Issue
In Community Development Commission of the City of Oxnard v. County of Ventura, (— Cal.Rptr.3d —, 2007 WL 1933972, Cal.App. 5 Dist., July 5, 2007), a California Court of Appeal considered the issue of whether escape assessments should be included when computing the tax increment that is used to determine the funding for redevelopment agencies. The Court of Appeal concluded that “escape assessments must be included in the tax increment calculation.”
Facts
The Community Development Commission of the City of Oxnard (“CDC”) was developed under the California Redevelopment Law and all of its redevelopment areas are within the County of Ventura (“County”). The City of Oxnard adopted several redevelopment plans including the Historic Enhancement and Revitalization of Oxnard Redevelopment Plan. A power plant is in the plan area and in existence for several years prior to the fiscal year that began on July 1, 2000, and ended on June 30, 2001. The assessor’s office inadvertently failed to assign any value to the power plant’s fixtures by July 1, 2000, despite the fact that the fixtures had been valued in previous years. Assessments were only made for the land and improvements which resulted in an assessed value of $704,128 and a total tax of $9,203.10. On August 20, 2000, the equalized assessment roll was created.
The failure to assess the power plant’s fixtures was later discovered and on February 14, 2001, the assessor’s office transmitted an assessment roll change to correct the prior omission of the fixtures. An escape assessment valued the fixtures at the power plant at $43,074,200, which resulted in a tax increase of $509,763.27. CDC asked the county auditor to adjust its tax increment to include the missing assessment on the fixtures. The auditor refused to make such an adjustment.
CDC filed a lawsuit asking the trial court to direct the County to distribute the tax increment. The trial court entered a judgment in favor of the County.
Decision
The Court of Appeal found that the trial court erred in granting judgment in favor of the County. It held that the controlling California “statutes require inclusion of all tax revenue, including escape assessments, in computing the tax increment.
The Revenue and Taxation Code requires that a county assessor must assess all property that is subject to general property taxation at the property’s full value on January 1 of each year. A lien attaches for the yearly assessment “on the first day of January preceding the fiscal year for which the taxes are levied.” Although the county assessor assesses all real property within a county, the initial valuation of business property is taken from the business property statement that has been prepared by the taxpayer. After a property is assessed, it is then listed on the assessment rolls. A property owner must appeal to the county board of equalization to dispute the assessment placed on his or her property, but must do so before September 15. The county board of equalization then meets to decide whether individual assessments should be adjusted. “Equalization” is the adjusting of “the value of the property assessed to conform to its real value.” After any needed changes are made to the assessment roll, it becomes the “equalized assessment roll.”
An “escape assessment” is “an assessment that is made because the property in question was not assessed during the initial assessment period.” Escape assessments will not be reflected in the equalized assessment roll. Revenue and Taxation Code section 531 provides, “If property has been either underassessed or unassessed, ‘the assessor shall assess the property . . . at its value on the lien date for the year which it escaped assessment. It shall be subject to the tax rate in effect in the year of its escape.'” Escape assessments must be treated the same as other property that was “regularly assessed on the roll on which it is entered.”
Redevelopment agencies do not have the power to assess taxes so a system has been devised to divide tax revenue between the redevelopment agency and other government entities that otherwise would receive the funds. This system, known as tax increment, “is based on the theory that the assessed value of the property in the redevelopment district will increase as a result of the redevelopment project.” After a redevelopment project is approved, if there is an increase in the assessed valuation of taxable property, “the taxes levied on such property in the project area are divided between the taxing agency and the redevelopment agency.” The taxing agency still receives the same amount of money that it would have realized but for the project, but “the additional money resulting from the rise in assessed valuation is placed in a special fund for repayment of indebtedness incurred in financing the project.”
In order to determine a tax increment, “a base year assessed value of all of the taxable property within the redevelopment project area” must be established. The base year is “‘the assessed value of the taxable property in the redevelopment project as shown upon the assessment roll used in connection with the taxation of that property by the taxing agency, last equalized prior to the effective date of the ordinance’ that approved the redevelopment plan.”
Health and Safety Code section 33670, subdivision (b) provides, in part, the following: the “portion of the levied taxes each year in excess of [the taxes levied on the base year assessment] shall be allocated to and when collected shall be paid into a special fund of the redevelopment agency to pay the principal of and interest on loans.” The CDC asserted that this section requires that the tax increment should be based on the taxes that are both assessed and collected for the property within the redevelopment district and should include any escape assessments or any other changes to the equalized assessment rolls. The County argued that “the tax increment be calculated on the equalized assessment roll without adjustment for any changes, either positive or negative, that may occur after August 20 (the date on which the assessor’s roll is equalized.”)
The court rejected the County’s argument. Subdivision (b) “does not refer to the equalized assessment roll,” and requires that the redevelopment agency “receive the benefit of ‘that portion of the levied taxes’ in excess of the taxes attributable to the base year.” Under the plain meaning of subdivision (b), “the Legislature intended to include in the tax increment calculation all tax revenues generated from the property in the redevelopment area.”
Furthermore, hostility can exist between redevelopment agencies and counties over revenues. The court stated, “While the parties agree the mistake in this case was innocent, one could easily imagine a situation where an auditor’s mistake is not so perceived by an agency or the public.” It went on to opine that “mistakes, no matter how innocent, should not accrue to the detriment of the redevelopment agency.”
Accordingly, the court concluded “that escape assessments must be in the tax increment calculation.” It reversed the decision of the trial court granting judgment in favor of the County and ordered the trial court to enter a judgment that requires the County to include escape assessments in the calculation of the tax increment due to CDC.