By Zachary Atkins and Douglas Mo
The California Supreme Court held that the State Board of Equalization (SBOE) violated the state’s Administrative Procedures Act (APA) when it promulgated Cal. Code Regs., tit. 18, § 474 (Rule 474). Rule 474, a specialized property tax rule relating to the assessment of petroleum refineries, creates a rebuttable presumption that the land, improvements, fixtures, and machinery and equipment are to be assessed as a single appraisal unit. The significance of Rule 474 is that increases in the value of the land and improvements of a refinery, to the extent they exceed the 2% per year ceiling established by Proposition 13, can be used to offset depreciation otherwise attributable to fixtures and machinery and equipment. This offset has the effect of diminishing the value of fixture depreciation each year. The Western States Petroleum Association, a trade association, attacked Rule 474 on both substantive and procedural grounds. The California Supreme Court invalidated Rule 474 on procedural grounds. Unfortunately for business, however, the Court signaled that the rule would have been valid but for the SBOE’s failure to substantially comply with the APA. The SBOE has already initiated the rulemaking process to readopt Rule 474. This new rulemaking process could have a broader impact on the business community if the SBOE conforms Rule 461(e)—the general property tax rule that provides that fixtures and equipment are to be considered a separate appraisal unit—to Rule 474. W. States Petroleum Ass’n v. Bd. of Equalization (Aug. 5, 2013, S200475) __ Cal.4th __.