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HomeMy WebLinkAboutMINUTES - 12201983 - 2.14 �T THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA Adopted this Order on December 20, 1983 , by the following vote: F AYES: Supervisors Powers, Fanden, McPeak, Torlakson, Schroder NOES: None ABSENT: None ABSTAIN: None SUBJECT: Claim for Refund of Property Tax The Board having received from Mitchell J. Musey, Jr. , Controller, Southern Pacific Pipe Lines, Inc. , a claim for refund of property tax paid by said firm with respect to the fiscal years July 1, 1979 to June 30, 1983; IT IS BY THE BOARD ORDERED that said claim is REFERRED to County Counsel. 1 hmby certify that this is a true and correct copy Of an action taken and entered en the rtiri-'Wz co i:.e Board of 5uaervlsors on the daaiteeOWMI. ATTESTED: J.R. OLSSCNk , CoUtZTV CLERK and ex officio Cicrk of the 003rd cc: County Counsel County Administrator By IDePUW 1220. 2.14 to", 3 91 BEFORE THE BOARD OF SUPERVISORS In the matter of the liability of SOUTHERN ) PACIFIC PIPE LINES, INC. for property tax paid j with respect to the fiscal years July 1, 1979 to ) Claim for Refund June 30, 1983 ) Clerk of the Board of Supervisors County of Contra Costa Courthouse Martinez, CA 94553 We are hereby filing a claim for refund of property tax, within the time limit prescribed by Revenue and Taxation Code section 5097, with respect to the tax years July 1, 1979, through June 30, 1983. Substantially identical claims are being filed with the boards of the supervisors of most other California counties in which Southern Pacific Pipe Lines, Inc. operates. This claim for refund is with respect to the tax payments and in the amounts shown on the attached tax data sheet. The grounds of this claim for refund are described in the Statement in Support of Claim for Refund of Property Tax, also attached. Mitchell J. MuseV, Jr. Controller Southern Pacific Pipe Lines, Inc. December 9, 1983 Enclosure CLAIM FOR REFUND - TAX DATA SHEET COUNTY: CONTRA COSTA TAX PAYMENTS Payment Due Date Payment Amount 1979-80 $ 209,481 .36 1980-81 192,053.40 1981-82 185,138. 10 1982-83 189,636.56 OVERPAYMENT AMOUNTS TO BE REFUNDED 1979-80 $ 113, 120.00 1980-81 99,870.00 1981-82 81 ,460.00 1982-83 85,340.00 TOTAL $ 379,790.00 393 BEFORE THE BOARD OF SUPERVISORS In the matter of the liability of SOUTHERN ) PACIFIC PIPE LINES, INC. for property tax paid ) with respect to the fiscal years July 1, 1979 to ) Claim for Refund June 30, 1983 ) STATEMENT IN SUPPORT OF CLAIM FOR REFUND OF PROPERTY TAX SOUTHERN PACIFIC PIPE LINES, INC. By: Mitchell J. Musey, Jr. Controller Of Counsel A. I. Weber Senior General Attorney W. E. Saul General Attorney r.' December 9, 1983 Ao 394 Enclosure BEFORE THE BOARD OF SUPERVISORS In the matter of the liability of SOUTHERN ) PACIFIC PIPE LINES, INC. for property tax paid ) with respect to the fiscal years July 1, 1979 to ) Claim for Refund June 30, 1983 ) STATEMENT IN SUPPORT OF CLAIM FOR REFUND OF PROPERTY TAX General Recitals A. Amount of Refund Claimed. The claim for refund of property tax is with respect to such tax paid by claimant Southern Pacific Pipe Lines, Inc., described in the tax data sheet attached to the claim. The claim is for refund of the amounts stated in the tax data sheet attached to the claim, or such other or greater amount of tax as may be found refundable, together with interest due and payable with respect thereto under the law. The claim for refund is essentially with respect only to taxes (and is for only a portion thereof) paid pursuant to assessments of pipeline properties (as distinguished from tax paid pursuant to assessments of "non-pipeline" property), per the determinations of the State Board of Equalization. The overpayment amounts refund of which is being claimed are estimated in certain respects. B. Identity,of Claimant. Claimant Southern Pacific Pipe Lines, Inc. is a Delaware corporation whose principal offices are at 610 South Main Street, Los Angeles, California 90014. Claimant is, among other things, engaged in business as a common carrier of petroleum products by pipeline, and as such is engaged in interstate commerce. Claimant operates as a common ' l�; 395 carrier by pipeline in California and in the states of Oregon, Nevada, Utah, Arizona, New Mexico and Texas. C. Procedural Events Leading Up To This Claim. Principal procedural events leading up to the present claim for refund were, in summary, generally as follows for each of the tax years involved: 1. There was formal presentation of an industry capitalization rate (for use in capitalizing earnings as a value indicator) early in the year. 2. There was informal presentation of accounting and financial data to the staff of the State Board of Equalization* in the first part of the year, and thereafter an informal meeting was held with the Board's staff. 