Justices Take Up Tax Issue That May Imperil Prop. 13

The Supreme Court heard arguments Wednesday in a West Virginia property tax case, but the justices seemed far more interested in the constitutionality of California’s Proposition 13.

Lawyers for two coal companies are challenging the “welcome stranger” method of taxing in Webster County, W. Va., where new owners pay high taxes based on the purchase price of their land, but longtime owners of similar land pay low taxes based on old, outdated assessments. The coal companies say that they are paying 35 times more in taxes than longtime property owners.

This is a classic violation of the Constitution’s guarantee of “equal protection of the laws,” attorney E. Barrett Prettyman Jr. told the court.

Several minutes into the argument, Justice William J. Brennan Jr. asked directly what other justices had already hinted at.

“If the ‘welcome stranger’ method is a denial of equal protection, why isn’t Proposition 13 equally invalid?” Brennan inquired.

Prettyman replied that the similar property taxation system used in California is written into law, but the county assessor in Webster County appeared to be violating that state’s laws.

The West Virginia tax code says that assessments are to reflect the “true value” of the property, but in practice only newly purchased property is reassessed, he said.

By contrast, Proposition 13 of 1978 wrote a new taxing system into California’s Constitution. For longtime homeowners, property assessments were frozen at the 1975 level. Increases are limited to 2% a year. For new homeowners, the assessment is based on purchase price. Although the tax rate for both groups is set at 1%, the disparity in assessments means that neighbors in a typical California community, where home prices have escalated sharply in recent years, often pay vastly different property taxes.

Throughout the hourlong arguments, the justices appeared to be searching for a way to strike down the West Virginia taxing method without creating the basis for striking down Proposition 13.

Justice Brennan seemed unconvinced by the difference between the West Virginia and California approaches, noting that “legislatively mandated” discrimination is still discrimination.

But Justice Antonin Scalia suggested that California’s tax policy could be upheld if state officials merely presented a “rational basis” for it. Those are the code words that the high court has used in deciding discrimination cases that do not involve groups such as blacks or women.

In September, 1978, the California Supreme Court upheld Proposition 13 against a variety of legal attacks. The state had a rational basis for treating existing homeowners better than new buyers, the state justices said, because it wanted to protect the elderly from the ravages of inflation and its impact on their taxes. At the time, the U.S. Supreme Court did not rule on the issue.

Argue Against ‘Rigid Rule’

Joel Fox, president of the Los Angeles-based Howard Jarvis Taxpayers Assn., which carries on the crusade of the late tax fighter who promoted the Proposition 13 initiative measure, listened to court arguments Wednesday and said afterward that he was worried that a ruling in the coal company’s favor could subject the California law to a federal court attack.

“We are concerned this could open a real can of worms,” Fox said. “If they decide this is an equal protection violation, there will be a lawsuit filed in California within 30 seconds.”

In a friend-of-the court brief, the Jarvis group, joined by the Pacific Legal Foundation, urged the high court to avoid a “rigid rule of equal taxation” that could result in the scrapping of Proposition 13.

However, the National Taxpayers Union, in a separate brief, urged the justices to strike down the taxing methods in West Virginia and California because they “systematically discriminate against newcomers.” Its brief says that states should be required to hold down taxes for all residents, not just some.

A ruling in the case (Allegheny Pittsburgh Coal Co. vs. County Commission of Webster County, 87-1303) can be expected by the spring.