Kuperman v. San Diego County Assessment Appeals Bd. No. 1

*933AARON, J., Concurring.—

I

INTRODUCTION

While acknowledging that both the legislative history and the preamble to Revenue and Taxation Code1 section 51.5 refer to correction of errors whenever discovered, the majority asserts that “the language of section 51.5, subdivision (b) unambiguously provides that errors involving the assessor’s exercise of judgment as to value are subject to a four-year limitations period,” and concludes that, “[sjince the words of the statute are clear in this regard, we must rely on the language actually used and not the legislative history.” (Maj. opn., ante, at p. 929, italics added.)

I do not agree that the language of 51.5 is unambiguous, since it is not at all clear what the phrases “does not involve the exercise of an assessor’s judgment as to value” (§ 51.5, subd. (a)) and “involves the exercise of an assessor’s judgment as to value” (§ 51.5, subd. (b)) connote. Under the majority’s view, this language apparently means that if the assessor exercised judgment in determining the base year value of a property, a four-year limitations period would apply to any attempt to correct any error in that valuation. In my view, an equally or more plausible interpretation of this statutory language would be that if the alleged error or omission involves the exercise of the assessor’s judgment as to value, e.g., the assessor knew about an easement but chose not to reduce the assessed value of the property based on the existence of the easement, a four-year limitations period would apply to any challenge to the assessed value based on the impact of the easement. But if the allegation were that the assessor’s valuation was incorrect because the assessor unknowingly failed to consider material information affecting the value of the property, e.g., an unrecorded easement, even where the assessor otherwise exercised judgment in determining the base year value, that error may be corrected in any year in which the error or omission is discovered.

To the extent the majority opinion can be read to suggest that the statute unambiguously provides that a four-year statute of limitations would apply in any case in which the assessor exercised judgment in arriving at the base-year value, I disagree. However, I concur in the result the majority reaches because I agree that in the particular circumstances of this case, both the assessor and Kuperman must be charged with constructive notice of the *934San Diego Gas & Electric Company (SDG&E) easement, since “[w]hatever is the ultimate scope of section 51.5, subdivision (a), it clearly was not intended to encompass recorded easements.” (Maj. opn., ante, at p. 930.) While we need not determine the precise meaning of section 51.5 in order to resolve this case, I write separately to note the ambiguity in the statute.

II

THE ENACTMENT OF SECTION 51.5

A. The decision in Dreyer’s Grand Ice Cream, Inc. v. County of Alameda and the impact of Proposition 13

According to the legislative history of section 51.5, the statute was enacted in response to Dreyer’s Grand Ice Cream, Inc. v. County of Alameda (1986) 178 Cal.App.3d 1174 [224 Cal.Rptr. 285] (Dreyer’s). (See 3d reading analysis of Sen. Bill No. 587 (1987-1988 Reg. Sess.) as amended Aug. 20, 1987, p. 1 (hereafter third reading analysis); Cal. Dept. of Finance, Enrolled Bill Rep. on Sen. Bill No. 587 (1987-1988 Reg. Sess.) prepared for Governor Deukmejian (Sept. 4, 1987) p. 1 (hereafter Enrolled Bill Report); State Bd. of Equalization, Legislative Bill Analysis of Sen. Bill No. 587 (1987-1988 Reg. Sess.) as introduced Feb. 25,1987, p. 1 (hereafter State Board of Equalization analysis); Sen. Com. on Rev. & Tax., analysis of Sen. Bill No. 587 (1987-1988 Reg. Sess.) as introduced Feb. 25, 1987, p. 1 (hereafter Senate Committee analysis).)

In Dreyer’s, the county assessor physically inspected and appraised a cold storage warehouse that had recently been built on a property owned by Dreyer’s predecessor, Associated Food Stores, Inc. (Associated). The appraisal was done as of March 1, 1976, the lien date for the 1976-1977 assessment year. (Dreyer’s, supra, 178 Cal.App.3d at p; 1177.) In June 1978, Proposition 13, which redefined the base year values of both pre-1975 and post-1975 properties, was adopted. (Dreyer’s, supra, 178 Cal.App.3d at p. 1177.) As a result of the enactment of Proposition 13 in 1978, property taxes in California were reassessed at the lower of the fair market value or the “base year value,” which was defined as the county assessor’s valuation as of the 1975-1976 tax year. After the enactment of Proposition 13, increases in value were limited to a maximum of 2 percent per year. Further, a change in base year value would occur only upon a transfer of ownership. (Metropolitan Culinary Services, Inc. v. County of Los Angeles (1998) 61 Cal.App.4th 935, 939 [71 Cal.Rptr.2d 859].) Thus, an inflated or underassessed base year value, if left uncorrected, would result in either overtaxation or undertaxation of the property at issue until such time as the property changes hands.

