The California state consitution doesn’t stop counties from taxing property owned by utilities at rates higher than other kinds of property, a state appeals panel has ruled.
On Jan. 6, a three-justice panel of the California Sixth District Court of Appeals ruled in favor of Santa Clara County in a dispute with AT&T, Sprint and T-Mobile over the company’s request for a refund for property taxes they paid from 2014-2016.
The wireless service providers had sued in 2020 after the county had denied their request for refunds.
The companies had asserted Santa Clara County had violated state law and the California state constitution when it charged them higher debt service component tax rates on their property within the county than it had charged to all other kinds of property.
Debt service tax rates are set over and above a maximum 1 percent general levy, and is used by the county to pay principal and interest on bonds or other debt approved by voters.
The companies filed separate lawsuits. They noted that, while the county charged tax rates to other forms of property at 0.202 percent, utility property was taxed at rates of 1.04 percent in 2014-2015 and 1.092 percent in 2015-2016.
AT&T said the county owed them more than $10 million in refunds for those years; Sprint sought refunds of more than $1.3 million; and T-Mobile claimed more than $1 million in refunds.
The county disputed the companies’ claims, asserting the companies’ refund requests were based on a faulty understanding of the state constitution.
Specifically, the dispute centers on Article XIII, Section 19, of the state constitution, which states that property which is assessed for taxation by the state “shall be subject to taxation to the same extent and in the same manner as other property.” This includes infrastructure such as pipelines, canals and property owned and used by railroads or telecommunications companies, among others.
The companies asserted the California state Supreme Court had ruled in 1985 that provision requires utility company-owned land should be taxed at the same rate as other property.
The county, however, said the clause should actually be interpreted to allow the county to tax the land “to capture its full value as a statewide unit.”
The justices disagreed with the companies’ interpretation, saying they improperly read “to the same extent” to mean “at the same rate.”
The justices said the actual intent of voters and of state lawmakers appears to differ from the utilities’ interpretation of the provision, based on legislative history and other sources.
“Viewed in light of this legislative history, the language ‘to the same extent as’ in Article XIII, Section 19 appears to mean that, after such utility property is assessed by the (State Board of Equalization), it shall be subject to ad valorem taxation at its full market value, rather than via the previous method of gross receipts in-lieu taxation that failed to capture its full value adequately and contributed to the local tax burden,” the justices said.
“Similarly, the language ‘in the same manner as’ appears to mean that, after the utility property is assessed by the SBOE, it shall be subject to taxation by the local jurisdictions just as other property is, rather than by the state, as it had been previously.”
The decision was authored by Justice Charles E. Wilson; Justices Mary J. Greenwood and Allison M. Danner concurred.
The utilities were represented by attorneys Rex S. Heinke and Jessica M. Weisel, of California Appellate Law Group, of San Francisco; Martha A. Boersch and Matthew C. Dirkes, of Boersch & Illovsky, of Oakland; and Eric J. Miethke, of Capitol Law & Policy, of Sacramento.
Santa Clara County was represented by attorney James R. Williams, and others with its Office of the County Counsel.