Buyers of La Jolla Home Go to Court in Attempt to Kill Proposition 13 : Taxes: Their attorneys say the measure simply isn’t fair, but the legal challenge isn’t the first.
Conceding that the battle is uphill, lawyers for the buyers of a house in La Jolla urged a California appeal court Thursday to overturn Proposition 13, the landmark tax-cutting law, claiming it unfairly taxes new property owners at higher rates than longtime owners.
In oral argument before the 4th District Court of Appeal in San Diego, the lawyers said Proposition 13 violates constitutional guarantees of equal treatment. A 1978 California Supreme Court case upheld the measure but did not directly justify that discrepancy, the attorneys said.
The attack on the 1978 measure marked the third recent court bid to overturn it. Each has been sparked by a 1989 U.S. Supreme Court case that struck down a West Virginia tax plan similar to Proposition 13.
Last fall, however, other California appeal courts rejected the two other cases, saying they were obliged to follow the 1978 California Supreme Court decision. Late last month, the state Supreme Court declined to take up either case.
Attorneys in those two cases, one from Los Angeles and one from Contra Costa County, have promised appeals to the U.S. Supreme Court. Meanwhile, the lawyers in the San Diego case said Thursday that they, too, are determined to plug ahead.
“I expect this thing has to go to the (U.S.) Supreme Court,” said Robert K. Smith, the La Jolla tax lawyer who filed it on behalf of Northwest Financial Inc., a Nevada company that bought the house in 1987 in La Jolla, the upscale San Diego neighborhood.
However, the way to the Supreme Court is filled with legal roadblocks, said his colleague, Santa Cruz lawyer William K. Rentz. Tax cases are highly technical, judges would just as soon avoid them, and any case involving Proposition 13 compounds the problem because it is likely to draw press attention, he said.
“I think (Proposition 13) is an issues judges just go limp on,” Rentz said. “They don’t want to touch it with a 10-foot pole.”
In argument Thursday, Rentz said as much. “I know you’re skeptical on this issue,” he told judges Howard B. Wiener, Don R. Work and Patricia D. Benke. All three nodded assent.
Proposition 13, which California voters approved in June, 1978, rolled back property assessments to 1975 levels. Under the measure, properties sold after the initiative passed are reassessed at market value.
This two-tiered system can create a huge difference in the taxes imposed on owners, depending solely on when they bought property. Studies in the two other challenges to Proposition 13 allege that new owners pay five times or more what neighbors pay for comparable but longer-held property.
Smith and Rentz claim that such unequal treatment violates the equal protection guarantees of the federal Constitution.
Northwest Financial paid $730,000 for its La Jolla property in 1987. The house, which had been valued previously at $175,839, was then reassessed at its purchase price, and the company paid an extra $8,897 in 1988 and 1989 taxes. In the suit, it seeks a refund of that money.
The first and most formidable legal hurdle, as Smith and Rentz acknowledged Thursday, is the California Supreme Court’s September 1978 decision upholding Proposition 13. In that ruling, the court said the measure was valid because it was rational and provided for certainty in the tax system.
The ruling was not appealed, and there the issue stood until 1989, when the U.S. Supreme Court took up the West Virginia case. County assessors there made substantially higher assessments on newly purchased property than they did on comparable, long-held property.
The U.S. Supreme Court said that was illegal because tax law demands a “rough equality” in “similarly situated properties.”
Tucked into the U.S. Supreme Court decision was a brief and unclear reference to Proposition 13, which was not before the court. That footnote sparked the San Diego, Los Angeles and Contra Costa County challenges to the measure on the grounds of equal protection.
In the 1978 decision, however, the California Supreme Court tackled the issue of unequal treatment, and said that was not a sound reason for rejecting Proposition 13.
Rentz argued Thursday that a close reading of the 1978 ruling reveals that, though the issue was discussed, the specifics were not. The state Supreme Court did not meet the legal test of justifying why it was fair to penalize subsequent buyers with higher taxes, he said.
Wiener said judges were “generalists” and asked why a choice of imprecise language in a 1978 case should, 13 years later, prompt the 4th District court to challenge a court one step up the legal ladder.
Because, Rentz said, what the state Supreme Court “ended up doing was broadbrushing everything, including the issue that was appropriate” to decide specifically.
The 4th District court has 90 days to decide the case.
