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Prop. 13 Foes to Go to High Court : Property taxes: U.S. will be asked to rule in two cases where levies are disproportionately higher than those paid by others with similar properties.

TIMES LEGAL AFFAIRS WRITER

Rebuffed by the California courts, legal foes of Proposition 13 now are turning to the U.S. Supreme Court, resting their hopes on a cryptic footnote in a 1989 high court ruling that may have invited a far-reaching challenge to the 1978 initiative.

Attorneys for a Los Angeles homeowner and a Northern California department store plan to file last-ditch appeals soon with the federal high court contending that a key provision of the measure is unconstitutional because it forces recent property buyers to pay dramatically higher taxes than their neighbors.

The outcome could have dramatic consequences for California property owners--both individuals and businesses--a growing number of which have seen their property tax bills soar as they moved or their companies changed ownership.

But legal authorities say the challengers face a steep uphill battle. They note that:

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* The justices grant formal review in relatively few cases, hearing fewer than 3% of the 5,000 appeals that flood the court annually.

* Generally, the high court has deferred to the states on tax matters, and it particularly may not want to intercede in a constitutionally difficult and politically volatile issue like Proposition 13.

* Perhaps most important, it may well be that the footnote at issue was not an invitation to challenge Proposition 13 but an indication that the court views the measure as constitutionally valid.

“I think it’s unlikely the Supreme Court will want to hear this case,” UCLA law professor Julian N. Eule said. “This is a long shot.”

Proposition 13 restricted property tax rates to 1% of value, rolled back assessments to 1975 levels and limited assessment increases to 2% a year. But when property is sold or new construction added, it is reassessed at full market value. As a result, sharp disparities have emerged in the taxes paid on comparable properties purchased at different times.

The state Supreme Court upheld Proposition 13 in 1978, and the ruling was not appealed to the U.S. Supreme Court. There the issue stood until 1989, when the federal high court in a separate case struck down West Virginia’s system in which county assessors made substantially higher assessments on newly purchased property than on comparable, long-held property.

The justices said the equal protection clause of the federal Constitution requires “rough equality in tax treatment of similarly situated properties.”

Tucked into the ruling was what has become known in legal circles as “Footnote 4,” a brief and somewhat unclear reference to California’s Proposition 13, an issue that was not before the court.

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The footnote said: “We need not and do not decide today whether the (county) assessment method would stand on a different footing if it were the law of a state, generally applied, instead of the aberrational enforcement policy it appears to be. The state of California has adopted a similar policy (Proposition 13). . . . The system is grounded upon the belief that taxes should be based on the original cost of property and should not tax unrealized paper gains in the value of the property.”

Critics of the initiative saw the footnote as a veiled plea for a renewed challenge to the key provision--requiring reassessment at full market value when property changes hands. A new round of legal warfare over the measure was begun in the state courts.

In one test case, lawyers for Los Angeles homeowner Stephanie Nordlinger charged that the reassessment provision illegally discriminates against new buyers. They cited studies showing new owners pay five times or more what neighbors pay for comparable but longer-held property.

Nordlinger, who bought a home in 1988 for $170,000, will have paid nearly $19,000 in property taxes by 1998, they said. Neighbors who bought a comparable home in 1975 will have paid only $4,500 in the same period, they said.

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In a second case, attorneys for R. H. Macy & Co. brought suit challenging the sharp increase in property taxes for a Macy’s store in Contra Costa County after the firm underwent a corporate restructuring in 1986 that was deemed a change in ownership. As a result, the lawyers said, Macy’s is paying 250% the taxes paid by nearby rivals J. C. Penney and Sears.

Last fall, state appeals courts ruled against Nordlinger and Macy’s, upholding the constitutionality of Proposition 13. And in brief orders, the state Supreme Court on Thursday refused to review the decisions. Only one of the seven court members--Justice Joyce L. Kennard--voted for a hearing, three short of the number required.

Attorneys for Nordlinger and Macy’s indicated they will file appeals with the U.S. Supreme Court, hoping the justices will hear the cases during the term that begins next October. If the high court decides to hear the matter, a ruling could come early next year.

The central issue in the appeals will be whether the reassessment provision, resulting in disparities among taxpayers, denies equal protection of the law.

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“The question is, can you discriminate against commercial competitors, having identical properties and receiving identical services, based solely on the time they began their business?” said Charles R. Ajalat of Los Angeles, an attorney for Macy’s. Because firms are not treated equally, the reassessment provision should be struck down, Ajalat says.

Jonathan M. Coupal of the Pacific Legal Foundation, a lawyer defending Proposition 13, believes the law reflects a “rationally based” policy and thus meets constitutional requirements. Critics of the measure should turn to the Legislature, or the initiative process, rather than the courts.

“The opponents are trying to make a policy argument before a legal forum,” he said. “I think the court reaction is going to be, as it has been, that if you see a flaw in the system, you should address the political process.”

Not surprisingly, the two sides in the Proposition 13 dispute drew different conclusions from the high court’s decision in the 1989 West Virginia case.

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Challengers see the systems in West Virginia and California as basically the same in effect--creating “gross tax inequities” among similarly situated taxpayers.

Backers of the measure say the systems are different. In West Virginia, property was classified uniformly but treated differently by local assessors who were able to place disproportionately large assessments on new owners. In contrast, backers say, California treats all taxpayers alike, assessing all property on their acquisition value.

Whether the federal high court will decide to hear the appeals is anyone’s guess. UC Berkeley Law School Dean Jesse H. Choper, who has served as a legal consultant on Proposition 13, notes that the state Supreme Court’s refusal to hear the case is no guarantee that the federal court also will refuse.

But while Choper himself sees little constitutional difference between the West Virginia and California tax systems, he believes the 1989 footnote “suggested there could be a distinction.” Such a distinction could be enough to save Proposition 13 from successful constitutional attack.

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Jonathan David Varat, a professor of constitutional law at UCLA, believes the federal high court may agree to review the constitutionality of Proposition 13. But it may do so only to make clear what it meant to say about state tax systems in Footnote 4.

“The court could deny review outright, or grant review and issue a decision to explain what it meant. But I think it is unlikely the court would go on to overturn what California courts have done in upholding Proposition 13.”


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