Air 7, LLC v. County of Ventura ( 2023 )

Filed 4/19/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
AIR 7, LLC, et al., 2d Civil No. B323487
(Super. Ct. No. 56-2020-
Plaintiffs and Appellants, 00538859-CU-MC-VTA)
(Ventura County)
v.
COUNTY OF VENTURA,
Defendant and Respondent.
The California Constitution requires taxable property be
assessed in the county where it is situated. Here the County of
Ventura imposed a tax on an aircraft that was permanently
removed from California before the tax lien date of January 1 for
tax year 2017. Because the aircraft was removed from California
with the intent that removal be permanent, and the aircraft
never returned to California during the 2017 tax year, we
conclude the aircraft was not “situated” or “habitually situated”
in California. The tax imposed on the aircraft violates California
law irrespective of whether the aircraft was situated and taxed in
another state.
Air 7, LLC and Peter J. Koral, as trustee of the Peter J.
Koral Trust (collectively Air 7), appeal from the judgment
following a court trial. They contend the County of Ventura
improperly imposed a property tax on an aircraft after it was
permanently removed from California. We agree and reverse the
judgment.
FACTUAL AND PROCEDURAL HISTORY
The facts are undisputed. Air 7, LLC, a Delaware limited
liability company, and its owner, the Peter J. Koral Trust, owned
a Gulfstream G-550 jet aircraft. Air 7’s headquarters were
located at the Camarillo Airport in Ventura County. Peter Koral
was a resident of California.
Air 7 had been trying to sell the aircraft since
approximately 2015. In 2016, it was stored in a hangar at the
Camarillo Airport between flights. The aircraft was physically
present in Ventura County for seven and a half months during
2016.
On December 9, 2016, Air 7 entered a listing and
commission agreement to seek a buyer for the aircraft. On
December 28, 2016, Air 7 moved the aircraft to the Hillsboro
Airport in Oregon. Koral stated it was moved to Oregon because
Air 7’s advertising manager and sales office were located there,
and the relocation was meant to be permanent. Koral did not
intend for the aircraft to return to California and “never wanted
to see that plane again, ever.” The aircraft never returned to
California while owned by Air 7.
Air 7 contracted to hangar the aircraft in Hillsboro from
December 26, 2016, to December 31, 2017. Representatives of Air
7 stated it would be kept there until a buyer was found. The
contract listed Air 7’s principal place of business and billing
address as Camarillo. The agreement could be terminated with
30 days’ notice, and was terminated on January 21, 2017.
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The aircraft remained in Hillsboro on January 1, 2017.
Because there was a prospective buyer, on January 25 the
aircraft was moved to a Gulfstream facility in Nevada for
maintenance and inspection. On April 28, Air 7 agreed to sell the
aircraft to Airtime LLC, located in Wisconsin. On May 7, the
aircraft was flown to Illinois for additional maintenance and
inspection. The sale was consummated and the aircraft was
delivered to Airtime in Connecticut on July 31, 2017.
The Oregon Department of Aviation advised Air 7 it was
not required to register the aircraft in Oregon because
registration was only required if the aircraft was based there for
60 days. (Or. Rev. Stat. § 837.040.) Oregon does not tax general
aircraft. (Or. Rev. Stat. § 308.558.) The aircraft was a “general
aircraft” because it was privately owned and was not a
commercial aircraft or air taxi. (JetSuite, Inc. v. County of Los
Angeles (2017) 16 Cal.App.5th 10, 18-19 (JetSuite).) No property
taxes were paid for the aircraft in any jurisdiction for tax year
(fiscal year) 2017 (July 1, 2017, through June 30, 2018).
The County determined the situs of the aircraft to be
Ventura County as of the tax lien date (tax situs date) of January
1, 2017, for the 2017 tax year. The County billed Air 7 for
$240,671.84 in property taxes and bond assessments. The
Ventura County Assessment Appeals Board denied Air 7’s
appeal. It found the aircraft was habitually situated in Ventura
County on the January 1 tax lien date and Air 7 did not establish
a situs elsewhere.
