Supreme Court to Hear Appeal Against Prop. 13

The Supreme Court announced Monday that it will decide whether Proposition 13, California’s guiding property tax law, violates the Constitution by forcing a new homeowner in Los Angeles County to pay five times as much in taxes as her neighbors.

If the justices declare the state’s taxing system unconstitutional, it could force a multibillion-dollar upheaval in tax bills and government finances, ultimately benefiting recent home buyers at the expense of long-time residents.

Under Proposition 13, enacted in 1978, homeowners and businesses pay a 1% annual tax on the 1975 assessed value of their property, with a small adjustment for inflation. But for homes sold since 1975, the taxable value is the purchase price plus the inflation adjustment.

Because of the rapid rise in real estate prices, new buyers in communities such as Santa Monica, Beverly Hills, Sherman Oaks and Pasadena are paying at least 12 times as much in taxes as next-door neighbors who bought nearly identical homes before 1975, the high court was told.

As the justices opened their fall term Monday, they issued a brief order saying they will hear an appeal filed by Stephanie Nordlinger, an attorney and resident of Baldwin Hills, who paid $170,000 for her first home in 1988. Though she lives alone, she pays $1,700 a year in taxes, while a neighbor in a similar home who has several children in school pays $350 per year.

California is the only state in the nation to base its taxes on the purchase price of real estate rather than on its current assessed value. In the 1990-91 fiscal year, $16.4 billion in property taxes was collected in the state, according to the State Board of Equalization.

Lawyers challenging Proposition 13 hope that its harsh impact on recent home buyers and the dramatic disparities among properties will prompt the justices to strike it down. The brief arguing against Proposition 13 includes two color photos, one of a 7-bedroom, 7,800-square-foot home in Beverly Hills valued at $3.8 million, and a tiny, 980-square-foot house in Venice. Because the Venice home was purchased recently, its property tax bill is higher.

Nonetheless, the challengers face an uphill battle in the Supreme Court. Unless a state law discriminates against a particular group such as blacks, Latinos or women, the Supreme Court usually upholds such laws, even when they have a clearly unequal impact on people or businesses.

“The states have a large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation,” the high court said in 1974. Unless a tax system discriminates against “a certain class,” it will be upheld, the court said.

Based on these precedents, attorneys for California and Los Angeles County say that they are confident Proposition 13 will be affirmed.

“We have a very strong case. Over the last 50 years, the Supreme Court has overturned very few state taxing laws,” said California Deputy Atty. Gen. Bob Milam.

“This court tends to be very sensitive to state’s rights. I can’t see them overturning a taxing system that was deliberately chosen by the people of California,” said Jonathan M. Coupal of the Pacific Legal Foundation in Sacramento.

Two years ago, the high court raised questions about the constitutionality of Proposition 13 when it struck down a grossly unequal taxing system used in Webster County, W. Va. Because a local tax collector rarely reassessed property, the Allegheny Pittsburgh Coal Co. found itself paying as much as 35 times more in taxes per acre than similar, nearby properties.

In a unanimous opinion, Chief Justice William H. Rehnquist said that this unequal and haphazard taxing scheme violated the coal company’s rights to the “equal protection of the laws.”

Rehnquist said that the Constitution demands “a rough equality in tax treatment of similarly situated property owners.” By contrast, the Webster County system resulted in an “intentional systematic undervaluation” of similar properties, he said.

In a footnote to his opinion, the chief justice said that he was not voicing an opinion on whether “the law of a state, generally applied,” such as California’s Proposition 13, would be unconstitutional if it also adopted this “welcome, stranger” method of taxing.

Emboldened by that comment, California lawyers representing new homeowners and businesses sought a test case to challenge Proposition 13.

In June, the court announced that it would hear an appeal filed by the R. H. Macy Co., which said that its Concord, Calif., department store paid 2.5 times as much in property taxes as Sears and J. C. Penney stores in the same mall. But reacting to the anger of homeowners fearful that their property taxes would be raised, Macy’s officials withdrew their appeal a few days later.

In 1989, Nordlinger paid her property tax bill under protest and filed a court challenge alleging grossly unequal tax treatment under Proposition 13. However, a state appeals court in Los Angeles dismissed her complaint. The three-judge panel ruled that Proposition 13 was quite distinct from the “arbitrarily enforced” taxing scheme in West Virginia.

Lawyers for Nordlinger argue that Proposition 13 puts a double penalty on young families and newcomers to the state. Not only do they have to pay the inflated costs of California real estate, they also pay far higher taxes than their neighbors for the same government services. Fewer than 40% of Los Angeles County homeowners enjoy the benefit of lower property taxes because they have not moved since 1975, the attorneys said.

“The burden is on newcomers,” said Ann E. Carlson, a Los Angeles lawyer representing Nordlinger. “The state has totally failed to explain why they should be forced to pay so much more.”

In several earlier rulings, the high court struck down tax laws that gave favored treatment to state residents and discriminated against newcomers. The Constitution protects a “right to travel” between the states on which government may not infringe, the court said.

But state attorneys counter that Proposition 13 applies the same to all new buyers, whether they are Californians or new state residents. Nordlinger lived in a Los Angeles apartment before buying her Baldwin Hills home, state attorneys say.