L.A. County Targets Satellites in Out-of-This-World Tax Plan

Los Angeles County officials, realizing that there is no tax collector in outer space, hope to fill the void.

Reaching 22,300 miles above the equator, boldly going where no tax collector has gone before, Los Angeles County Assessor Rick Auerbach is angling to impose property taxes on several satellites.

Though never done before in California, the move is legal, say state and county tax attorneys. That’s because, they say, nobody else is taxing the satellites and they are valuable property owned by a Los Angeles County-based company.

Worth as much as $100 million each to Hughes Electronics in El Segundo, the satellites could bring in millions of dollars a year in taxes to schools and government. County officials are considering assessing at least eight satellites owned by Hughes.

The company is not happy about the tax collector’s attempt to extend his jurisdiction beyond this world.

Brian Paperny, Hughes vice president of taxes, described the company’s executives as “very concerned with the concept of a tax being assessed on a stationary object 22,300 miles away from the Earth, which is residing in a fixed parking slot . . . over the equator, far, far away from Los Angeles County and the borders of California.”

The idea has sparked a debate more cosmic than most in the annals of property taxation.

Auerbach, the assessor, figures that satellites are no different from other movable personal property that he has authority to tax--like boats, construction equipment and ice skating costumes.

Yes, said Auerbach, who has researched the issue, in a 1976 case a judge determined that the property of the Ice Capades could be taxed by Los Angeles County although it spent most of the year traveling elsewhere with the ice-skating extravaganza.

“It happens with a lot of other property,” said Auerbach. “The difference with the satellites, obviously, is that they’re pretty far removed from Earth.”

Hughes argues that the satellites are in a different class altogether.

“The property in question here is geostationary,” said Larry Hoenig, a San Francisco attorney representing Hughes Electronics. “Geostationary satellites sit above the equator in a fixed position; they do not rotate around the Earth. So the satellites we’re talking about here are not movable property.”

Attorneys for the state Board of Equalization, consulted by Auerbach, came down on the county assessor’s side.

“While the satellites are in Earth orbit,” wrote the Board of Equalization attorneys in a background paper, “they nonetheless have a situs for tax purposes in Los Angeles County, California.”

Auerbach’s office first began questioning whether it could tax eight satellites during a routine audit this year of the property that Hughes Electronics owned from 1991 through 1994. If Auerbach succeeds in taxing those satellites, presumably other satellites owned by Hughes and its subsidiaries would be taxed.

The satellites serve a multitude of functions, from beaming HBO movies into American homes to speeding up credit card processing for motorists who pay at unmanned gas pumps, said Hughes spokesman Richard Dore.

Hughes launches the satellites either from Cape Canaveral in Florida or from French Guyana, he said. They are then guided to an orbit approved by the Federal Communications Commission. The satellites remain fixed in that orbit for 10 to 15 years, until they run out of the fuel necessary to adjust their positions so they are constantly pointed at Earth. Then they are moved to a designated space graveyard.

The satellites, said Dore, never pass over California territory.

Nonetheless, Auerbach said, he feels compelled to tax the satellites.

“I’ve read the opinions,” he said, “and it’s pretty clear in my mind that it’s taxable.”

The elected officials who oversee the Board of Equalization, an agency that collects one-third of the state’s annual revenues, are not so sure.

Last week, the board backed away from its own legal staff’s opinion. In a 3-2 vote, the board moved to warn Auerbach that the advice he got from the board’s legal division is not necessarily the opinion of the board itself and that he should not count on it.

State Controller and board Chairwoman Kathleen Connell said the issue of taxing satellites will become more pressing if President Bush succeeds in launching his missile defense strategy. She said that plan, aimed at protecting the nation from enemy missiles, entails the installation of satellite transmitters along the West Coast.

In some future regulatory process, Connell said, the board will determine just how far the tax collector can reach into outer space.

Auerbach said he thinks he knows where the issue will land.

“I do believe,” he said, “this will eventually end up in the courts.”