Air 7 sued the County for a refund of the taxes, statutory
interest, and penalties the County had imposed. (Rev. & Tax.
3
Code, § 5140.)1 Following a court trial, the court found the
aircraft was not permanently removed from Ventura County on
the tax lien date because it had not established situs elsewhere.
The trial court entered judgment for the County.
DISCUSSION
Because the facts are undisputed, we review the
interpretation of constitutional provisions and statutes de novo.
(Silicon Valley Taxpayers’ Assn., Inc. v. Santa Clara County Open
Space Authority (2008) 44 Cal.4th 431, 448-449; Farr v. County of
Nevada (2010) 187 Cal.App.4th 669, 679-680.)
California tax provisions
“All property is taxable and shall be assessed” based on
“fair market value.” (Cal. Const., art. XIII, § 1.) Taxable
property is assessed, and tax liens attach, on January 1 each year
for the following fiscal year (July 1 through June 30). (Rev. &
Tax. Code, §§ 75.6, 117, 401.3, 2192.) “[T]he taxing agency’s right
to the taxes becomes fixed on the lien date of the fiscal year to
which they relate.” (California Computer Products, Inc. v.
County of Orange (1980) 107 Cal.App.3d 731, 736.)
“All property taxed by local government shall be assessed
in the county, city, and district in which it is situated.” (Cal.
Const., art. XIII, § 14.) “The word ‘situated’ in this section refers
not to mere physical presence on the lien date, but to the situs of
property within the state necessary to give jurisdiction to tax.”
(Sea-Land Service, Inc. v. County of Alameda (1974) 12 Cal.3d
1The County’s brief states that a refund of $31,235.25 was
issued on approximately November 22, 2019, and that this
reduced the principal amount of tax owed to $218,793.11. Air 7’s
briefs request a refund of the principal tax amount of
$218,793.11, plus interest and penalties imposed.
4
772, 777, fn. 3 (Sea-Land).) “Annually, the assessor shall assess
all the taxable property in his county . . . to the persons owning,
claiming, possessing, or controlling it on the lien date.” (Rev. &
Tax. Code, § 405, subd. (a).) Aircraft is assessed in the county
where it “is habitually situated.” (Rev. & Tax. Code, § 5362.)
“California has adopted the due process-based definition of
situs—either expressly or by failing to define a different
definition.” (JetSuite, supra, 16 Cal.App.5th at p. 19.) “A
property has situs in a state when it is ‘habitually employed’ or
‘habitually situated’ in that state.” (Id. at p. 18.)
The aircraft here was not physically present in California
on the tax lien date. Although it had been “habitually situated”
in California during 2016, there is no dispute (1) it was
permanently removed from California before the lien date with
the intent that removal be permanent, and (2) the aircraft never
returned to California during the 2017 fiscal year. Thus, on
January 1, 2017, the aircraft was not “situated” or “habitually
situated” in California for purposes of Revenue and Taxation
Code, section 5362, or article XIII, section 14, of the California
Constitution.
The County contends it could still tax the aircraft because
Air 7 had not cleared an additional hurdle: the establishment of a
permanent situs in another state. This additional requirement is
not supported by California law and impermissibly expands the
county’s authority to tax property. As discussed below, language
superficially supporting the County’s position pertains to
contexts inapplicable here: the determination of whether absence
from a state is permanent or temporary, or the apportionment of
property that is physically located in both California and other
states.
5
Cases regarding temporary absence
In determining whether personal property has been
removed permanently or temporarily from the domicile of the
owner, cases consider whether the property has acquired a tax
situs in another state. But because it is undisputed the aircraft
was permanently removed from California in December 2016, it
is irrelevant where the aircraft was physically located after it left
California.
An example of property being temporarily absent and not
destroying situs in California is discussed in Brock & Co. v.
Board of Supervisors (1937) 8 Cal.2d 286 (Brock I) and Brock &
Co. v. Board of Supervisors (1939) 32 Cal.App.2d 550 (Brock II).