3. On various dates in May, a formal presentation was made by claimant before the Board which included claimant's calculations of value indicators. 4. By notices of unitary value, claimant was informed that the Board had determined its values of the claimant's California pipeline operating properties. 5. On various dates, claimant filed petitions for reassessment with the Board, objecting to the Board's assessments based on its valuations. There was thereafter a hearing on said petitions before the Board. 6. Claimant's petitions were denied, or were substantially denied, and pursuant to claimant's request the Board issued written findings and a decision with respect to its denial of the claimant's petitions for reassessment. The valuations to which claimant objected underlay the assessed values which were the measure of the property tax billed to and paid by claimant in installments in the tax years involved. * The informal presentations of accounting and financial data, and the formal presenta- tions to the Board would include some data and some handling pursuant to the wishes of the Board's staff. Claimant does not always agree with, but seeks to accommodate, the staff's wishes. IL , 396 2 D. Summary of Pertinent General Facts and of Applicable Law. Because claimant is a regulated pipeline, its pipeline properties in California are valued and assessed by the Board of Equalization of the State of California pursuant to Section 19 of Article XIII of the California Constitution. See also Section 721 of the California Revenue and Taxation Code. The State Board of Equalization values pipeline properties such as those of claimant by use of the principle of unit valuation. See Section 723 of the Revenue and Taxation Code. Section 731 of the Revenue and Taxation Code requires the State Board, upon valuing the unitary property of an assesses, to mail a notice to the assessee "stating the amount of the full value and assessed value of the assessee's unitary property". The assesses may petition for reassessment if the assessee disagrees with the State Board's assessment. Section 744 of the Revenue and Taxation Code provides for the making by the State Board of written findings and a decision upon request therefor by an assessee. The assessed value of the assessee's unitary property in California as determined by the State Board is spread by the State Board among the counties, cities and revenue districts in which the assessee operates. The portions of the Californai assessed value so spread are reported by the State Board by transmission of assessment rolls to the counties, and the assessed values shown in such assessment rolls serve as the basis for measuring the property tax to be billed by the counties. See Section 756 of the Revenue and Taxation Code. The counties serve as agents of the cities therein, and act for revenue districts, in billing the assessee for and making refunds of property tax. See Sections 122 and 5099 of the Revenue and Taxation Code. Article XIIIA was added to the California Constitution by Proposition 13 on the 1978 ballot. It mandates, among other things, a "rollback" of property value for property tax purposes to its 1975 value. c. � 397 3 E. Authority for, Scope of and General Reasons for Claim. The claim for refund of property tax is made pursuant to Sections 5096 and 5097 of the Revenue and Taxation Code. No refund of the taxes covered thereby, or any part thereof, has previously been made to claimant or to any other person for claimant's benefit.* The claim for refund is being filed within four years after making payments of the tax in question, as required by Revenue and Taxation Code Section 5097(b). The claim is with respect to tax assessed by and on behalf of the county and also of any cities and revenue districts for which the county acts as agent or otherwise. The claim for refund is made because the amounts claimed were illegally assessed and levied and erroneously and illegally collected. There has been as to a portion of the tax an unconstitutional multiple burden on interstate commerce. There has also been a violation of claimant's constitutional right to due process, both substantive and proce- dural, and in and to the extent that there has been disparate treatment of taxpayers, a violation of claimant's