Wunderlich v. County of Santa Cruz

BAMATTRE-MANOUKIAN, Acting P. J., Concurring and Dissenting.

The plaintiff homeowners, Kenneth Wunderlich and Jeanette Engelhart, both over 55 years of age, built a new home that would accommodate Wunderlich’s use of a wheelchair due to postpolio syndrome. The new home replaced their original residence, which was located across the street. After selling their original residence for $830,000 and completing construction of their new, wheelchair-friendly house in 2004, the senior homeowners applied for property tax relief under Proposition 60 (Cal. Const., art. XIII A, § 2, subd. (a); Rev. & Tax. Code, § 69.5),1 which would enable them to transfer the base year value of their original residence, $187,992, to their new home. Having had the foresight to purchase the land for their new home in 1979, they believed that for purposes of Proposition 60 the land portion of their new home would be valued at its 2004 adjusted base year value of $62,477 and therefore their replacement dwelling with a value of $730,877 ($62,477 land plus $668,400 house) would be of equal or lesser value than their original residence.

The homeowners’ request for property tax relief under Proposition 60 was denied by the County of Santa Cruz (County), which determined that for purposes of Proposition 60 the value of the land portion of their new home was $231,600, which was the fair market value of the land on the date construction of the new house was completed in 2004. The County separately valued the new house for Proposition 60 purposes at a fair market value of $668,400. Because the County calculated that the total fair market value of the new residence was $900,000 ($231,600 land plus $668,400 house), which was greater than the Proposition 60 limit of $871,500 (105 percent of the $830,000 sale price for the homeowners’ original residence, per § 69.5, *709subd. (g)(5)(B)), the County denied the homeowners’ request to transfer the base year value of their original residence to their new home pursuant to Proposition 60.

The homeowners do not dispute the value that the County assigned to their new wheelchair-friendly house for purposes of Proposition 60. Their disagreement with the County concerns the fair market value of $231,600 that the County assigned to the land portion of their new home. According to the homeowners, the trial court, and two members of California’s State Board of Equalization,2 the County erred because the land should be valued for Proposition 60 purposes at its 2004 adjusted base year value of $62,477, not at fair market value on the date construction of the new house was completed. The homeowners therefore contend that when their new residence is properly valued for purposes of Proposition 60 as $730,877 ($62,477 land plus $668,400 house), which is well under the Proposition 60 limit of $871,500, they are entitled to transfer the base year value of their original residence, $187,992, to their new home.

Based on the circumstances of this case, I agree with my colleagues that the homeowners’ entitlement to property tax relief under Proposition 60 turns on the value that is assigned to the land portion of their replacement dwelling for the calculation of whether the replacement dwelling is of “equal or lesser value” than the original residence. (§ 69.5, subd. (a)(1).)

I also agree with my colleagues that when the voters passed Proposition 60 in 1986 they intended to provide tax relief to qualified homeowners over 55 years of age by allowing them to transfer the base year value of their property, as established under Proposition 13, to any replacement dwelling of equal or lesser value within the county. (Cal. Const., art. XIII A, § 2, subd. (a).)

However, I respectfully disagree with my colleagues’ conclusion that the trial court erred in granting plaintiff homeowners’ motion for summary judgment. The trial court’s summary judgment order stated that “the assessed value of $187,992.00 from 520 Stagg Lane shall be carried over to 521 Stagg Lane commencing with the Supplemental Assessment against 521 Stagg Lane dated June 18, 2005.” The trial court’s ruling was based upon the court’s determination that (1) under section 69.5, subdivision (g)(6), “the ‘full cash *710value’ of plaintiffs’ land for the ‘replacement dwelling’ is $62,477.00”; (2) “when combined with the $668,400.00 ‘full cash value’ of the improvements for plaintiffs’ ‘replacement dwelling,’ the sum is $730,877.00, which is less than the $871,500.00 ‘full cash value’ of the ‘original property’ ”; and (3) “Plaintiffs meet the ‘equal or lesser value’ test and are entitled to the benefits of Proposition 60.”

