County Board of Equalization v. State Tax Commission Ex Rel. Sunkist Service Co.

STEWART, Justice:

This case is here on a petition filed by the Salt Lake County Board of Equalization to review an order of the Utah State Tax Commission which held that real property belonging to Sunkist Service Company was not subject to reassessment by Salt Lake County as an “escaped assessment” under Utah Code Ann. § 59-5-17 (1974), *292even though a building on the real property had not been included in the assessment.

The County’s 1984 assessment notice for the subject property did not show any improvements on the property. However, a building on the property was under construction and was 85 percent complete. That building was lawfully assessable in the 1984 property tax assessment. The 1984 owner of the subject property timely paid the 1984 taxes based on the underas-sessment. In 1985, the owner sold the property to Sunkist, and in purchasing the property, Sunkist, relying on the tax rolls, assumed that the 1984 taxes had been fully paid.

In 1985, the County discovered that the building had not been included in the 1984 tax assessment. The County then assessed additional taxes under Utah Code Ann. § 59-5-17 (1974) (presently Utah Code Ann. § 59-2-309 (Supp.1989)), which authorized counties to collect past taxes where property had escaped assessment. The additional taxes for the building amounted to $46,296.69. Sunkist protested the assessment to the State Tax Commission. The Commission ruled that the property had not escaped assessment, but had only been undervalued, and therefore could not be reassessed.

The issue is whether buildings not assessed in the tax assessment of the underlying land are considered to have escaped assessment or whether the entire property is considered to be undervalued. Section 59-5-17 allows the subsequent assessment of escaped property by providing:

Any property discovered by the assessor to have escaped assessment may be assessed at any time as far back as five years prior to the time of discovery, and the assessor shall enter such assessments on the tax rolls in the hands of the county treasurer or elsewhere....

Utah Code Ann. § 59-5-17 (1974).

Our task is to define the term “escaped assessment,” as used in § 59-5-17. Since this is a legal question, we give no deference to the Commission’s construction of the statute. County Bd. of Equalization of Salt Lake County v. Nupetco Assocs., 779 P.2d 1138, 1139 (Utah 1989); Hurley v. Board of Review of the Indus. Comm’n, 767 P.2d 524, 527 (Utah 1988).

Sunkist argues that the relevant taxable property is one unit of property consisting of the dependent components of land and improvements. Under this view, the entire property was undervalued and hence is not subject to reassessment. In support of this position, Sunkist asserts that land and improvements are subject to only one tax lien and are not treated by the tax laws as independent types of property. See Utah Code Ann. § 59-10-3 (1974) (presently § 59-2-1325 (Supp.1989)).

On the other hand, the County asserts that the land and the improvements are independent units of property and that the assessment and taxation of only one does not preclude subsequent assessment and taxation of the other as an escaped assessment. The basis of the County’s argument is the language in Utah Code Ann. § 59-5-1 (Supp.1985), which required that land and improvements be separately assessed.

The question of whether unassessed improvements on assessed real property may be reassessed has been addressed in other jurisdictions. Some adopt the theory that Sunkist asserts here, that the land and the improvements thereon constitute one unit of taxable property. State v. Mortgage-Bond Co. of New York, 224 Ala. 406, 140 So. 365 (1932); Westward Look Dev’t Corp. v. Department of Revenue, 138 Ariz. 88, 673 P.2d 26 (Ct.App.1983); Whited v. Louisiana Tax Comm’n, 178 La. 877, 152 So. 552 (1934); Leyh v. Glass, 508 P.2d 259 (Okla.1973). Other states adopt the County’s theory that land and improvements are independent types of property for reassessment purposes. Chew v. Board of Assessment Appeals, 673 P.2d 1028 (Colo.Ct.App.1983); Korash v. Mills, 263 So.2d 579 (Fla.1972); People ex rel. McDonough v. Birtman Electric Co., 359 Ill. 143, 194 N.E. 282 (1934); Mueller v. Mercer County, 60 N.W.2d 678 (N.D.1953). Alaska has permitted reassessment when only some of the improvements were omitted from the assessment. Municipality of *293Anchorage v. Alaska Distributors Co., 725 P.2d 692 (Alaska 1986).

The general rule has been that “where a valid assessment has been made by an assessor cognizant of the facts, undervaluation is ordinarily not a ground for another assessment.” Builders Components Supply Co. v. Cockayne, 22 Utah 2d 172, 173-74, 450 P.2d 97, 98 (1969); see Union Portland Cement Co. v. Morgan County, 64 Utah 335, 230 P. 1020 (1924). The Court recently reaffirmed this principle in County Board of Equalization of Salt Lake County v. Nupetco Associates, 779 P.2d 1138 (Utah 1989), which held that an erroneous acreage figure on the assessment rolls resulted in an undervaluation of the property and not an escape from assessment. The Court did not allow the assessor to reassess the property in light of the correct acreage figure.

