California State Teachers' Retirement System v. County of Los Angeles

Plaintiff and appellant California State Teachers’ Retirement System (STRS), a public entity, appeals a judgment following a grant of summary judgment in favor of defendant and respondent County of Los Angeles (the County) on a complaint for refund of property taxes.

STRS is authorized to invest in real estate. Because STRS is a unit of state government, property it owns is exempt from property taxation. (Cal. Const., art. XIH, § 3, subd. (a).) However, the private lessees of real property owned by STRS are subject to property tax based on the lessees’ possessory interest. The essential issue raised on appeal is the constitutionality of Government Code section 7510, subdivision (b)(1), insofar as it prescribes the method for determining the assessed value of a private lessee’s leasehold interest in real property owned by a state public retirement system, when the lessee has leased only a portion of the property.

Section 7510, subdivision (b)(1) provides where, as here, a lessee has leased less than all of the property, the lessee’s tax is based on “the lessee’s allocable share of the full cash value of the property that would have been enrolled if the property had been…