After the enactment of Proposition 13, the county assessor in Dreyer’s reassessed the “warehouse improvements” by adopting the value shown on the *9351976-1977 assessment roll and adding a 2 percent inflation increase. (Dreyer’s, supra, 178 Cal.App.3d at p. 1177.) In the fall of 1980, the county assessor conducted an audit of the books and records of Associated and discovered that the warehouse improvements had been substantially underassessed for 1976-1977, and for all subsequent years. (Ibid.)2

In February of 1981, the assessor revised the base year value of the warehouse and levied escape assessments for the tax years 1977-1978, 1978-1979, 1979-1980 and 1980-1981. (Dreyer’s, supra, 178 Cal.App.3d at pp. 1177-1178.) Associated paid the increased taxes, under protest, and ultimately filed a lawsuit for a refund of the escape assessments. (Id. at p. 1178.) While that case was pending, Dreyer’s, which had purchased the warehouse, was substituted as plaintiff. (Ibid.)

The issue in Dreyer’s, as stated by the Court of Appeal, was “whether the four-year statutory bar prescribed for escape assessments begins to run from the time when the base year value of the property was originally determined under Proposition 13 (Cal. Const., art. XIII A, § 2) and its implementing legislation (§ 110.1), or whether it commences to run from the assessment year in which the property, in whole or in part, escaped taxation.” (Dreyer’s, supra, 178 Cal.App.3d at p. 1178.)3

Dreyer’s argued that “Proposition 13 brought about radical changes in our property taxation system which, of necessity, impacted the whole statutory scheme relating to property taxes . . . Proposition 13 made the base year value of the property the cornerstone of taxation which cannot be revised or altered under the guise of escape assessments. While escape assessments are still available to the taxing authority in case the property was underassessed or escaped taxation altogether, this power of the assessor must be exercised in harmony with Proposition 13. It follows that the four-year limit prescribed by the statute must commence from the base year and may not depend on the happenstance when the assessor discovers the error in assessment.” (Dreyer’s, supra, 178 Cal.App.3d at pp. 1178-1179.)

The Dreyer’s court agreed with this argument and affirmed the judgment, holding that the assessor could not correct a Proposition 13 base year value—and thus, that taxes could not be collected—for an underassessment that was not discovered until more than four years after the base year value was established. In explaining its reasoning, the court observed that in enacting section 80, “the Legislature intended to set a deadline for challenging *936the base year values outlined in section 110.1. Since section 80 allows the taxpayer four years from the time of the original determination of the base year value to file a challenge, elementary fairness requires that the county shall have only the same period of time within which to correct the base year values by way of escape assessments.” (Dreyer’s, supra, 178 Cal.App.3d at p. 1181.)

B. Section 51.5

1. The language of section 51.5

The uncodified preamble to section 51.5 provides in part, “The Legislature finds and declares that fairness and equity require that county assessors have express authority to make corrections to property tax base-year values whenever it is discovered that a base-year value does not reflect applicable constitutional or statutory valuation standards or the base-year value was omitted. Any limitations imposed upon the assessor’s authority to correct these errors would result in a system of taxation which, on the one hand, denies the benefits of Article XIII A of the California Constitution to some taxpayers where the barred error or correction would reduce the base-year value and, on the other hand, encourages even the most honest person to engage in deception and concealment in order to delay discovery of changes in ownership or new construction beyond the point where a correction of the base-year value can be made . . . ,”4

The pertinent portions of section 51.5 provide, “(a) Notwithstanding any other provision of the law, any error or omission in the determination of a base year value pursuant to paragraph (2) of subdivision (a) of Section 110.1, including the failure to establish that base year value, which does not involve the exercise of an assessor’s judgment as to value, shall be corrected in any assessment year in which the error or omission is discovered.

“(b) An error or omission described in subdivision (a) which involves the exercise of an assessor’s judgment as to value may be corrected only if it is placed on the current roll or roll being prepared, or is otherwise corrected within four years after July 1 of the assessment year for which the base year value was first established.”

