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Deny the Claim for Refund of Taxes of California Northern Railroad in the amount of $8,036.24 for tax year 2019/20, plus interest, in unitary taxes
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Published Notice Required? Yes ____ No _X _
Public Hearing Required? Yes ____ No _X _
DEPARTMENTAL RECOMMENDATION:
The Office of the County Counsel recommends that the Board deny the claim for refund of unitary property taxes of California Northern Railroad in the amount of $8,036.24 for tax year 2019/20, plus interest, on state-assessed property located in Solano County that is either owned or used by California Northern Railroad.
SUMMARY:
Under state law, certain property owned or used by railroads are annually assessed by the State Board of Equalization (“BOE”). The amount of such “unitary property” assessments attributed to the County by the BOE are then taxed by the County in accordance with a formula mandated by state law (Revenue and Taxation Code § 100). The tax revenue that is collected locally is then distributed by the Auditor-Controller to all taxing entities in the county, including cities, special districts, and the County itself.
In December of 2023, California Northern Railroad filed a claim for refund for tax year 2019/20, alleging that the property tax rate applied to its unitary property was in excess of the rate applied by the Fresno County Assessor and that the rate exceeded the rate allowed by the California Constitution.
FINANCIAL IMPACT:
There is no financial impact to the County for rejecting the claim. If the Board grants refunds, the amount of $8,036.24, plus interest, would be drawn by the Auditor-Controller proportionally from the funds of all taxing entities in the County who participate in the distribution of the taxes.
DISCUSSION:
On December 13, 2023, the County received a claim for refund of unitary taxes from California Northern Railroad for tax year 2019/20. The claim is attached in Attachment A. The claim for refund is for taxes on “unitary property.” Under Article XIII, Section 19 of the California Constitution, certain property owned or used by railroads throughout the state are annually assessed by the BOE.
The unitary tax rate is calculated annually by the local county, which in Solano County is done by the Auditor-Controller, in accordance with a formula mandated by state law (Rev. and Tax. Code § 100). The rate is the sum of the 1% ad valorem tax rate and a “unitary debt service tax rate” component, which is determined by taking the unitary debt service rate for the previous year and adjusting the rate by the percentage change between the two preceding fiscal years in the County’s ad valorem debt service levy for the secured roll (not including unitary and operating nonunitary debt service) (Rev. & Tax. Code § 100(b)(2)). The calculation for tax year 2019/20 was 1.702700%, which was calculated correctly by the Auditor-Controller pursuant to the state law (see Attachment B).
California Northern Railroad argues that they are entitled to a partial refund of such taxes on the grounds that they violate the California Constitution. Specifically, Northern California Railroad alleges that the property tax rate applied to compute claimant's property taxes was in excess of the rate applied in the same year to property in the county assessed by the assessor of Fresno County, in violation of Article XIII, section 19 of the California Constitution; the property tax rate applied to compute claimant's property taxes exceeded the rate allowed by Article XIIIA, section 1 of the California Constitution; and the excess taxes violate the Railroad Revitalization and Regulatory Reform Act of 1976, 49 U.S.C. Section 11501 (b) (3).
Regardless of the merits of their arguments, the County is given no discretion on its calculation of the unitary tax rate; it is a mandated formula set by the State. Because of this, the Auditor-Controller has no power to declare it unenforceable “on the basis of it being unconstitutional unless an appellate court has made a determination that such statute is unconstitutional.” (Cal. Const., Art. III, § 3.5(a).)
It is recommended that the Board reject the claim.
ALTERNATIVES:
The Board may grant the refund claim and authorize the Auditor-Controller to pay the refund. However, a refund is not supported by law and, if the Board grants a refund, the amount of $8,036.24, plus interest, would be drawn by the Auditor-Controller proportionally from the funds of all taxing entities in the county who participate in the distribution of the taxes, 90 days after the refund is granted.
OTHER AGENCY INVOLVEMENT:
The Auditor-Controller assisted in preparing this item and endorses the recommendation.
CAO RECOMMENDATION:
APPROVE DEPARTMENTAL RECOMMENDATION