There, a California jeweler shipped a portion of its inventory to
the Territory of Hawaii shortly before the tax lien date each
year.2 The property was kept in Hawaii for approximately a
month each time. (Brock I, at p. 288; Brock II, at pp. 551-553.)
The purpose was to display the jewelry to potential buyers in the
hopes of making a future sale, and, admittedly, to reduce the
California property tax. (Brock I, at pp. 288-289; Brock II, at pp.
554-555.) No sales were made in Hawaii. (Brock I, at p. 288;
Brock II, at p. 555.) Our Supreme Court concluded that Los
Angeles County could tax the jewelry because it had not
“acquired a permanent situs in Hawaii” but was “transported to
Hawaii for a temporary purpose and such temporary removal did
2
At that time, the tax lien date was the first Monday in
March. (People ex rel. Attorney General v. Reis (1888) 76 Cal. 269,
277.) It was changed in 1967 to March 1, and in 1995 to January
1. (Rev. & Tax. Code, § 2192, as amended by Stats. 1967, ch. 818,
§ 5, and Stats. 1995, ch. 499, § 18.)
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not destroy the permanency of the situs in this state.” (Brock I,
at pp. 293, 290.)
“There is no duty to maintain property permanently in a
jurisdiction where it will be subject to the taxing power, but it
may be removed to a nontaxing jurisdiction and escape the
imposition of taxes if such removal be permanent.” (Brock I,
supra, 8 Cal.2d at p. 291, italics added.) The removal was not
permanent in Brock, but it is here. Brock I and II do not hold
that a county may tax property that was permanently removed
from California before the tax lien date until it achieves tax situs
in another state. “The taxation in the state of the owner’s
domicile of tangible personal property which has been
permanently removed therefrom is a violation of the due process
clause of the federal Constitution.” (Brock I, at p. 290.) This
principle prohibits taxation here.
Apportionment cases
This case is unlike those that apportion taxes for property
situated in California that is also situated in other states. “Due
process prohibits a state from imposing a tax on the full value of
personal property if other states also have the right to tax that
property, and whether those states have that right turns on
whether that property has ‘situs’ in those other states.”
(JetSuite, supra, 16 Cal.App.5th at p. 14, italics added.)
Under the “ ‘home port doctrine,’ . . . the state where the
property’s owner was domiciled could tax all of the property, and
other states or nations could tax none of it.” (JetSuite, supra, 16
Cal.App.5th at p. 17.) “These days, however, the home port
doctrine is, ‘if not dead, . . . functionally comatose.’ ” (Ibid.) Since
the development of apportioned taxes for ships and aircraft in
interstate and foreign commerce, “no decision of the United
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States Supreme Court has reverted to the anachronistic home-
port doctrine.” (Sea-Land, supra, 12 Cal.3d at pp. 786-787, fn.
omitted.)
JetSuite concluded that California could tax the full value
of aircraft because the plaintiff failed to show that other states in
which the planes “touch[ed] down” acquired situs. (JetSuite,
supra, 16 Cal.App.4th at pp. 14, 18-19.) But JetSuite assumed
the planes had a situs in California. It did not hold that property
permanently removed from California remained taxable until it
attained a situs in another state.
In Ice Capades, Inc. v. County of Los Angeles (1976) 56
Cal.App.3d 745, the company’s principal place of business was in
Los Angeles, but its stage equipment, props, and costumes were
used or stored in other states for part of the year. The court
required apportionment of taxes with New Jersey, where the
property was stored in the company’s permanent facility for a
portion of the year, but not with states where it was present for
shorter periods. (Id. at pp. 754-755.) But unlike the case here,
“Ice Capades had no intention permanently to remove the
personal property . . . from Los Angeles County.” (Id. at p. 751.)
Here, the aircraft left California before the tax lien date,
never to return. California had no basis to tax the aircraft,
whether it thereafter remained in other states long enough for
them to tax it. Thus, taxation of the aircraft is not justified by its
owner’s domicile of Ventura County.
