California Court of Appeals Clarifies Standard of Review in Sky River Property Tax Case
On March 15, 2013, the Fifth Appellate District of the California Court of Appeal ordered publication of Sky River LLC v. Kern County, Case No. F063766 (Cal. Ct. App. Feb. 2013). The case provides meaningful direction to courts, administrative tribunals, assessors, tax practitioners and taxpayers regarding the assessment of property in California for purposes of taxation, as well as the resolution of disputes involving such assessments. In Sky River, the taxpayer challenged tax assessments of the Kern County tax assessor for its business property for the years 2006 and 2007. At the hearings, the assessment appeals board (“AAB”) reviewed complex calculations for assessing the property (wind turbine generators and related equipment) presented by both sides, and found in favor of the county’s increased assessment. On review, the trial court found for the taxpayer.
Sky River’s importance lies in its extensive discussion of the appropriate standard of review for courts to apply in their review of AAB decisions. In this case, the court of appeal concluded that which income tax rate to use (the marginal rate or an average rate) “is a question about the method of calculating the appropriate conversion rate,” which is a question of law and is reviewed by the trial court de novo. Opinion, p. 10. Furthermore, in a situation in which no facts arising from the underlying AAB proceedings are in dispute, substantial evidence review is inappropriate, and de novo review is proper because an issue of law is presented. Finally, the court of appeal held that evidence on the validity of the method (including appraisals), may be introduced for consideration by the trial court. Opinion, p. 19. Thus, the court of appeal held that trial court applied the correct standard of review, properly admitted evidence at trial, and correctly concluded that the methodology the assessor used was legally incorrect.
The court of appeal, however, also ruled that the matter had to be remanded to the AAB. Thus, the opinion discusses how the trial court should remand matters back to the AAB for further hearing. Opinion, pp. 20-21. Specifically, because factual issues remained regarding the correct expected combined federal and state marginal income tax rate applicable to a typical potential purchaser of the property in issue, the matter had to be remanded to the AAB so that it could “tax further evidence and redetermine the appropriate income tax rate … and thereafter recomputed the value to be enrolled and the applicable property tax.” Opinion, p. 21.
Please contact one of the state and local tax attorneys listed below if you have questions about Sky River or how this recent decision applies to your situation.
| Chicago (312) 558-5600 | San Francisco (415) 591-1000 |
| Robert F. Denvir | Charles J. Moll III |
| Alan V. Lindquist | Troy M. Van Dongen |
| Bradley R. Marsh | |
| Jocelyn M. Wang |