Suit Alleges Errors in Property Tax Refunds

A Hermosa Beach businessman has filed a lawsuit seeking class-action status alleging that Los Angeles County systematically shortchanges taxpayers when refunding their overpaid property taxes.

Two major corporations have sued the county over the issue, winning more than $3 million in judgments and settlements. The businessman, Roger Bacon, found at the end of a lengthy battle with the county that his own refund checks were short $1,500 because of errors in computing the interest he was due on overpaid taxes.

Because the county’s checks do not state the amount paid as interest or how it was computed, Bacon was only able to discover the errors with the aid of an experienced tax lawyer who had litigated one of the successful lawsuits against the county. Given that the county gives more than 200,000 refund checks annually, Bacon decided he had to act.

“People . . . [are] not going to know how to figure out this interest,” Bacon said. “These people need the money worse than I do. Why shouldn’t they get the money?”

In court papers, the county denies Bacon’s allegations. The lawyer handling the case for the government, Albert Ramseyer, declined to comment, saying he does not discuss pending court cases. But other county officials say Bacon’s case is an anomaly and that, if he hadn’t filed his lawsuit, they would have corrected their error by sending him his second refund.

“Our intent is to ensure the taxpayers get everything they’re entitled to, and we believe they have,” said Marianne Reich, the property tax division chief in the auditor-controller’s office.

There are two issues in the litigation. First is the county’s alleged failure to calculate the 9% interest due in refunds of payments made before March 1, 1993, as required by law. In Bacon’s case and others, the county has computed the interest at a lower rate it is currently permitted to use.

Second, the county allows interest to accrue only after the date the entire tax bill is paid, even though most property taxes are paid in two installments months apart. Lockheed Martin Corp. successfully challenged this policy in a 1996 lawsuit that was upheld by an appeals court, but the decision was “unpublished,” meaning it does not apply to other cases.

County officials say they believe state law is on their side in the way they have allowed interest to accrue. But Robert Pool, who litigated the Lockheed case and is Bacon’s attorney, disagreed.

“They just haven’t been doing it right,” Pool said. “Their policy is to fleece the taxpayer.”

Pool referred to county documents showing that in 1996, 11,000 refund checks were distributed without any interest and the county waited for calls from the taxpayers before resolving individual cases. Other documents show that the auditor-controller’s computer cannot always calculate the correct interest rate and, again, the county’s policy is to rectify the error only when taxpayers complain about it, county documents state.

On the first issue, acting Auditor-Controller Michael Galindo said it is unclear if any of the 11,000 refunds would have been entitled to interest and that individual reviews would have been expensive.

On the subject of the computer, Reich said that just a tiny fraction of taxpayers--if any--would miss out on the interest because of the system’s calculations, and that it would cost “hundreds of thousands of dollars” to reprogram it.

“It sounds worse than it is,” she said of the county policy to recalculate interest only after complaints.

It sounds bad to Bacon. “If the taxpayers have to live by it, then the people who are collecting the money should have to live by the law that is on the books,” he said.

In 1996, Lockheed Martin won a tax refund after its vast county properties were reassessed, first by the assessor’s office and then by the Assessment Appeals Board. But the corporation retained Pool and sued the county. Lockheed contended that it was cheated out of hundreds of thousands of additional dollars because the county failed to apply the 9% rate to all its refunds and violated state law by not allowing interest to accrue until the final payment came in.

A Superior Court judge ruled in Lockheed’s favor and awarded the aerospace giant more than $300,000. The county appealed the ruling but lost. However, because the appellate court’s opinion was unpublished, it was not circulated and so cannot be cited as legal precedent.

The county has continued to accrue interest only from the date of final tax payment, and officials say they believe state law is on their side.

Also in 1996, court documents show, Hughes Aircraft won $950,000 in unpaid interest after a Superior Court jury found that the county failed to calculate the interest on the corporation’s property tax refund at 9%. Last year, Raytheon, which merged with Hughes, sued the county again, contending that it had been shortchanged on more than $1 million in interest on the same property. The case was settled for $1.8 million, attorneys said.

On the question of the 9% interest for pre-1993 payments, the county is in agreement with Bacon. “There no question about it,” said Reich of the auditor’s office. “The law is very clear.”

But acting Auditor-Controller Michael Galindo cautioned that though the law is clear that the interest is 9%, there are many complexities involving whether it applies to refunds sought during a certain time. Additionally, he said, the interest rate may depend on how a tax payment is structured.

The auditor’s computer, however, automatically calculates all interest at a variable rate of between 3% and 6% now used by the county under state law.

Because the 9% rate applies only to overpayments that are more than 7 years old, Reich says it is virtually never an issue. Most refunds of that age are made after litigation or a review by the Assessment Appeals Board--as was Bacon’s. In those instances, Reich said, the refund is calculated manually.

“We catch 98%” of all errors, Reich said. “There are some that slip through the cracks but in that case the taxpayer needs only give us a call.”

Bacon says he barely even realized an error was made in his case.

He figured that the tax bills on his two-acre Hermosa Beach shopping center were inflated because the county was billing him for 11,000 square feet of land he was leasing from the city. In 1996, he said, he applied for a refund.

During his first trip to the Assessment Appeals Board, Bacon met attorney Pool. In the fall of 1998, Bacon won his argument before the board and received seven refund checks. He believed he had gotten what he wanted, he said.

But Pool cautioned him against being certain and ran Bacon’s numbers through a spreadsheet designed by an accountant for the Lockheed case. It found that because of failure to compute 9% interest, Bacon lost $1,521.58. Because of the delay in computing interest, Bacon missed out on an additional $48.50.

Taxpayers have four years in which they can seek a refund on property tax payments. Bacon is seeking to include taxpayers from 1995 onward in his lawsuit. Last month a Superior Court commissioner ruled against the county’s attempt to dismiss the lawsuit. The county is appealing that decision.