Fairfield Gardens, Inc. v. County of Solano

TRAYNOR, J.

— Fairfield Gardens, Inc., a California corporation, hereinafter called Fairfield, brought an action against the county of Solano to recover taxes paid under protest that were levied against its possessory interest in tax exempt land and improvements. (Rev. & Tax. Code, § 5138.) It appeals from a judgment that it recover nothing and that defendant recover costs.

Fairfield constructed two housing projects cbntaining 980 dwelling units on separate plots of land owned by the United States government at Travis Air Force Base in Solano County. The projects were built pursuant to the provisions of title VIII of the National Housing Act (12 U.S.C.A. §§ 1748-1748h [known as the Wherry Act]) and section 1270 of title 10 of the United States Code, were financed by loans secured by mortgages insured by the Federal Housing Administration, and were subleased to military and civilian personnel assigned to duty at the base and designated as tenants by the commanding officer at rents regulated by the Federal Housing Administration and the Air Force. On completion, all improvements became the property of the federal government, and each of the projects is leased to Fairfield for 75 years at an annual ground rental of $100. The provisions of the lease are essentially identical with those of the lease between the government and the De Luz Homes (see

De Luz Homes

v.

County of San Diego, ante,

p. 546 [290 P.2d 544]), and, as in that case, state that the lessee shall pay all “taxes, assessments, and similar charges which, at any time during the term of the lease, may be taxed, assessed or imposed upon the Government or upon the Lessee with respect to or upon the leased premises.” (See 12 U.S.C.A. § 1748f.)

The assessor valued Fairfield’s possessory interests in the land and improvements (Rev. & Tax. Code, §§ 107, 104) for

[577]

the tax year 1953-1954 at $1,574,880 and levied a tax thereon of $64,727.56. Contending that the value of the leasehold was worth no more than a nominal sum of $20, Fairfield filed an application for reduction of the valuation and cancellation of the tax thereon with the county board of equalization. (Rev. & Tax. Code, §§1603, 1605, 1607, 4986.) At the hearing of the application (Rev. & Tax. Code, § 1609), Fairfield introduced forecasts of maximum potential gross income, expected vacancies, and anticipated expenses, including operating expenses, required payments into a replacement reserve, and payments of principal and interest on its mortgage debt. It contended that in valuing the leasehold, the assessing authorities should deduct all of the foregoing expenses from gross income and should capitalize the difference for a period of time equal to the anticipated useful life of the improvements at a rate adequate to allow for risk, interest, and taxes. It also advocated an alternative method of valuation, whereby its total investment in the leasehold, together with interest thereon, would be deducted in annual aliquot portions from anticipated annual gross income, and the difference would be capitalized over the remaining term of the lease. Under either method, it asserted, the capitalized value of future income is less than zero, and therefore the leasehold has no taxable value.