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State & Local Tax Bulletin (January 2003)

Supreme Court Reverses Court of
Appeals in Geneva Towers

By Richard E. Nielsen, now of counsel, and Jeffrey M. Vesely, a tax partner, in the San Francisco office of Pillsbury Winthrop Shaw Pittman LLP. If you have or can obtain the Acrobat Reader, or have an Acrobat-enabled web browser, you may wish to download or view our January 2003 State & Local Tax Bulletin (a 503K pdf file), containing a printed version of this article and also available via ftp at:


See our July 2000 article, Appellate Court Rules that a Taxpayer Must File Tax Refund Suit within Four Years from the Date the Taxpayer First Had the Right to Deem its Refund Claim Denied for a discussion of the decision of the Court of Appeals.

This bulletin concerning state and local tax matters is part of the Tax Page, a World Wide Web demonstration project, no portion of which is intended and cannot be construed as legal or tax advice. Comments are welcome on the design or content of this material.

In a much anticipated decision, the California Supreme Court unanimously overruled an appellate court holding in Geneva Towers that had ignored years of California state and local tax practice. Nearly 30 months ago, the Court of Appeal, in an unprecedented decision, had ruled that a taxpayer must file a tax refund suit within four years from the date the taxpayer first had the right to deem its refund claim denied, notwithstanding the fact the taxpayer never received a notice from the taxing authority denying its claim. The Supreme Court disagreed and held that the statute permitted, but did not require, a taxpayer to deem its claim for refund denied and file a refund suit if the taxing authority fails to give notice of its action on the claim within six months after the filing of the claim.

In Geneva Towers LP v. City and County of San Francisco, CA Supreme Court, No. S090136, (Jan. 9, 2003), the plaintiff asserted that the assessed value of an apartment building it owned was excessive and sought a partial refund. Following hearings before the Assessment Appeals Board, the base year value of its property was reduced. Plaintiff believed that the assessed value should have been reduced further. It filed a claim for refund pursuant to Revenue & Taxation Code ("RTC") section 5097. More than seven years later, plaintiff filed an action for a tax refund in Superior Court.

Defendant City and County of San Francisco demurred claiming that the action was barred by the statute of limitations, both under RTC section 5141(a) (six-month provision) and under Code of Civil Procedure (CCP) section 343 (four-year provision). The trial court sustained the demurrer under the RTC six-month provision. The Court of Appeal affirmed but under the CCP four-year provision.

The Supreme Court reversed. RTC section 5141(a) establishes a six-month statute of limitations for an action for a property tax refund, stating that such action "shall be commenced within six months from and after the date that the board of supervisors or city council rejects a claim for refund in whole or part." Subdivision (b) of RTC section 5141 provides that:

    "[i]f the board of supervisors or city council fails to mail notice of its action on a claim for refund within six months after the claim is filed, the claimant may, prior to mailing of notice by the board of supervisors or city council of its action on the claim, consider the claim rejected and bring an action under this article."

The Court observed that the statute permits, but does not require, a taxpayer to deem its claim denied if the city or county fails to give notice of its action within six months of the filing of the claim. Further, the Court held that subdivision (b) of RTC section 5141 does not establish any limitation period within which the taxpayer must deem the claim denied if not acted upon.

CCP section 343 is a catch-all provision establishing a four-year statute of limitations in situations where no specific limitations period applies. The Court held that the six-month statute of limitations set forth in RTC section 5141(a) applies to all actions against cities and counties for property tax refunds. Such actions are governed by RTC section 5140, which authorizes a taxpayer to "bring an action to recover a tax which the board of supervisors of the county or the city council of the city has refused to refund on a claim filed pursuant to ... this chapter." The Court held that a property tax refund action is properly brought under the RTC whether the claim was formally rejected or the taxpayer elected to consider the claim rejected. The Court concluded that RTC section 5141(a) thus provides a specific statute of limitations for all actions for property tax refunds. Accordingly, the catchall provision of CCP section 343 did not apply.

The Court also concluded that unless the taxpayer chooses to consider the claim rejected and file suit, the statute of limitations does not begin to run until the taxing authority denies the claim for refund.

The Court observed that other state tax statutes contain similar provisions and specifically referred to RTC section 6934 which applies to sales tax refund actions. The Court pointed out that the California Code Commission notes regarding RTC section 6934 make it clear that the election provisions are permissive only. According to the Court, the plain meaning of the statutory language in RTC section 6934 is that if the State Board of Equalization ("SBE") fails to act within six months, the taxpayer may consider the claim rejected and file an action at any time before the SBE mails notice of its action.

The Court continued and stated, notwithstanding the fact that it was compelled by the language of the applicable statutes to conclude that the statute of limitations does not begin to run until the claim for refund is formally denied, that this result is also supported by practical considerations. Such result avoids the requirement of filing protective lawsuits where a lead case has been designated to resolve an issue, while remaining cases are held in abeyance. The Court also noted that having the statute of limitations commence six months after the claim was filed, if the taxing authority has not acted, as the Court of Appeal had held, would create a trap for the unwary.

Finally, the Court concluded that the Legislature placed no time limits on when the taxing authority must act on the claim or when the taxpayer may deem the claim rejected. The Court was unpersuaded by the defendant's arguments that taxpayers could unreasonably delay the filing of suits for refund. The Court observed that the taxing authority has full control and mastery over the course of events–all that is required to start the running of the statute is for the taxing authority to pass upon the claim.

The Supreme Court's decision in Geneva Towers is significant. At any one time, there are potentially hundreds of claims pending before the Franchise Tax Board ("FTB"), SBE and other state and local tax authorities. Many of these claims have been pending for periods well in excess of six months. The Court's decision is consistent with the longstanding procedures followed by the FTB and the SBE and avoids the creation of major headaches in the administration of California state and local taxes.

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