City of Palo Alto v. County of Santa Clara

Opinion

TAYLOR, J.

The City of Palo Alto (hereafter City), appeals from a summary judgment in favor of the County of Santa Clara (hereafter County) denying the City’s request for a refund for property taxes paid. The City argues that its tax-exempt possessory interests under certain long term leases from Leland Stanford Junior University (hereafter lessor), a nontaxexempt private lessor, should be segregated, and the value thereof subtracted from the assessment and tax levy based on the entire fee.

The stipulated facts are as follows: The City is a municipal corporation with leases of varying terms on several parcels of nontax-exempt land owned by the lessor. The leased properties are used for public purposes. The agreed rental for the leased properties is a percentage of the assessed valuation. The full cash value of the fee and various possessory interests

[920]

are as set forth below.

1

For the assessment years 1964-1965, 1965-1966, 1966-1967, the county assessor assessed the property to the lessor at the full cash value of the entire fee without subtracting anything from the assessments because of the City’s possessory interests under its leases.

In addition, the pertinent portions of the leases attached to the affidavits provide that as part of the consideration of the lease, the City agreed to bear, pay and discharge all taxes and assessments due. Pursuant to this provision of the leases, the tax bills were mailed to the City, and the City paid them. On June 14, 1968, the City instituted this action for refunds.

The City points out that under article XIII, section 1 of the state Constitution, property belonging to any municipal corporation is exempt from taxation and that, consequently, it is not obligated to pay taxes on its possessory interests in the property. The City argues that since it is the owner of the possessory interest and the lessor merely the owner of the reversions, the single assessment based on the combined interest is an assessment based on a greater property, interest than that owned by the lessor and is, therefore, void. Accordingly, the City concludes that its interest under the leases should be segregated and the value thereof subtracted from the assessment and tax levy based on the entire fee, so that the assessment and levy will be limited to the lessor’s reversionary interest.