To: Board of Supervisors
From: Robert Campbell, Auditor-Controller
Report Title: Deny claims filed for unitary property taxes paid for tax year 2019/20
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
DENY the claims filed by Kinder Morgan, Inc. (on behalf of its subsidiary, SFPP, L.P.) in the total amount of $324,441.25, plus interest, in unitary property taxes and rights of way taxes paid for tax year 2019/2020.
FISCAL IMPACT:
No fiscal impact.
BACKGROUND:
Kinder Morgan, Inc. (on behalf of its subsidiary, SFPP, L.P.) (“Claimant”) has filed two separate claims for refund of unitary property taxes and rights of way taxes against the County.
In March 2024, Kinder Morgan, Inc. submitted a claim for refund of unitary property taxes to the County in the amount of $313,948.91, alleging that the statutory formula used to calculate its property tax rate violates the California Constitution. [This claim is provided in Attachment A.]
In March 2024, Claimant submitted a separate claim for refund of rights of way taxes to the County in the amount of $10,492.34, alleging that it is not subject to the assessment jurisdiction of California State Board of Equalization and is only subject to the local assessment jurisdiction of the County. Therefore, it should have been subject to the local tax rate, which is lower than the unitary tax rate. [This claim is provided in Attachment B.]
Claimant requests interest on the requested refund amounts.
ANALYSIS:
Unitary Property Taxes
Under the California Constitution, certain property owned or used by utilities and telecommunication companies, among others, is annually assessed by the State Board of Equalization ("BOE"). (Cal. Const., article XIII, § 19.) The amount of such "unitary property" assessments attributed to the County by the BOE are then taxed by the County in accordance with a statutory formula. (See Rev. & Tax. Code,§100.)
The Auditor-Controller uses the amount of unitary property assessments annually provided by the BOE to calculate the amount of taxes to be levied on these properties in accordance with a formula mandated by state law (Rev. & Tax. Code, § 100). Based on this formula, the unitary tax rate for 2019/2020 is 1.6865%. The Auditor-Controller has confirmed that the rate was correctly calculated pursuant to the state law, and the Office of the State Controller has deemed it correct.
Claimants argue that they are entitled to a partial refund of taxes on the grounds that they were illegally levied because the formula used to calculate the rate is unconstitutional. However, the County is given no discretion on its calculation of the unitary tax rate; it is a mandated formula set by the State. A January 2023 decision from the California Court of Appeals has affirmed the constitutionality of the rate. (County of Santa Clara v. Sup. Ct. (2023) 87 Cal.App.5th 347.) For these reasons, the claim for refund of unitary property taxes should be denied.
Rights of Way Taxes
While the County assesses the intercounty pipeline rights-of-way, the County is required to use the unitary tax rate established under Revenue and Taxation Code section 100(b) to calculate the rights of way tax. (Rev. & Tax. Code, § 100.01.) The County is given no discretion on the calculation of this rate. Accordingly, the rights of way tax rate for 2019/2020 is the same as the unitary tax rate, i.e., 1.6865%, which has been confirmed to be calculated correctly. For these reasons, the claim for refund of rights of way taxes should be denied.
Untimely Claims
Claimant’s claims are denied as untimely per Revenue & Taxation Code section 5097(a)(2) because there is no evidence that they were submitted within four years of the first installment payments of unitary property taxes and rights of way taxes.
Standing
Claimant’s claims are denied as Kinder Morgan, Inc. does not have standing to request refunds on behalf of SFPP, L.P.
CONSEQUENCE OF NEGATIVE ACTION:
Failure to take the recommended action would result in interest continuing to accrue on a potential court-ordered refund of property taxes.
cc: Rebecca Hooley, Assistant County Counsel; Jaskiran Samra, Deputy County Counsel; Laura Strobel, County Administrator’s Office