While my colleagues have determined that the voters and the Legislature clearly intended that the land portion of a replacement dwelling be valued for purposes of Proposition 60 as the fair market value of the land on the date that construction of the new residence was completed, I believe that Proposition 60 and the implementing provisions of the Revenue and Taxation Code are ambiguous with regard to the proper method of valuing the land in the situation where the land was purchased more than two years before the sale of the original property and a structure was built upon that land to serve as a replacement dwelling within two years of the sale of the original property. My determination is based upon the well-established rules for interpreting tax statutes.

The California Supreme Court has instructed that “Persons may adopt any lawful means for the lessening of the burden of taxes which in one form or another may be laid upon properties or profits. (Pioneer Express Co. v. Riley [(1930)] 208 Cal. 677, 687 [284 P. 663].) It was also reiterated in that case that courts, in interpreting statutes levying taxes, may not extend their provisions, by implication, beyond the clear import of the language used, nor enlarge upon their operation so as to embrace matters not specifically included. In case of doubt, construction is to favor the taxpayer rather than the government.” (Edison California Stores, Inc. v. McColgan (1947) 30 Cal.2d 472, 476 [183 P.2d 16]; see Agnew v. State Bd. of Equalization (1999) 21 Cal.4th 310, 327 [87 Cal.Rptr.2d 423, 981 P.2d 52].) Thus, “ambiguity in a tax statute must be resolved in favor of the taxpayer. [Citations.]” (Ordlock v. Franchise Tax Bd. (2006) 38 Cal.4th 897, 906 [44 Cal.Rptr.3d 212, 135 P.3d 628].)

As Justice Mihara correctly observes, the ballot pamphlet for Proposition 60 did not either “explicitly or implicitly address the possibility that a lot might be purchased more than two years before the sale of the original property and a structure built upon that lot to serve as a replacement dwelling within two years of the sale of the original property.” (Conc. opn. of Mihara, J., ante, at p. 703.) The constitutional amendment added by Proposition 60 is similarly silent. (Cal. Const., art. XIII A, § 2, subd. (a).)3 I believe *711that this omission must be “regarded as silence which creates ambiguity.” (Dreyer’s Grand Ice Cream, Inc. v. County of Alameda (1986) 178 Cal.App.3d 1174, 1182 [224 Cal.Rptr. 285].)

Furthermore, the statutes implementing Proposition 60 lend themselves to two reasonable interpretations, as argued by the parties and the amici curiae. My colleagues agree with the interpretation advanced by the County and California’s State Board of Equalization,4 who contend that sections 69.5 and 110.1 together provide that, for purposes of determining whether the replacement dwelling is of equal or lesser value than the original property, the fair market value of the land and the improvements that comprise the replacement dwelling must be determined as a single unit on the date that construction of the replacement dwelling was completed.

The homeowners and two other members of California’s State Board of Equalization urge a different interpretation. They argue that sections 69.5 and 110.1 must be construed to provide that the land portion of the replacement dwelling is valued separately as of the date the land was purchased, which is the base year value adjusted under Proposition 13 (Cal. Const, art. XU! A, § 2, subd. (b)). Because there are two reasonable interpretations, the statutory language must be deemed to be ambiguous. (Ordlock v. Franchise Tax Bd., supra, 38 Cal.4th at p. 906.)

Consequently, I do not agree with Justice McAdams that “the specific provisions that concern us here are expressed in clear and unambiguous terms.” (Lead opn., ante, at p. 695.) I also do not agree with Justice Mihara that the “only reasonable construction of section 69.5 is that it requires the equal or lesser value determination to be based on the value of the replacement dwelling at the time that both the purchase and construction of the *712component parts of the replacement dwelling are complete.” (Conc. opn. of Mihara, J., ante, at p. 708.)