constitutional right to equal protection of the laws. The amounts claimed were illegally assessed and levied and erroneously and illegally collected for the reasons set forth below. There has been resort to invalid valuation methods and adoption of fundamentally wrong principles in making the property valuation underlying the contested tax assessments. * There may have been refunds of tax made by reason, e.g., of clerical errors, but the claim is distinctive from such refunds. There have also been some additional tax payments for similar reasons not reflected, for the sake of simplicity, in the present claim. s l.. i 39+8 4 II. Specific Grounds for Refund of Tax A. General Observations. The portion of the tax attributable to the excess of the valuations determined by the Board over the values suggested by claimant is the product of a combination of illegal and fundamentally incorrect handling of certain elements by and at the behest of the Board's staff. B. Incorporation of Petitions for Reassessment and Prior Claims The specific grounds for refund of property tax are those set forth at length in the several petitions for reassessment filed by claimant with the State Board of Equalization. What is said in those petitions for reassessment, which are in the files of the State Board of Equalization, and which are incorporated herein by this reference thereto, will not be repeated here except in part as set forth below. The petitions for reassessment are only a minor part of the administrative records made for the tax years involved. The entire administrative records are incorporated here in by this reference thereto. Illustrative of what elements of the State Board or Equalization's valuations and assessments were challenged in claimant's petitions for reassessment and which are challenged in the claim for refund are those set forth in the 1982 Petition for Reassessment and Motion to Rescind Assessment as to Warehouse Type Tank Storage and Related Terminal Facilities. The full text of that 1982 petition and motion is set forth on the following pages. 399 5 BEFORE THE BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA In the matter of the 1982 ) PETITION FOR REASSESSMENT; Assessment of the Pipeline ) MOTION TO RESCIND ASSESSMENT Properties of SOUTHERN ) AS TO WAREHOUSE TYPE TANK PACIFIC PIPE LINES, INC. ) STORAGE AND RELATED TERMINAL FACILITIES SOUTHERN PACIFIC PIPE LINES, INC. , among other things a common carrier pipeline company, hereby petitions the Board to review, and upon review, to reduce the 1982 assessment of $135, 000 , 000 fixed by the Board on May 20 , 1982, as the California portion of the value of petitioner ' s multistate pipeline operating unit, to $65, 615 , 000. Embraced within the Board ' s 1982 assessment is a determination of value for non-pipeline warehouse type tank storage and related terminal (non-carrier ) facilities. As to this portion of the Board ' s 1982 assessment petitioner moves that the Board rescind its assessment in total upon the ground that the Board lacks assessment jurisdiction. The above $65 , 615 , 000 value of the California portion of the petitioner ' s multistate pipeline operating unit to which petitioner asks the 1982 assessment be reduced is limited to the common carrier pipeline operating unit facilities as to which the Board does have assessment jurisdiction. If, arguendo , the non-pipeline warehouse type tank storage and related terminal facilities are included in the unit , the proper value is , roughly, $74 , 000, 000. 400 6 J _ 2 _ This petition is made pursuant to section 741 of the Revenue and• Taxation Code , as amplified by procedural regulations promulgated by the Board. In accordance with Rule 906 of said regulations, this petition is in writing , it includes the petitioner ' s opinion of value , and it states, to the extent that petitioner is able from what has been furnished to it by the Board and its staff, the precise elements of the Board ' s valuation which cause the Board ' s above valuation to differ from petitioner ' s opinion of value , and which are therefore contested . The motion to rescind the portion of the Board ' s assessment covering non-pipeline warehouse type .tank storage and related terminal facilities is made on the basis that the California Constitution does not confer assessment }urisdiction upon the- Board except as to "pipelines . . . lying within 2 or more counties. " Cal . Const. A. Art. XIII, 519 . The warehouse type tank storage and related terminal facilities are not within that category, nor any other category of property over which the Constitution gives the Board assessment jurisdiction. T . Request for Oral Hearing and Transcript Petitioner desires an oral hearing , and petitioner requests that the Board make a full record of the oral hearing and furnish the petitioner with a transcript thereof ( at the petitioner ' s expense) . 