We first considered the issue of what the term “escaped assessment” means in Union Portland Cement Co. v. Morgan County, 64 Utah 335, 230 P. 1020 (1924). There, the taxpayer failed to include several improvements in the statement which it transmitted to the assessor, and the property was assessed based on the erroneous description of the property. After the time for making regular assessments had elapsed, the assessor discovered that certain improvements had not been included in the assessment. The Court relied on a predecessor provision to § 59-5-17 and held that the assessor could reassess the property. 64 Utah at 341-42, 230 P. at 1022-23 (citing Comp. Laws Utah § 5908 (1917)1).

In Union Portland Cement, the omission of the improvements was the fault of the taxpayer, while in the present case, the omission was the fault of the assessor. That distinction, however, is not material to the issue of whether the property had escaped assessment.

Union Portland Cement is not inconsistent with § 59-5-17, the escaped property statute that governs this ease. Utah Code Ann. § 59-5-17 provides, “Any property discovered by the assessor to have escaped assessment may be assessed at any time as far back as five years prior to the time of discovery.” The word “property” as used in § 59-5-17 was defined in § 59-3-1 (1974) (presently § 59-2-102 (Supp.1989)): “Property means property which is subject to assessment and taxation according to its value....” Improvements were independently subject to taxation and assessment as property according to the statutory definition in § 59-3-1. In 1983, § 59-5-1 provided, “Land and the improvements thereon must be separately assessed.” In short, the tax statutes in effect recognized land and improvements as separate, or constituent, elements of real estate, each element being subject to assessment and taxation.

In this case, the initial assessment for 1984 had no description of the building. One having only a very general knowledge of the land would know from the face of the assessment notice that the building had not been assessed. Therefore, the building escaped assessment, and the County is not barred from assessing and taxing the building.

The arguments made by Sunkist and relied upon by the Commission are not supported by the tax statutes. Rather, the statute Sunkist cites is further evidence that land and improvements are separately taxed. See Utah Code Ann. § 59-10-3 (1974) (presently § 59-2-1325 (Supp.1989)). Section 59-10-3 speaks of property and improvements separately.

Sunkist argues that it is inequitable to hold it responsible for taxes which accumulated prior to its ownership of the property and which were not assessed until after ownership was transferred to it, despite the long-standing doctrine that property taxes are assessed against the property, not the property owner. Sunkist also argues that because it relied on tax rolls which showed no delinquent taxes at the time Sunkist purchased the property, the County should be estopped from collecting the escaped taxes.

*294But the question is not one of estop-pel or perceived inequity; it is, rather, one of statutory construction. In any event, Sunkist had constructive notice that the building had not been assessed. The complete absence of any valuation for the building on the tax roll or assessment notice was clear notice to Sunkist that the building was subject to an escaped property assessment. It is not unreasonable to charge purchasers of real property with such notice as is provided by the separate listing of land and improvements on the tax rolls. Generally, if a separate assessment appears in the notice of assessment for both the land and for the improvements, a purchaser may rely on the assessment as being correct. Those assessments are not subject to correction by reassessment because they are not escaped properties. When Sunkist examined the tax rolls prior to purchase of the property, it should have noticed that no improvement was assessed and should have made appropriate inquiry. In addition to using available information, buyers and sellers can easily avoid the risk of escaped property tax liability by a contract provision or deed covenant requiring a seller to assume such liability.

Thus, for an improvement to qualify as an escaped property rather than an un-derassessed property, the tax assessment notice must not list the improvement. If the improvement is underassessed but shown on the assessment notice, the statute prohibits the reassessment of the improvement. It was on that principle that Nupetco was decided. 779 P.2d 1138. In Nupetco, an assessment was made based on 6.607 acres in the parcel rather than the 9.607 acres that were actually in the parcel. The land was described incorrectly on the tax roll, and the Court held that the property had not escaped assessment. That is not this case.

In this case, the building escaped assessment since it was not listed on the 1984 assessment notice.

Reversed.

HALL, C.J., and BENCH, Court of Appeals Judge, concur.

. Section 5908 provided, "Any property discovered by the assessor to have escaped assessment may be assessed at any time, and when so assessed shall be reported by the assessor to the auditor, and the auditor shall charge the county treasurer with the taxes on such property, and the treasurer shall give notice to the party assessed therewith.”