Prop. 13 Tax Break Sought by Big Utilitie Overruled : Court Bars Rollback in Assessments

The state Supreme Court refused today to grant California’s utilities hundreds of millions of dollars in property tax breaks, ruling that they were not entitled to the assessment rollbacks given homeowners in Proposition 13.

In a unanimous decision, the court said that tax-slashing elements of the 1978 initiative applied only to property assessed by counties.

Because all privately owned utility and railroad property in California is assessed annually by the state, the court said, it is not covered by the Proposition 13 assessment provisions.

The decision will affect millions of dollars in taxes paid by the telephone company, railroads and power companies on the state-assessed values of their vast real estate holdings.

Question of Intention

“Proposition 13 was widely publicized as a taxpayers’ revolt providing tax relief for homeowners,” wrote Justice Stanley Mosk in the unanimous opinion. The intention of the law was not believed to require the same tax cuts to giant public utilities as it was to small property owners, according to the court.

In trying to determine the intent of the law, the court examined the wording of the law, ballot pamphlet arguments and subsequent actions by the state Legislature, Mosk said.

If the decision had gone the other way, it could have cost $60 to $75 million to cities and counties around the state, said San Francisco City Atty. John Doherty.

Steve Mayer, the lawyer who represented 49 counties in the case, said counties “would lose 10 years of actual value” if they had to roll back assessments.

Mayer said the value of all state-assessed property in 1982-83 was nearly $41 billion.

Proposition 13 was sponsored by Howard Jarvis and Paul Gann at a time of sharp increases in local property taxes, largely due to jumps in the assessed value of property.

The initiative limited property tax rates to 1% of value, with certain exceptions; reduced the power of state and local governments to raise other taxes and rolled back property assessments to their values in 1975-76--before the major assessment increases. Annual increases were to be limited to 2% except for new or newly sold property.

It referred only to county-assessed property and failed to include in its provisions any mention of how to handle state-assessed public utilities.

The State Board of Equalization, which assesses utility property, continued to make annual assessments without rolling back the values to 1975-76 or limiting increases to 2%.

Used State Assessments

That meant that when counties applied the 1% tax rate limit to all property, they used state assessments of utility property within their borders.

Mayer, the lawyer for the counties, explained that the state board assesses utility properties, not by considering the value of a building or a dam but by looking at a utility’s properties as a unit and assessing its value as an “income-generator.”

In a test case, ITT World Communications challenged San Francisco’s collection of $57,000 in property taxes for 1978-79 and 1979-80.