To: Board of Supervisors
From: Thomas Geiger, County Counsel
Report Title: Denial of claims filed by Golden State Water Company (formerly known as, Southern California Water Company) and ExteNet Systems, LLC.
☒Recommendation of the County Administrator ☐ Recommendation of Board Committee
RECOMMENDATIONS:
DENY the claims filed by Golden State Water Company (formerly known as, Southern California Water Company) and ExteNet Systems, LLC in the total amount of $81,803.17, plus interest, in unitary property taxes paid for tax year 2019/2020.
FISCAL IMPACT:
No fiscal impact.
BACKGROUND:
Golden State Water Company and ExteNet Systems, LLC (collectively, “Claimants”) have filed claims for refund of property taxes against the County, essentially alleging that the statutory formula used to calculate their property tax rate violates the California Constitution.
In October 2023, ExteNet Systems, LLC submitted a claim to the County in the amount of $19,600.92. In December 2023, Golden State Water Company submitted a claim to the County in the amount of $62,202.25. [The claims are provided in Attachments A-B.] The claims, in the collective amount of $81,803.17, are for property taxes paid for tax year 2019/2020. Claimants request interest on the requested refund amounts.
Claimants have submitted refund claims for prior years based on the same allegation, which the County has denied. Other counties that have received similar refund claims from at least one of these Claimants appear to have uniformly denied the claims. In January 2023, Santa Clara County prevailed before the Court of Appeal on the basis that the statutory tax rate imposed on property owned by such entities does not violate the California Constitution.
ANALYSIS:
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 should be denied.
Additionally, Golden State Water Company’s claim is denied as untimely per Revenue & Taxation Code section 5097(a)(2) because it was not submitted within four years of the December 3, 2019 payment of property taxes.
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.