Court of Appeal Invalidates Tiered Rate For Parcel Tax Measure

Lozano Smith Client News Brief
March 2013
Number 13

In Borikas v. Alameda Unified School District (March 6, 2013) __ Cal.App.4th __ (2013 WL 820593), the court of appeal granted a rehearing after its December 2012 decision relating to the important issue of whether school district parcel taxes could be structured with tiered rates. Upon rehearing, the court again held that a tiered-rate parcel tax exceeded the school district's taxing authority and was invalid because the rate structure was not uniform for all taxpayers and parcels.

This case is significant as an increasing number of schools districts have obtained voter approval for parcel tax measures with tiered-rate tax structures, as opposed to flat-rate tax structures. Tiered-rate tax structures generally have different rates for residential and non-residential use parcels, such as residential rates based on the number of housing units on each parcel, and non-residential rates based on the square footage of the parcel. It was previously understood that these tiered-rate structures complied with state law requiring that such taxes generally must apply uniformly to all taxpayers or all property within the school district, under general principals of tax law. Since each type of parcel would pay the same tax, school districts have taken the position that there is adequate uniformity to comply with the statutory requirements under equal protection clause principles. Borikas indicates that, for at least the time being, school districts are not authorized to use a tiered-rate parcel tax because it does not applyuniformly to all parcels in the school district.

In Borikas, plaintiffs challenged Alameda Unified School District's 2008 voter-approved parcel tax measure (Measure H) that taxed residential parcels at $120 per year, commercial/industrial parcels of less than 2,000 square feet at $120 per year, and commercial/industrial parcels of more than 2,000 square feet at $0.15 per square feet, up to a maximum of $9,500 per year. Measure H also included exemptions for residential parcels owned and occupied by senior citizens or by those receiving Supplemental Security Income, regardless of age.

The trial court in Borikas ruled in favor of the school district, concluding that so long as like parcels are treated in a like way and the division of parcels into different classes has a rational basis, Government Code section 50079's requirement of uniformity and equal protection of the law is satisfied. The trial court also found that the statute allowed Measure H's exemptions for some senior and disabled taxpayers. This was the second time that Alameda Unified School District's tiered-rate structure was upheld in a trial court.

The court of appeal partially reversed the trial court, holding that the tiered-rate parcel tax was invalid, but that Measure H's exemptions for some senior and disabled taxpayers were expressly allowable under section 50079. The Borikas court read section 50079 literally as requiring that special taxes apply "uniformly" to everyone and all lots within the district, regardless of whether what sits on those lots is radically different from what sits on other lots. The Borikas court reviewed the 1989-1990 legislative history behind the "apply uniformly" language found in section 50079 and concluded that the legislature clearly stated that the language does not give districts authority to create classifications and impose differential
rates; rather, the legislature must provide separate express authority for a school district to do so.

The court acknowledged in passing that school districts and other local governmental entities are more dependent than ever on the revenues from parcel taxes, but any "fix" to the wording of the statute must come from the legislature and not the courts.

Alameda Unified School District is considering appealing this decision to the California Supreme Court and has until approximately April 5 to make that decision. At the same time, we are working with our affected clients, the California School Boards Association (CSBA) and the California Association of School Business Officials (CASBO), in support of AB 59, which would clarify districts' right to use tiered-rate parcel tax structures going forward and save the parcel tax measures already approved with such structures, including Alameda Unified's Measure H. We will keep school districts apprised of future developments in this important area. In the meantime, we urge districts that have passed tiered-rate parcel taxes or that are considering new or renewal parcel tax measures to work closely with their legal counsel in determining how to respond to this important development.

If you have any questions about the Borikas decision, or parcel taxes generally, or would like assistance with preparing a parcel tax measure, please feel free to contact one of our eight offices located statewide. You can also visit our website, follow us on Facebook, or download our Client News Brief App.
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As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.