Dominguez Energy, L.P. v. County of Los Angeles

Introduction

Dominguez Energy, L.P. (hereafter Dominguez) seeks a partial refund of property taxes for the 1990 tax year on its working interest in an oil and gas lease. The lease is expected to have a useful life until the year 2015. Since acquiring the interest in 1983, Dominguez has performed and has scheduled ongoing environmental remediation of the property, including sump removal, abandonment of unused wells, wastewater discharge, capture of leaking hydrocarbons, and restoration of the surface land around abandoned wells. The issue here is how the expenses of these environmental cleanups should be treated in the assessor’s valuation of the property under the income capitalization method of appraisal. The Los Angeles County Assessor concluded that the costs of environmental remediation should be allocated to the final year of the lease, which results in a higher property tax assessment for the 1990 tax year than if the expenses were allocated as scheduled, which is the method advocated by Dominguez. Dominguez contends the assessor’s method violates Revenue and Taxation Code section 402.1 (hereafter section 402.1), which provides that in assessing the value of land…