Western States Petroleum etc. v. State Bd. of Equalization

Filed 8/5/

IN THE SUPREME COURT OF CALIFORNIA

WESTERN STATES PETROLEUM )

ASSOCIATION, )

) Plaintiff and Respondent, ) ) S200475 v. ) ) Ct.App. 2/8 B225932

BOARD OF EQUALIZATION, )

) Los Angeles County Defendant and Appellant. ) Super. Ct. No. BC403167 ____________________________________)

This case presents the issue of how petroleum refinery property should be valued for purposes of taxation. In 1979, in response to the passage of Proposition 13 and related constitutional and statutory enactments, the state Board of Equalization (Board) enacted a rule for assessing the value of most industrial property. (See Cal. Code Regs., tit. 18, § 461.) Under that rule, the value of fixtures, including machinery and equipment, was assessed separately from the value of land and improvements. Petroleum refinery property was assessed in this manner. The separate valuation of fixtures was advantageous to industrial property owners because it allowed them to maximize the tax savings attributable to the depreciation of fixtures. In…

This case presents the issue of how petroleum refinery property should be valued for purposes of taxation. In 1979, in response to the passage of Proposition 13 and related constitutional and statutory enactments, the state Board of Equalization (Board) enacted a rule for assessing the value of most industrial property. (See Cal. Code Regs., tit. 18, § 461.) Under that rule, the value of fixtures, including machinery and equipment, was assessed separately from the value of land and improvements. Petroleum refinery property was assessed in this manner. The separate valuation of fixtures was advantageous to industrial property owners because it allowed them to maximize the tax savings attributable to the depreciation of fixtures.

In 2007, the Board enacted rule 474 (Cal. Code Regs., tit. 18, § 474; hereafter Rule 474) in light of evidence that petroleum refinery property— land, improvements, and fixtures—was generally sold as a unit. Rule 474 provides that the value of such property, unlike most industrial property, must be assessed as a unit. The Western States Petroleum Association' (WSPA) sued to invalidate the regulation. WSPA contends that Rule 474 is inconsistent…

I agree with much of the majority opinion. In particular, I agree that although the rule at issue here (Cal. Code Regs., tit. 18, § 474; hereafter Rule 474), which was adopted by defendant Board of Equalization (Board), does not conflict with any statute or with the state Constitution, it nevertheless is invalid because it was not adopted in compliance with California’s Administrative Procedure Act (Gov. Code, § 11340 et seq.; hereafter California APA). But if the Board complies with the California APA and concludes, after compliance, that the rule is warranted, the Board may reissue the same rule.

In deciding that Rule 474 does not conflict with any statute or with the state Constitution, the majority characterizes the rule as a quasi-legislative regulation, subject to the great judicial deference applicable to such regulations. (Maj. opn., ante, at pp. 414-415.) I disagree. I would hold that the rule simply represents the Board’s interpretation of the Legislature’s definition of “real property” in Revenue and Taxation Code section 51, subdivision (d) (section 51(d)), and therefore the rule is an interpretive regulation subject to less judicial deference. Nevertheless, because…