Further, I cannot agree with my colleagues’ view that the Legislature clearly intended to prohibit the use of the adjusted base year value of the land portion of the replacement dwelling for purposes of Proposition 60 where the land was purchased more than two years before the sale of the original property. To the contrary, both Proposition 60 and its implementing statutes, as well as the Proposition 60 ballot pamphlet and.the legislative history, suggest that the voters and the Legislature did not contemplate the method to be used for valuing the land portion of a replacement dwelling for purposes of Proposition 60 where, as here, the homeowners purchased the land for their replacement dwelling many years before the replacement dwelling was constructed.

Finally, I believe that it is important to keep in mind that the ballot pamphlet for Proposition 60 informed the voters that Proposition 60 was intended to provide property tax relief to seniors. The argument in favor of Proposition 60 stated that “California can create new housing opportunities for senior citizens by easing a property tax burden that now prevents many of them from finding affordable housing, [f] .. . The solution is to let seniors who want to sell their homes take their current property tax assessment to their new place of residence. fit] If approved by the voters, Proposition 60 would do just that by amending the State Constitution to authorize the Legislature to provide that the base year value of owner-occupied residential property can be transferred for seniors to newly purchased or constructed owner-occupied residential property of equal or lesser value.” (Ballot Pamp., Gen. Elec. (Nov. 4, 1986) argument in favor of Prop. 60, p. 34.) The rebuttal to the argument against Proposition 60 further stated, “By voting for Proposition 60 we can help give senior citizens freedom to live where they choose in their county area, [f] Please remember that Proposition 60 stands for fairness.” (Id., rebuttal to argument against Prop. 60, p. 35.)

I believe that fairness under Proposition 60 is best achieved, in the case before us, by affirming the trial court’s order granting the homeowners’ motion for summary judgment. The ambiguity in the constitutional and statutory language that I have discussed above, regarding the proper method for valuing the land portion of a senior’s replacement dwelling for purposes of Proposition 60, should be construed in the taxpayers’ favor to allow Proposition 60 tax relief to these homeowners, who reasonably believed that the land portion of their replacement dwelling would be valued at the 2004 adjusted base year value of $62,477 and therefore their replacement dwelling qualified for property tax relief under Proposition 60.

*713Due to the importance of this issue to the taxpayers of this state, and, in particular, to our senior citizens who, like the homeowners here, wish to purchase or construct replacement dwellings to which they may transfer the base year value of their original residence, I respectfully invite the Legislature to enact legislation clarifying the proper method for valuing the land portion of a replacement dwelling for purposes of Proposition 60 where the land was purchased more than two years before the sale of the original property and a structure was built upon that land to serve as a replacement dwelling within two years of the sale of the original property.

All statutory references hereafter are to the Revenue and Taxation Code.

This court granted the motion of State Board of Equalization members Bill Leonard and Michelle Steel to file an amicus curiae brief in support of respondents.

In pertinent part, article XIII A, section 2, subdivision (a) of the California Constitution provides, “However, the Legislature may provide that under appropriate circumstances and pursuant to definitions and procedures established by the Legislature, any person over the age *711of 55 years who resides in property which is eligible for the homeowner’s exemption under subdivision (k) of Section 3 of Article XIH and any implementing legislation may transfer the base year value of the property entitled to exemption, with the adjustments authorized by subdivision (b), to any replacement dwelling of equal or lesser value located within the same county and purchased or newly constructed by that person as his or her principal residence within two years of the sale of the original property. For purposes of this section, ‘any person over the age of 55 years’ includes a married couple one member of which is over the age of 55 years. For purposes of this section, ‘replacement dwelling’ means a building, structure, or other shelter constituting a place of abode, whether real property or personal property, and any land on which it may be situated. For purposes of this section, a two-dwelling unit shall be considered as two separate single-family dwellings. This paragraph shall apply to any replacement dwelling that was purchased or newly constructed on or after November 5, 1986.”

This court granted the application of California’s State Board of Equalization to file an amicus curiae brief in support of the appellants.