9'01 7 3 - II. Estimate of Time Required for Hearing Petitioner estimates that if the Board approves incor- poration by reference the record in prior years ' proceedings the time required for hearing on its petition for reassess- ment , and its motion to rescind part of the assessment, should not exceed one day. Petitioner moves for such incorporation by reference . Petitioner will endeavor to reduce as much of its planned new presentation to written form, and to submit such written material as much in advance of the hearing date as possible , when such date has been set . But some oral testimony still may be necessary, including testimony by petitioner ' s appraisal witness, and examination of member's of the Board ' s staff involved in the valuation recommendation by the Board ' s staff, and , indeed , inquiry of the Board members themselves as to their basis for the above $135, 000 , 000 assessment. General reference back to the February 1 , 1982 , and May 5, 1982, hearings before the Board is also hereby made . Petitioner requests that the transcripts covering those hearings, and all submissions heretofore made by petitioner to the Board or its staff incident to 1982 assessment proceedings, formally or informally, and all correspondence between petitioner and the Board and its staff , be incor- porated herein by this reference thereto . Petitioner specifically incorporates by reference the capitalization rate study furnished the Board at the February 1 , 1982 , hearing . U! 402, 8 - 4 - III. Petitioner ' s Opinion of Value It is petitioner ' s opinion that the value of the California portion of the multistate common carrier pipeline operating unit of Southern Pacific Pipe Lines, Inc. , is $65, 615 , 000. A copy of the report on the appraisal of petitioner ' s California property for the assessment year 1982-83 by Arthur A. Schoenwald, D. B.A. , which is the basis for this opinion, is attached hereto . It is to be noted that Dr . Schoenwald has appraised all the properties of .petitioner , and properties other_ than those which are parts of the multistate common carrier pipeline operating unit of petitioner , including:, but not limited to , the warehouse type tank storage and related terminal facilities owned by petitioner , have in Dr . Schoenwald ' s opinion, which petitioner adopts as its own opinion, a value of $9 , 111 ,000. IV. Elements of the Board ' s Assessment Being Contested 1) Petitioner objects to the inclusion in the Board ' s assessment of any value for warehousing facilities and assets appurtenant thereto which are operated separately and apart from petitioner ' s common carrier pipeline operations and are not necessary for the latter operations . 2. Petitioner objects to the Board ' s use , and heavy reliance upon, in arriving at petitioner ' s 1982 California assessment, of its calculated RCNLD. Petitioner submitt a. 403 9 - 5 - that any reference to such RCNLD as an indi ator of value is an error for the following reasons : a. The California PUC uses HCLD, and not RCNLD, as a rate base for petitioner ' s California intrastate operations . The Board ' s publication, Assessment Practices of the State Board of Equalization Relating to Public Utilities, September 1969 , at page 27 states the correct treatment to be accorded RCNLD in the valuation of petitioner ' s property in the section entitled , "Reproduction cost new less depreciation is not applicable as an evidence of value for most state assessed property, " as follows : "In California, the rate base , the amount upon which a public utility is allowed to earn a fair return, is *origi-nal or historical cost less deprecia- tion - not reproduction cost new less depreciation. No one would pay an amount equal to reproduction costs new less depreciation for a property ( except under excep- tional conditions) when he would only be allowed to earn upon his historical cost new less deprecia- tion . . . " .