After legal ruling leaves some parcel taxes in jeopardy, clarity must come from Legislature
June 27, 2013 | By John Fensterwald | 2 Comments
The state Supreme Court has declined to hear the appeal of a parcel tax case with statewide implications, leaving it up to the Legislature, if it chooses, to change the law that undid one district’s parcel tax and left similar parcel taxes in other districts vulnerable. A bill that would do that failed to move this year but will resurface in 2014.
Proposition 13 banned new taxes based on a property’s value, so parcel taxes, most of which impose a flat dollar amount per property, have became one of the few ways that districts can raise extra money. Only about one in eight districts – 124 over the past 30 years – have passed one, according to an EdSource report. Because owners of cottages pay the same amount as owners of office buildings, about a dozen school districts have explored other approaches to spread the burden, like charging by the lot size or a building’s square footage. Now, a state court has definitively ruled out some of the options and cast doubt on others.
The recent case, Borikas v. Alameda Unified School District, pertains to a parcel tax that Alameda Unified passed in 2008 in which it assessed owners of many commercial properties a different and higher parcel tax than homeowners and small businesses had to pay. A Superior Court judge ruled it was a legal tax, but last December, a three-judge panel of the First Circuit of the Court of Appeals invalidated it.
Measure H, which was in effect for three years, charged $120 per parcel for residential and small commercial properties, and 15 cents per square foot of commercial properties larger than 2,000 square feet, up to a cap of $9,500 per year. Had it charged a flat dollar amount for all properties, as most district parcel taxes do, it would have been fine. But charging different classes of taxpayers varying rates ran afoul of a 1986 law that said parcel taxes must “apply uniformly to all taxpayers or all real property within the particular district” (California Government Code 50079).
Alameda Unified had argued that parcel taxes did have to be imposed uniformly but that this could be accomplished within rational classifications based on a parcel’s size, configuration and use, such as whether a property was commercial or residential or whether it was a multi-unit apartment house or undeveloped land. Denying the ability to make these distinctions would be to create “manifest unfairness,” vastly overtaxing some parcels, like vacant land, and undertaxing others.
But the Appeals Court said the statute allows no wiggle room in defining “uniform.” The Legislature’s intent was to strictly limit what school districts could do, and it wrote a law that “does not empower school districts to classify taxpayers and property, and impose different tax rates,” the judges wrote.
Other districts’ parcel taxes at risk
Alameda Unified estimates it may have to reimburse property owners $7.5 million for the three years that Measure H was in effect. And other school districts with parcel taxes like Alameda’s may have to pay back their taxpayers as well.
David Brillant, a Walnut Creek attorney who represented property owners in the Borikas case, also has sued to invalidate four parcel taxes that districts passed last November that would appear to raise the same issues. Among them:
- Five districts in Los Angeles County, including Centinela Valley Union High School District, jointly approved a parcel tax that charged 2 cents per square foot for residential properties and 7.5 cents per square foot for other classes of property.
- San Leandro Unified passed a measure taxing single-family, multi-family and business properties all at different rates.
- Davis, a university town with many apartments, voted to continue charging $20 per unit in multi-unit housing and $204 per single parcel.
Under state law, Brillant had 60 days after an election to sue on behalf of taxpayers to overturn a decision. As a result, preexisting parcel taxes with multiple rates, such as San Francisco’s, which charges single-family homes and apartment complexes differently, or Berkeley’s, which charges residential and commercial properties differently, are safe until they need to be renewed.
In 2011, voters in Alameda replaced Measure H, the parcel tax struck down by the Borikas ruling, with another parcel tax, this time imposing a uniform 32 cents for each square foot of a building, up to a maximum of $7,999 per parcel. That works out to, for example, $800 per year for a 2,500-square-foot house. Brillant challenged this, too, but withdrew the claim after a district court ruled the tax was valid.
Nonetheless, some of the attorneys representing Alameda Unified in the Borikas case say that the Court of Appeal decision raises some doubt about whether a parcel tax tied to a property’s or building’s size also is legal. Even though there is a single rate, the result – different tax bills for different parcels – is not uniform.
“Our concern is that the decision could be read that way,” says Sue Ann Salmon Evans, an attorney with the Long Beach law firm Dannis Woliver Kelley, who cited the need for clarification of this point in requesting that the Supreme Court hear the appeal.
Jeffrey Kuhn, an attorney with the firm Lozano Smith, who wrote a friend of the court brief supporting Alameda Unified on behalf of the California School Boards Association, shared Evans’ concern.
“The question is open as to whether the statute, as interpreted by the 1st District Court of Appeal requires a uniform (flat) tax, or just a uniform rate, for the taxable parcels within the district,” he wrote in an email. “It’s obviously safer for a district to adopt a flat tax, but if a uniform rate, such as xx cents per square foot, is allowed, then the district would be leaving money on the table by adopting the flat tax. I imagine it will take more litigation, or legislative action, to get clarity on the question.“
Will Legislature act?
Because the Court of Appeal based its decision on a statute, not a constitutional amendment, the Legislature can change the law by eliminating the requirement that school parcel taxes apply uniformly to all taxpayers and types of property. That’s the gist of Assembly Bill 59, sponsored by first-term Assemblymember Rob Bonta, D-Oakland, an attorney who represents Alameda. The bill would give school districts more latitude to shape parcel taxes. The bill also would declare Alameda’s tax to be valid, annulling the decision in Borikas.
Brillant acknowledged that the Legislature can change the law moving forward. But it cannot retroactively undo a court’s finding, Brillant said, and he’d sue immediately if it tried. (Evans, who also represents another of the districts that Brillant is suing, said that as long as lawsuits are active, a change in the statute would not be retroactive.)
AB 59 failed to move through the Legislature this session, but will be taken up next year. It’s opposed by the Howard Jarvis Taxpayers Association and business groups that view giving school districts the ability to tax commercial and residential property owners differently as another effort to sidestep Proposition 13. Also next year, legislators will take up Senate Constitutional Amendment 3, sponsored by Sen. Mark Leno, D-San Francisco. It would lower the threshold for passing a parcel tax from a two-thirds majority to a 55 percent majority.