El Tejon Cattle Co. v. County of San Diego

BURKE, J. Plaintiff appeals from an adverse judgment in its action to recover property taxes paid under protest for the tax years 1961-62 and 1962-63 on its possessory interest in some 40,000 acres of tax-exempt land in San Diego County. As will appear, we have concluded that the trial court correctly [429]determined that the method employed by the county assessor and approved by the county board of equalization was proper and permissible under the circumstances, and, further, that no attempted taxation of exempt property was shown. The judgment will therefore be affirmed.

Fee title to the involved land is held by Vista Irrigation District, a public agency, and is tax-exempt. In September 1960, following competitive bidding, plaintiff was awarded a five-year lease thereof for grazing purposes for a total of $240,000, payable $4,000 per month ($48,000 per year), with options to renew the lease for two additional five-year terms.

The lease imposes various restrictions on plaintiff, including limiting plaintiff’s use to the “grazing by cattle of native or cultivated forage crops, including all annual or perennial plants or shrubs, and for the supplemental or finished feeding of cattle.” The fee owner (district) reserved the right to export water from the land, and other tenants had been granted the hunting and other recreational concessions.

In assessing plaintiff’s possessory interest the assessor first ascertained that the highest and best use of the 40,000-acre ranch was for the grazing of cattle, and determined its fee value to be $881,980. Inasmuch as plaintiff’s grazing lease had been awarded after competitive bidding the assessor was of the opinion that a capitalization of the rent called for by the lease would give the best indication of the value of the portion of the fee allocated to grazing purposes, as distinguished from the rights in the property which the lessor had retained or had leased to others. In capitalizing the rent, the assessor employed an 8 percent rate of return, which represented a 4 percent pure interest rate on money invested, plus 2 percent for management and various other costs and 2 percent for taxes; this 8 percent rate was uniformly applied in valuing all grazing leaseholds in the county for the years in question.

Capitalizing the $48,000 annual rent at the 8 percent rate resulted in a figure of $600,000, which the assessor took to be the approximate market value of the fee with its use restricted in the manner that plaintiff’s lease restricts plaintiff’s use; this $600,000 was then reduced to $151,200 by application of the prevailing assessment ratio of 25.2 percent. The $151,200 equals some 17 percent of the full fee value of $881,980; however, “as a further consideration of the lessee rights,” the assessor in this case took the assessed value of the restricted