* b. The FERC uses as a rate base for that por- tion of petitioner ' s operations that are of an inter- state nature a composite of HCLD and RCNLD ( the FERC * While this same point is not stated in the current publication, we believe the principle is still correct. i 404 10 6 - calculates an RCNLD which differs from - it is smaller than -- the RCNLD value generated by the Board) and , among other things , a 6% "going concern value" factor . The rate of return allowed by the FERC on this composite base is so inadequate that it essentially nullifies the impact of the consideration given by FERC to its RCNLD value . If RCNLD were to be considered as a value indicator at all it should only be so .considered as to the petitioner ' s interstate properties, and then only to the extent that the FERC approved rates are determined by the RCNLD factor . Further , it is the FERC ' s RCNLD amount , or an amount calculated upon the FERC model which generates part of the rate base , which should then be considered rather than the RCNLD amount calcu- lated by the Board . 3. Petitioner objects to the following specific elements or deficiencies in the Board ' s RCNLD computation which has the effect of distorting its RCNLD: a. Failure to eliminate all of the value of property retired . The Board has subtracted some . retired property at book cost from its computed reproduc- tion cost of the whole unit which included the reproduc- tion cost of the retired property , rather than subtract- ing the computed reproduction cost of the retired property from the computed reproduction cost of the whole unit . 405 J •' J. -7- b Use of an improper table to arrive at the condition percent of the property to determine deprecia- tion. c. Use of an arbitrary 100% utility factor when pipelines are being utilized at only 60% of capacity, and scaling of other utility factors starting from this improper relationship. 4. Petitioner objects to the failure .and refusal of the Board to comply with 18 Cal . Admin. Code Rule 8 ( c) which requires that the amount of earnings to be capitalized in calculating the capitalized earnings indicator of value must be reduced by "any outlay of money or. money' s worth including current expenses and capital expenditures (or annual allowances therefor ) required to develop and maintain the estimated income" ( emphasis added ) anticipated from the " taxable property existing" on the lien date . 5. Petitioner understands the Board ' s failure and refusal to comply with Rule 8 (c) to stem from the Board ' s inapt resort to a limited life model in calculating capitalized earnings as an indicator of value . Such resort is obviously inapt in the case of a common carrier pipeline operating unit which will in fact continue to exist and function indefinitely. The limited life model assumes a hypothetical "size , shape , and duration of the estimated (future income] stream" which does not comport with reality and hence is contrary to Rule 8 (b) , which expressly recognizes projection 12 • - J 8 - of an estimated future income stream "as a level perpetual flow" where, as in the case of a common carrier pipeline operating unit, that is appropriate on the facts. Petitioner therefore objects to the Board ' s resort to a limited life model . 6 . In calculating the capitalized earnings indicator of value , on its limited life basis, the Board has employed an incorrect capitalization rate for the following reasons : a. Use of a capital structure in arriving at a basic capitalization rate which has been arbitrarily structured at 65% debt and 35% equity. Petitioner has no debt. Petitioner ' s studies indicate a prospective r purchaser_ would , based upon the structure of comparable enterprises, adopt a capital structure with a maximum of 35% debt . b. The arbitrary structuring of 65% debt further distorts the Board ' s capitalization rate by allowing only a 2. 25% factor in the capitalization rate for income taxes. 7. The Board has failed to make an adequate deduction for working capital from the total indicated value and has failed to make any deductions for other intangibles, especially going concern value which, as above noted is expressly included as an element in the FERC rate base. 8. Petitioner objects to the failure and refusal of the Board to give effect to the provisions of Article XIII-A 40 13 9 - of the California Constitution which limit the full cash value of property for tax purposes to the 1975 valuation level , with limited adjustment for subsequent increases in value , if any. It is petitioner ' s understanding that the ITT case to which reference was made at the February 1 , 1982, hearing is on appeal . V. Motion to Rescind Portion of Assessment Pertaining to Warehouse Type Tank Storage Facilities Reference is made to the May 5 , 1982 , hearing before the Board , to William B. Jackson' s May 18 , 1982 , letter to M. J. Musey, Jr . , and to correspondence