TO: Board of Supervisors
FROM: Tracy A. Schulze - Auditor-Controller
REPORT BY: Edward Brown - Accountant-Auditor I
SUBJECT: Authorization for the Auditor-Controller to deny state assessed unitary property tax refund claims for Tax Years 2019-20, 2020-21, 2021-22, and 2022-23
RECOMMENDATION
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Deny four (4) State assessed unitary property tax refund claims for return of 2019-20, 2020-21, 2021-22, and 2022-23 taxes paid on Assessor’s Parcel No. 799-000-226 in accordance with Revenue and Taxation Code section 100 and Sections 5096 and 5097 (one Railroad company). (Fiscal Impact: $22,643.68 Revenue; Discretionary)
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BACKGROUND
The Auditor-Controller’s Office received four property tax refund claims from Ryan, LLC on behalf of California Northern Railroad (CFNR) for tax years 2019-20, 2020-21, 2021-22, and 2022-23. The claims state that the unitary property tax rate applied exceeds the rate allowed by the California Constitution and the Railroad Revitalization and Regulatory Reform Act of 1976 and seek refunds totaling $22,643.68 plus interest.
The claims challenge the state requirements for calculating unitary tax rates and state that CFNR is entitled to a partial refund on the grounds the taxes were erroneously or illegally collected, or illegally assessed or levied and gave the following reasons:
a. The property tax rate applied to compute CFNR’s property taxes was in excess of the rate applied in the same year to property in the county assessed by the assessor of Napa County, in violation of Article XIII, section 19 of the California Constitution.
b. The property tax rate applied to compute CFNR’s property taxes exceeded the rate allowed by Article XIIIA, section 1 of the California Constitution.
c. The property tax rate applied to compute CFNR’s property taxes exceeds the rate allowed by the Railroad Revitalization and Regulatory Reform Act of 1976, 49 U.S.C. Section 11501(b)(3).
The Auditor-Controller’s Office has followed all the requirements of the Revenue and Taxation Code Section 100 directing the establishment and calculation of the unitary tax rate for tax years 2019-20, 2020-21, 2021-22, and 2022-23. The unitary tax rate process has been previously audited by the State Controller’s Office and deemed calculated in compliance with State law. Other companies claiming refunds on the same California Constitution grounds have already litigated similar claims in Santa Clara County, resulting in a published court opinion rejecting their allegations as grounds for a refund and upholding state law as constitutional. County of Santa Clara v. Superior Court, 87 Cal. App. 5th 347 (2023).
In consultation with the County Counsel, the Auditor-Controller’s Office has reviewed the claims and audited County practices for unitary taxation. Napa County follows the requirements of Revenue and Taxation Code section 100 for the calculation of unitary tax rate and the calculations are neither “erroneous” nor “illegal.”
Additionally, the claims are technically deficient and must be denied because they were not verified by the taxpayer as required by Revenue and Taxation Code section 5097(a)(1) (see also Code of Civil Procedure section 446 which provides that only a corporate officer [i.e., not a third-party agent such as Ryan, LLC] may make a verification on a corporation’s behalf).
Therefore, the Auditor-Controller has determined that no refund is allowable to the claimant and requests the Board to instruct the Auditor-Controller’s Office to deny the claims.
Requested Action: The Auditor-Controller is requesting the Board’s authorization to deny the claims.
FISCAL & STRATEGIC PLAN IMPACT
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Is there a Fiscal Impact? |
Yes |
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Is it currently budgeted? |
No |
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Is it Mandatory or Discretionary? |
Discretionary |
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Is the general fund affected? |
No |
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Future fiscal impact: |
If further claims for other tax years are received, there would be similar reductions to property tax revenue for those years. |
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Consequences if not approved: |
The County would not be in compliance with Revenue and Taxation Code 100. |
ENVIRONMENTAL IMPACT
ENVIRONMENTAL DETERMINATION: The proposed action is not a project as defined by 14 California Code of Regulations 15378 (State CEQA Guidelines) and therefore CEQA is not applicable.