The statutory preamble at the very least implies that in enacting section 51.5, the Legislature intended to rectify the unfairness it perceived in limiting the ability of either the assessor or the property owner to correct under or overassessed base year values that would otherwise, under *937Proposition 13, affect the property tax “in perpetuity.” (3d reading analysis, supra, at p. 2; see discussion of Prop. 13, ante, at pp. 934-935.) If that was the intent of the Legislature, then the interpretation of section 51.5 that would make the most sense would be to say that where the error or omission did not involve the assessor’s judgment as to value, i.e., in determining the base year value, the assessor unknowingly failed to take into consideration information bearing on the value of the property, under section 51.5, subdivision (a), such error or omission may be corrected in any year in which it is discovered. But in cases in which the assessor did exercise judgment as to the subject matter of the alleged error or omission, under subdivision (b), a four-year statute of limitations would apply. However, the statute itself is not clear as to what the Legislature meant by the phrase “an error or omission . . . which involves the exercise of an assessor’s judgment as to value.” (§ 51.5, subd. (b).)

2. Legislative history of section 51.5

Where the language of a statute is ambiguous, courts must “ ‘examine the history and background of the statutory provision in an attempt to ascertain the most reasonable interpretation of the measure.’ ” (Delaney v. Baker (1999) 20 Cal.4th 23, 29-30 [82 Cal.Rptr.2d 610, 971 P.2d 986], quoting Watts v. Crawford (1995) 10 Cal.4th 743, 751 [42 Cal.Rptr.2d 81, 896 P.2d 807].) Unfortunately, the legislative history of section 51.5 serves only to highlight the ambiguity of the statutory language. While all interested entities agreed that section 51.5 was intended to respond to the Dreyer’s decision, the documents comprising the legislative history of the statute reveal that these entities had diametrically opposite interpretations of what occurred in the Dreyer’s case, and thus, what the effect of section 51.5 would be.

Under the heading, “Specific Findings,” the Enrolled Bill Report states: “This bill would clarify current law related to the correction of base-year value. For example, the omission in the court case mentioned above [Dreyer’s] was not due to an error in the assessor’s judgment. The property in question was omitted unknowingly. Thus, under the provisions of this bill, the assessor would have been able to correct the omission. []Q The proposed provisions would specify that if an error in the determination of the base-year value of property occurs that is not related to a judgment made by the assessor, the base-year value can be adjusted in the year the error or omission is discovered.” (Enrolled Bill Rep., supra, at p. 2, italics added.)

However, the third reading analysis states: “In a 1986 case (Dreyer’s Grand Ice Cream vs. County of Alameda) relating to escaped value where the assessor made a valuation judgment error the court ruled that the assessor may not correct Proposition 13 base-year values more than four years after the *938base-year value was established and, therefore, tax may not be collected for any year on that escaped value.” (3d reading analysis, supra, at p. 1, italics added.)

The report goes on to state: “This bill: 1) Permits the county assessor to correct any base-year valuation error or omission which does not involve the exercise of the assessor’s judgment as to value (for example, a clerical or mathematical error). Such correction must be made in the year the error or omission is discovered, regardless of when the valuation was originally made.” (3d reading analysis, supra, at p. 1, italics added.)

The State Board of Equalization analysis similarly discusses the Dreyer’s case and then states that the decision “arises in the context of an error in a base-year value which involved the exercise of the assessor’s value judgment . . . .” (State Bd. of Equalization analysis, supra, at p. 3, italics added.) The Senate Committee analysis states, “In the Dreyer’s case the assessor valued a cold-storage warehouse at $1 million less than its actual 1976 fair market value, because the appraiser unknowingly omitting [yzc] certain pertinent information from the appraisal.” (Sen. Com. analysis, supra, at p. 1.) Under the heading, “Dreyer’s case can cause both higher and lower taxes,” the minutes state: “Since it is possible for assessment errors to go either way, both in favor of and against the taxpayer, the Dreyer’s case can result in higher taxes on a property due to a now-uncorrectable assessment error. If, for example, a property is appraised too high based on incorrect information, and neither the taxpayer nor the assessor realize the error for more than four years, existing law, as interpreted by the Supreme Court, [sic: Court of Appeal] would prevent the tax from being reduced now or in any future year until the property changes ownership.” (Sen. Com. analysis, supra, at p. 2.)