Rule 205
The County relies in part on Board of Equalization rule 205
(Cal. Code Regs., tit. 18, § 205). It provides that in certain
circumstances, property “has situs at the location where it is
normally returned between uses or, if there is no such location, at
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the principal place of business of the owner.” But rule 205 only
applies to “property which moves from place to place within this
state.” (Sea-Land, supra, 12 Cal.3d at p. 778, italics added.)
Moreover, the rule “is merely interpretative of existing law, and
is neither a statutory mandate nor all-encompassing in its
description.” (Ibid., fn. omitted.) Existing law does not support
situs for property that has permanently left the state before the
lien date.
Due process
The property tax assessment here is precluded, not only by
the meaning of “situs” in the California Constitution and the
Revenue and Taxation Code, but by the due process clause of the
Fourteenth Amendment to the United States Constitution.
In Delaware, L. & W.R. Co. v. Pennsylvania (1905) 198 U.S.
341, the high court held that Pennsylvania could not tax coal
permanently transported to other states for purposes of sale
because it would constitute a taking of property without due
process of law. (Id. at pp. 356, 358.) The coal had been removed
from Pennsylvania “with no intention that it should ever return.”
(Id. at p. 360.) The “transitory nature of this property” in the
other states was not material. (Id. at p. 356.) “However
temporary the stay of the coal might be in the particular foreign
States where it was resting at the time of the appraisement, it
was definitely and forever beyond the jurisdiction of
Pennsylvania.” (Ibid.)
Similarly, in Union Refrigerator Transit Co. v. Kentucky
(1905) 199 U.S. 194, the court concluded that Kentucky could not
tax railroad cars located in other states. (Id. at p. 211.) “It is also
essential to the validity of a tax that the property shall be within
the territorial jurisdiction of the taxing power. . . . [N]o
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adjudication should be necessary to establish so obvious a
proposition as that property lying beyond the jurisdiction of a
State is not a subject upon which her taxing power can be
legitimately exercised.” (Id. at p. 204.) Union Refrigerator was
followed in Brock I: “The taxation in the state of the owner’s
domicile of tangible personal property which has been
permanently removed therefrom is a violation of the due process
clause of the federal Constitution.” (Brock I, supra, 8 Cal.2d at p.
290.) As the high court stated in Norfolk & W. R. Co. v. Missouri
State Tax Comm’n (1968) 390 U.S. 317, 325, “The taxation of
property not located in the taxing State is constitutionally
invalid, both because it imposes an illegitimate restraint on
interstate commerce and because it denies to the taxpayer the
process that is his due.” (Fn. omitted.)
Taxation here is not supported by Central R. Co. v.
Pennsylvania (1962) 370 U.S. 607, upon which the County relies.
There, Pennsylvania imposed “an annual property tax on the
total value of freight cars owned by the appellant, a Pennsylvania
corporation, despite the fact that a considerable number of such
cars spend a substantial portion of the tax year on the lines of
other railroads located outside the State.” (Id. at p. 608.) The
court held that “tangible property for which no tax situs has been
established elsewhere may be taxed to its full value by the
owner’s domicile.” (Id. at p. 612.) But unlike the Pennsylvania
statute that authorized a tax on property owned by a resident
corporation, California taxes personal property situated in a
California county, city, or district. (Cal. Const., art. XIII, § 14;
Rev. & Tax. Code, §§ 405, subd. (a), 5362.) The fact that due
process permitted Pennsylvania to tax property temporarily
located in other states does not expand California provisions that
10
limit taxation to property situated in the state.
DISPOSITION
The judgment is reversed. The County shall refund to
appellants the taxes, statutory interest thereon, and penalties
imposed for the 2017 tax year. Appellants shall recover costs on
appeal.
CERTIFIED FOR PUBLICATION.
BALTODANO, J.
We concur:
GILBERT, P. J.
YEGAN, J.
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Ronda J. McKaig, Judge
Superior Court County of Ventura
______________________________
Ajalat, Polley, Ayoob, Matarese & Broege, Richard J.
Ayoob, Gregory R. Broege and Andrew W. Bodeau for Plaintiffs
and Appellants.
Tiffany N. North, County Counsel, Brett B. McMurdo,
Assistant County Counsel, for Defendant and Respondent.