owned by the state or a local government is exempt from taxation under the California Constitution. ( Cal. Const., art. XIII, § 3, subds. (a) & (b).) That includes, of course, property owned by a school district. ( San Marcos Water Dist. v. San Marcos Unified School Dist. (1986) 42 Cal.3d 154, 160-161, 228 Cal.Rptr. 47, 720 P.2d 935 ( San Marcos ) [the state Constitution "provides that property owned by public entities such as the school district is exempt from property taxation"].)

Taxes and special assessments are two different things. " ‘[T]axes ... are levied for general revenue and for general public improvements; and special assessments ... are levied for local improvements which directly benefit specific real property.’ " ( San Marcos, supra, 42 Cal.3d at p. 162, 228 Cal.Rptr. 47, 720 P.2d 935.)

Publicly owned and used property " ‘is not exempt from special assessments under the constitution or statutory law of this state.’ " ( San Marcos, supra, 42 Cal.3d at p. 161, 228 Cal.Rptr. 47, 720 P.2d 935.) There is, however, " ‘an implied exemption’ " of publicly owned and used property from special assessments. ( Ibid. ) " ‘The principle which makes property of the state ... nontaxable ... also precludes the imposition of a special assessment for a street or other local improvement upon such property, unless there is a positive legislative authority therefor.’ " ( Ibid. , quoting Inglewood v. County of Los Angeles (1929) 207 Cal. 697, 703-704, 280 P. 360 ( Inglewood ); Regents of the University of California v. East Bay Municipal Utility Dist. (2005) 130 Cal.App.4th 1361, 1368, 31 Cal.Rptr.3d 278 ( East Bay ) ["From that constitutional exemption, California courts have implied a further exemption of such property from special assessments, absent legislative authorization."].) "The rationale behind a public entity’s exemption from property taxes and special assessments is to prevent one tax-supported entity from siphoning tax money from another such entity; the end result of such a process could be unnecessary administrative costs and no actual gain in tax revenues." ( San Marcos, at p. 161, 228 Cal.Rptr. 47, 720 P.2d 935.)

2. Factual Background

It is undisputed that plaintiffs’ property is exempt from taxation under the constitutional provision that exempts property used exclusively for public schools ( Cal. Const., art. XIII, § 3, subd. (d)). This exemption, however, does not apply to the pre-occupancy property taxes and special assessments that plaintiffs seek to recover.

It is unnecessary to dwell at length on the facts that led to this litigation. The Academy is a nonprofit public benefit corporation that operates two charter schools in the Lincoln Heights neighborhood. It recruits students from communities with high concentrations of families living below the poverty line.

The Academy’s schools are located on properties owned by two other nonprofit public benefit corporations (2670 Griffin Education Center, Inc. and Florence Crittenton Center, Inc.). The Academy describes itself as the beneficial owner of the properties; the ownership structure was necessary so that the Academy would remain eligible for significant subsidies available for charter schools that rent the facilities in which they operate. (Ownership of the properties was an issue at trial, but our resolution of the appeal makes it unnecessary to consider the parties’ contentions on this point.)

In March 2015, plaintiffs sought a refund of $222,942.10 in property taxes and special assessments.¹ In May 2015, the assessor denied the claim. Plaintiffs then filed this lawsuit seeking the refund, and also seeking a declaration that defendants may not assess or collect any taxes from the Academy that are not assessed or collected from traditional public schools.

As stated at the outset, the trial court found charter schools are not public entities for purposes of exemption from taxation. The court entered a final judgment on July 26, 2018, and plaintiffs filed a timely appeal.²

DISCUSSION

The substance of plaintiffs’ argument is that since a charter school is deemed to be a "school district" for specific funding laws ( Ed. Code, § 47612, subd. (c) ), so too it must be treated as a school district entitled to the implied exemption from taxation.

In addition to plaintiffs’ misconception of the implied exemption principle, their claim has no statutory support and no support in case law either. And no legislative history is offered to suggest the Legislature intended, without saying so, to treat charter schools like school districts or other public entities for taxation purposes.

Charter schools and school districts are treated differently in many ways, some of them with substantial financial ramifications. Plaintiffs’ arguments are quintessentially policy arguments, and should be directed to the Legislature.

1. The Charter Schools Act

We begin with background on the Charter Schools Act (CSA, Ed. Code, § 47600 et seq. ). Justice Baxter described the statute in Wells v. One2One Learning Foundation (2006) 39 Cal.4th 1164, 48 Cal.Rptr.3d 108, 141 P.3d 225 ( Wells ). The CSA "is intended to allow ‘teachers, parents, pupils, and community members to establish ... schools that operate independently from the existing school district structure.’ ( Ed. Code, § 47601.) By this means, the CSA seeks to expand learning opportunities, encourage innovative teaching methods, provide expanded public educational choice, and promote educational competition and accountability within the public school system. [Citation.] [¶] If statutory requirements are met, public school authorities must grant the petition of interested persons for a charter to operate such a school within a public school district." ( Wells, at p. 1186, 48 Cal.Rptr.3d 108, 141 P.3d 225.)

"For certain purposes, the [charter] school is ‘deemed to be a "school district" ’ [citation], is ‘part of the Public School system’ [citation], falls under the ‘jurisdiction’ of that system, and is subject to the ‘exclusive control’ of public school officers [citations]." ( Wells, supra, 39 Cal.4th at p. 1186, 48 Cal.Rptr.3d 108, 141 P.3d 225.) "A charter school must operate under the terms of its charter, and must comply with the CSA and other specified laws, but is otherwise exempt from the laws governing school districts." ( Ibid., citing Ed. Code, § 47610.)

"A charter school may elect to operate as, or be operated by, a nonprofit corporation organized under the Nonprofit Public Benefit Corporation Law." ( Wells, at p. 1186, 48 Cal.Rptr.3d 108, 141 P.3d 225.) "A charter school is eligible for its share of state and local public education funds, which share is calculated primarily, as with all public schools, on the basis of its [average daily attendance]." ( Ibid. )

In addition, Justice Baxter described the relationship between charter school operators and their chartering districts. That description is pertinent here. "Though charter schools are deemed part of the system of public schools for purposes of academics and state funding eligibility, and are subject to some oversight by public school officials [citation], the charter schools here are operated , not by the public...