Under the heading “Assessor’s value judgment is not grounds for value change,” the analysis continues: “SB 587 would prohibit any correction of base-year value due to an assessor’s error in value judgment. For example, if a taxpayer receives a base-year valuation of $100,000, and a newly elected assessor five years later decides that the value should have been $150,000— that his predecessor had simply misjudged the value, the original valuation would stand under this bill. This provision recognizes that there is always a judgment margin in property valuation, and that the assessor may not revalue base-year assessments in the light of ‘20-20 hindsight.’ ” (Sen. Com. analysis, supra, at p. 2.)

These excerpts from the legislative history of section 51.5 make it clear that at the time the statute was enacted, there was not agreement among interested entities as to whether the underassessment in the Dreyer’s case did or did not *939involve “the exercise of the assessor’s judgment as to value.”5 If there was no agreement as to that basic issue, then there could not have been agreement as to what the impact of section 51.5 would be, because there was no consensus as to whether or not an assessment error such as the one that occurred in Dreyer’s would or would not be correctable after the enactment of section 51.5. Some legislators clearly believed the statute was intended to allow either the assessor or a taxpayer to seek a correction of a base year value at any time where the assessor was unaware of material information bearing on the value of the property and thus did not take that information into consideration in determining the base year value, thus “overruling” Dreyer’s. Others apparently believed that under section 51.5, a four-year statute of limitations would apply to any attempt to correct the base year value in any case in which the assessor had exercised judgment in determining the base year value, even where the assessor unknowingly failed to take into consideration information affecting the value of the property, and thus, that the proposed statute was consistent with the result in Dreyer’s.6

Ill

CONCLUSION

While I do not agree with Kuperman that an assessor’s exercise of judgment as to value occurs only when the assessor enrolls the property at some value other than the purchase price, I have serious reservations about the view suggested in the majority opinion that if the assessor makes a judgment call as to the value of the property—even where the assessor fails to take into consideration material information bearing on the value of the property because that information is unknown to the assessor—the error or omission can fairly be characterized as one that “involves the exercise of the assessor’s judgment as to value” within the meaning of section 51.5.1 believe the critical inquiry under section 51.5 is whether the error or omission did or did not involve the exercise of the assessor’s judgment.

*940My concern is that there may be cases in which the assessor’s determination of the base year value of a property is predicated on erroneous information, such as the assessor’s unknowingly including land that is not actually part of the parcel at issue in determining the base year value of a property or underestimating the size of the parcel, based on an incorrect survey, and the error is not discovered until more than four years after the initial assessment. Portions of the majority opinion would suggest that such an error could not be corrected because the assessor exercised judgment in determining the base year value of the property, even where that exercise of judgment was clearly based on incorrect or incomplete information.

I do not agree with the majority that section 51.5 unambiguously provides that a four-year statute of limitations would apply in any case in which the assessor exercised judgment in arriving at the base year value. However, because I agree with the majority’s conclusion that section 51.5 was not intended to allow a reassessment of a property where, as here, the error alleged is the failure to consider the impact of a recorded SDG&E easement on the value of a property, I concur in the result the majority reaches.

A petition for a rehearing was denied April 13, 2006, and appellant’s petition for review by the Supreme Court was denied June 21, 2006, S143053.

Unless otherwise specified, all subsequent statutory references are to the Revenue and Taxation Code.

The Dreyer’s opinion does not discuss the nature of the improvements that were underassessed, nor does it explain how the underassessment occurred.

Section 80 provided that the taxpayer had four years from the original assessment to challenge an alleged overvaluation of the base value of newly constructed property.

“An uncodified portion of a statute is fully part of the statutory law of this state.” (Barbee v. Household Automotive Finance Corp. (2003) 113 Cal.App.4th 525, 534 [6 Cal.Rptr.3d 406].)

As noted above, the Dreyer’s court did not specify the nature of the underassessment in that case, or how it occurred.

Further confusing the issue, under a section entitled, “Comments,” the third reading analysis states, “1) According to the Board of Equalization (BOE), the Dreyer’s decision left several interpretational questions about the ability of assessors to correct errors in post-1975, base-year property values. It could possibly be interpreted to prevent in perpetuity the assessment of improvements that have been overlooked, if they were not discovered until more than four years after the initial assessment. This would undermine the fairness of the property tax assessment system and create an incentive to withhold information about property value. HD ••• HI] 3) According to BOE, this bill is consistent with the Dreyer’s decision in that it requires errors or omissions relating to the exercise of the assessor’s judgment to be corrected only within four years of establishment of the value.” (3d reading analysis, supra, at p. 2, italics added.)