A county assessor erred when it valued the mobilehome spaces in a mobilehome park, underlying a mobilehome, by subtracting the value of the mobilehome from the purchase price of the mobilehome, as established by a valuation manual. The court of appeal held, in a 2-1 decision, that the proper method of valuation was contained in a statute that requires valuation to be based on a pro rata portion of the real property of the mobilehome park. (Assessor for County of Santa Barbara v. Assessment Appeals Board No. 1, (— Cal.Rptr.3d —-, Cal.App. 2 Dist., May 16, 2012).
Rancho Goleta Park (“RGP”) and Silver Sands Village Park (“SSVP”) are mobilehome parks that were formerly owned by for-profit corporations, but were purchased by tenants who formed non-profit corporations to purchase the parks. Each resident that so desired purchased a membership in the non-profit corporation, which conveyed an undivided interest in one of the parks but did not give the purchaser a right to occupy a specific space within a park. The right to occupy a specific space was conveyed through a lease between the mobilehome owner and the corporation. The rent for each individual space was based on a share of the park’s operating expense. RGP has 200 spaces and cost $9.4 million to purchase in 1992. SSVP has 80 spaces and cost $1.5 million to purchase in 1998.
California’s taxation system provides the sale of real property accompanied by a change or transfer of ownership constitutes a taxable event that triggers a change of assessment. As a general rule, the value of real property for a change of assessment is determined by the “full cash price” or “fair market value” of the property. When it came time in 2001 to reassess the transfer of ownership for RGP and SSVP, the Assessor for Santa Barbara County (“Assessor”) relied on a letter opinion of the State Board of Equalization (“SBE”) to arrive at the value of the space underlying a mobilehome by subtracting the value of the mobilehome from the mobilehome’s purchase price as established by an authorized valuation manual.
RGP and SSVP appealed the reassessments to the Assessment Appeals Board No. 1 (“Board”) asserting that Assessor erred when it failed to value the underlying spaces by the method set out in Revenue and Taxation Code section 62.1, subdivision (c)(2), which requires that the value of a space underlying a mobilehome in their tenant-owned parks be calculated on a “pro-rata” portion of the fair market value of the entire mobilehome park. The Board concluded the Assessor used the wrong method to reassess the underlying spaces and instead should have applied the method set out in section 62.1(c). The Assessor filed a petition for writ of mandate. The trial court upheld the Board’s decision.
Pursuant to section 62.1, subdivision (a), the transfer of ownership to a tenant-owned non-profit corporation is a nontaxable event and a change of assessment is not triggered until a subsequent sale of an individual mobilehome. A mobilehome, which is personal property, is assessed separately from the space underlying it, which is deemed real property.
Section 62.1(c)(1) provides that a transfer of an ownership interest or stock in a mobilehome park is a change of ownership of a pro rata portion of the real property in the park if the park has previously been transferred to a non-profit corporation formed by the park’s tenants but has not been converted to a condominium or stock or limited equity cooperative ownership. A “pro rata portion of the real property” is defined by section 62.1(c)(2) as “the total real property of the mobilehome park multiplied by a fraction consisting of the number of shares of voting stock, or other ownership interests, transferred divided by the total number of outstanding issued or unissued shares of voting stock of, or other ownership or membership interests in, the entity which acquired the park.”
The Assessor assessed the underlying spaces based on the “extraction method” as set out by the SBE, which “computes the value of the underlying space by subtracting the fair market value of the mobilehome from the actual purchase price of the mobilehome.” The Assessor argued that section 62.1, subdivision (c) does not provide a method for valuing the underlying space but instead provides a means for valuing the ownership interest in the corporation.
The court concluded it was not required to give great weight to SBE’s interpretation of how the underlying space should be valued and that SBE’s administrative interpretation is not controlling. SBE’s method of valuation was not a longstanding interpretation of a statute but was instead formulated over 10 years after section 62.1(c) went into effect.
The Board’s interpretation of section 62.1(c) was consistent with the well-established meaning of the term “pro rata.” The court concluded, “The plain meaning of the statute and its legislative history support the Board’s determination that the value of a space underlying a mobilehome in a resident owned mobilehome park must be based on a fractionalized interest of the mobilehome park.” The Assessor’s interpretation disregards the ordinary meaning of term “pro rata.” “If the Legislature had intended to tax the spaces underlying mobilehomes in resident-owned parks in the same manner as other types of common interest developments, it would not have been necessary to adopt a separate statute” to instruct how reassessments should be conducted. Had the Legislature “intended to treat resident owned mobilehome parks in a manner similar to condominiums, stock cooperatives, and subdivided mobilehome parks, it could have amended section 65.1 to include them.”
SBE regulations provide three methods for valuing real property—the comparable sales approach, the cost approach, and the income approach. Here, the parks’ expert appraiser applied the comparable sales approach and the income approach, which “is based on an estimated net income stream that the subject property is likely to produce for an investor during the probable remaining economic life of the subject property.” The appraiser concluded the income approach yielded a value of $13.2 million for RGP and the comparable sales approach yielded a value of $12.7 million. The appraiser concluded the income approach yielded a value of $2.2 million for SSVP for one period and $2.25 million for a second period and, under both approaches, $3.4 million for a second period. The Assessor’s appraisers used the extraction method and concluded the fair market value of RGP was $39,800,500 and SSVP was $15,575,000.
The Board accepted the conclusion of the parks’ appraiser and concluded that the appraiser properly relied on the income approach. Use of the income approach is not precluded when the subject property is not currently earning income. It is the future income stream that is relevant. The use of a single appraisal date was also proper because “[t]o require that a park be appraised anew each time a mobilehome is sold would be impractical, costly, and unnecessary.”
The court concluded the Board applied the correct valuation method and that the Board’s findings are supported by substantial evidence. Accordingly, the court affirmed the judgment of the trial court, which affirmed the decision of the Board.
One justice from the appellate panel dissented from the majority opinion. The dissenting justice noted that the California Constitution requires that when there is a change in ownership, real property must be assessed at its “full cash value” or “fair market value.” “The purchase price paid for real property in an arms’ length transaction is rebuttably presumed to be its full market value or full cash value.” The dissent claims that assessment of the full cash value or fair market value “of real property must be based on the ‘appraisal unit that persons in the marketplace commonly buy and sell as a unit.’” The dissent claims the majority opinion is at odds with constitutional and statutory principles.
The dissenting justice opines that the court should give deference to SBE’s approach because of its expertise. The minority opinion states that the opinion of the majority “approves a ‘one-size fits all’ valuation method that ignores the reality of the marketplace.” The majority’s approach would result in assessing an ocean view unit the same as a unit in the interior portion of a park. The dissenting justice states that “section 62.1 establishes the formula for determining what portion of a mobile home park’s real property is subject to a separate assessment after a resident transfers his or her membership in the park.” If there are 200 spaces, a sale by one resident does not require a reassessment of the entire park but instead triggers a reassessment of 1/200th of the park.
Although section 62.1 does not state how the membership interest should be valued, the SBE answered that question in a way that corresponds to the behavior of actual sellers and buyers in the market for mobilehomes. Even if the literal definition of “pro rata” in section 62.1(c) supports the majority opinion, the dissenting justice contends that it is at odds with the California Constitution and a statute may not trump a constitutional provision.
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