following the prior year ' s February 1 , 1981 , hearing -- the February 5 , 1981 , letter f-rom M. J. Musey, Jr . to Neilon M. Jennings ; the March 4 , 1981 , letter from Neilon M. Jennings to M. J. Musey , Jr . ; the March 13 , 1981 , letter from Arnold I. Weber to Neilon M. Jennings ; the March 20 , 1981 , letter from Neilon M. Jennings to Arnold I . Weber ; and the March 30 , 1981 , letter from Arnold I. Weber to Neilon M. Jennings -- on the question of the Board ' s assessement jurisdiction over any of petitioner ' s properties other than its common carrier pipeline operating unit properties located in California. The above letters are specifically incorporated herein by this reference thereto . It is to be noted that petitioner has always had some non-pipeline property assessed by local assessors instead of the Board -- land and certain non-carrier facilities not 408 14 J - 10 - necessary to the operation of the pipeline leased out to third parties, and the present assessment jurisdictional question is as to where the pipeline vs . non-pipeline jurisdictional line is properly to be drawn . The question presently presented as to warehouse type tank storage and related terminal facilities, and property items appurtenant thereto , has existed from the time that petitioner first offered such warehouse type facilities for lease to its pipeline shippers who desired to lease such facilities in addition to using petitioner ' s common carrier pipeline facilities. But there was no concentrated focus on explicitly separating , for business management reasons , the always implicitly separate such warehouse type facilities from the common carrier pipeline facilities until 1980 and the explicit separation thereof since 1980 occasioned petitioner ' s inquiry into the present property tax assessment jurisdiction question. The warehouse type tank storage and related terminal facilities and property items appurtenant thereto not constituting "pipelines . . . lying within 2 or more counties, " the Board does not have assessment jurisdiction as to them, as elaborated upon in the above noted letters written by Arnold I. Weber . VI. Submission of Further Material by Petitioner Petitioner believes that what is being submitted hereby results in compliance by petitioner with the Boards 409 15 • J j procedural property tax rules and regulations governing state asses sees . But as a precaution petitioner hereby requests an extension of time for the filing of further material , pursuant to Rule 913 (d) . VII. Request for Findings and Decision Petitioner requests 'that written findings on the con- tested points set forth above be :Wade and furnished to petitioner with the Board ' s written decision. It is re- quested said written findings be made in sufficient detail that the underlying facts and rationale of. the Board are fully described . Respectfully submitted , SOUTHERN PACIFIC PIPE LINES, INC . By A. W. Coulter Tax Commissioner Dated: July 9 , 1982 Of Counsel : Arnold I . Weber William E. Saul C. Bruce Hamilton George ,L. Kirklin 4K 16 nl. The effect of the "valuation" by the State Board of Equalization is to discriminate unlawfully against claimant as a pipeline. The valuations calculated by the Board's staff are discriminatory in that the relationship thereof to claimant's net earnings is out of proportion to valuations and net earnings of business enterprises generally. Improper levies of California tax upon property were held to be unconstitutional when the Board was very new. See County of Santa Clara v. Southern Pacific Railroad Company, et al., 18 Fed. 385 (Cir. Ct. Calif. 1883), affirmed 118 U.S. 394 (1886), with respect to 1881 and 1882 taxes. The taxpayers in those cases were held to be entitled to equal protection of the laws under the Fourteenth Amendment to the United States Constitution, and it was said that equal protection forbids unequal exactions of any kind, and specifically it forbids unequal taxation. Claimant is similarly entitled to equal protection of the laws, and the State Board of Equalization may not lawfully deny it that equal protection of the laws. 17 411 IV. Declaration. The undersigned hereby certifies and declares under penalty of perjury that the foregoing recitals are true and correct, and that he is duly authorized to act on behalf of claimant as an officer thereof, with the title shown below, which is true and correct. SOMEM PACIFIC PIPE LINES, INC. Ey: Mitchell J. Mosey, Jr. Controller December 9, 1983 Of Counsel A. I. Weber Senior General Attorney W. E. Saul General Attorney 18 4121