Pacific Bell Telephone Co. v. County of Merced

INTRODUCTION

This case concerns the interpretation of section 19 of article XIII of the California Constitution (Section 19), and whether it requires the same tax rates be imposed on utility property that are imposed on so-called “common property,” i.e., non-utility property subject to standard ad valorem taxation. 1 Section 19 was enacted in the early 1930’s to alter the manner in which utilities were taxed. Prior to that time, utilities were subject to a special gross receipts “in lieu” tax imposed at the state level, used to support state government. Section 19 changed this tax structure in order to subject utilities to an ad valorem property tax payable at the local level, like most other property taxes. However, because the fair market value of real property owned by utilities is typically only a fraction of the actual value it holds for the company, a different valuation system was adopted for utility property. The value of utility property was thus computed at the state level, valuing the utility as a going concern, 2 and then allocated between the various counties in the state.

An ad valorem tax is imposed based on the value of the property. Valuing…