Geneneral Dynamics Corp. v. County of San Diego

County’s Appeal

Each year the county assessor must identify and value all local property for state taxation (Rev. & Tax. Code, § 601). To aid in the procedure, many California companies are required to submit a business property statement (BPS) itemizing and calculating the total value of business property subject to the tax (see Rev. & Tax. Code, § 441).

During April and May the assessor’s office processes thousands of these statements. By July 1, a tax must be assessed against each company based on the valuation of the property reported in the BPS. The entry of an assessment on the tax rolls under these circumstances, however, is not a final determination of tax liability. If a later audit discloses property which has either been underassessed or escaped assessment entirely, the assessor may retroactively collect the taxes owed by levying an “escape assessment.” (Rev. & Tax. Code, § 531.)

In 1971 and 1972, General Dynamics reported its cumulative costs for special tooling used in a project for McDonnell Douglas. In arriving at adjusted valuations, however, General Dynamics valued the tooling as “inventory” (rather than a “fixed asset”) and took several deductions…