Opinion
For Opinion on Rehearing, see 207 Cal.Rptr. 742.
Gold, Herscher, Marks & Pepper, and Stephen W. Kramer, Beverly Hills, Murphy, Thornton, Hinerfeld & Elson, and David A. Juhnke, Rodi, Pollock, Pettker, Galbraith & Phillips, and John D. Cahill, Los Angeles, for plaintiff and appellant.
Donald K. Byrne, Chief Deputy County Counsel, Edward G. Pozorski, Deputy County Counsel, Los Angeles, for defendants and respondents.
AMERIAN, Associate Justice.
FACTS
This is an appeal by Morse Signal Devices of California, Inc. (hereinafter Morse) from part of a judgment entered April 27, 1982, denying Morse's claim for refund of ad valorem property taxes assessed against it by the County of Los Angeles (respondent herein). The taxes were paid under protest for tax years 1972, 1973, 1974, 1975 and 1978.
The part of the judgment not appealed from was entered in favor of Morse for refund of penalties which were paid by Morse for the tax years at issue here.
Morse installs and services both fire and security alarm systems in residential and business buildings. For the tax years at issue here, Morse was assessed ad valorem property taxes for all component parts of security alarm systems installed and serviced by Morse. Morse claims that the only property taxes properly assessed against it are for those parts of the security Major components of a security alarm system consist of electronic sensing devices, transmitting equipment and bell boxes. These major components are connected to each other by extensive wiring to the bell box (which rings on the premises) or to a device which, by telephone line connections, automatically notifies Morse or the police department of an unauthorized entry. The wiring installed by Morse, which connects the major components of a security alarm system, is designated as one of the minor components. The wiring of a security alarm system is permanently affixed to the real property of the subscriber's premises in which the system is installed. The wiring is installed in conduits and walls, under carpeting, behind floor casings, and above and behind drop ceilings. Clamps, screws, bolts and other means of attachment are used to affix the wiring to the subscriber's premises.
For the tax years 1972 through 1975, Morse utilized a standard form installation and service contract for security alarm systems with its subscribers. In order to protect the security alarm systems from destruction or tampering by subscribers and to assure their operability, this contract provided, in part, that "the entire system, including all devices, instruments, appliances and all connections, wires, conduits and other materials associated therewith except telephone company lease lines, is and shall remain at all times the sole property of Morse. The Subscriber does hereby agree to protect the said equipment and to indemnify and pay to Morse the cost of repair or replacement for any loss or damage to Morse's equipment, including but not limited to loss by fire, earthquake, riot, flood or other damage or destruction." The contract also provided that in the event of default by the subscriber, or upon expiration of the contract, the subscriber consented to Morse entering the premises "for the purposes of removing all or part of the equipment belonging to Morse...." Evidence at trial established that even though under this contract Morse retained the right to remove all parts of the installed system, "Morse never removed any part of the system from the Subscriber's premises other than, on occasion, the major component parts ...."
A second installation and service contract entered into between Morse and its subscribers during the year 1978 was a slightly revised version of the first contract. This revised contract also provided that the subscriber bore the risk of loss or damage to the security alarm system. However, the second contract provided that the "major components ... including but not limited to transmitters, detecting devices, bell boxes and controls shall at all times remain the sole property of Morse. Upon the expiration of the agreement or upon any default ... Morse is authorized to enter upon the premises of Subscriber and remove all of the Morse-owned equipment." Also, ownership of the installed alarm system, excluding the major components, vested in the subscriber upon completion of installation into the subscriber's premises. Under this contract, Morse did not retain the right to remove the permanently installed parts (minor components) of the alarm system.
The evidence at trial concerning the security alarm systems installed by Morse disclosed that in the event a subscriber himself added something to the alarm system, Morse had the right to remove that addition. If the subscriber truly desired the addition to the system, the subscriber might arrange to have Morse install the addition and the monthly service fee was adjusted accordingly. Furthermore, Morse was fully compensated by the subscriber for all repairs to the security alarm system.
The evidence also showed that in the event of breach of contract by the subscriber, or upon termination of the contract, the subscriber was still able to use the security alarm system because he could still turn the system on and off unless the system was connected to Morse's central station. Evidence was also presented which showed that the wiring and transmission structure of fire alarms installed by Morse are practically identical to those of the security alarm systems installed by Morse. The entire fire alarm system installed and serviced by Morse is assessed against the subscriber. However, no part of the security alarm system installed and serviced by Morse is assessed against the subscriber.
The trial court made the following findings: The court specifically found that the wiring installed as part of the security alarm system is never removed, once installed, and is properly classified as a permanent fixture of the real property to which it is affixed. "Under the First Contract, Morse retained title and a right of removal over any system installed by it. While these provisions were removed from the Second Contract in 1977, and title to the foundational wiring and equipment transferred specifically to the subscriber upon installation, Morse continued to retain title to the major component parts of the system. It is obvious that the system could not operate without both portions of the system being connected together, and in that connection, Morse has conceded that it is taxable on a part of the system. Because the system must be considered in its entirety, both portions of the system--the permanently installed foundational wiring and the major components--are taxable to Morse, and this is true under the terms of either the First or Second Contracts. Since Morse retained title to a segment of the operating system under either agreement, the entire system was taxable to it."
ISSUES
On this appeal, the following issues are raised: (1) Whether Morse may be properly taxed for the value of an entire security alarm system where the system is considered as an entire operating unit even though part of the system is permanently affixed to the subscriber's premises; (2) Whether the trial court erred in finding that there was no double taxation of the security alarm systems installed and serviced by Morse; and (3) Whether the disparate treatment of fire alarm and security alarm systems for taxation purposes is arbitrary and discriminatory and, therefore, renders taxation of the security alarm systems to Morse invalid.
DISCUSSION
I. An ad valorem property tax for the value of an entire security alarm system may properly be assessed against Morse, even though parts of the system are permanent fixtures of the subscriber's premises.
Morse contends that because the foundational wiring (minor components) of security alarm systems it installs become fixtures of the subscriber's premises, it should not be assessed personal property taxes for the value of the wiring. Neither party to this appeal challenges the trial court finding that the minor components of installed security alarm systems are permanent fixtures.
"It is well settled that for purposes of taxation the definitions of real property in the revenue and taxation laws of the state control whether they conform to definitions used for other purposes or not ...." (Trabue Pittman Corp. v. County of L.A. (1946) 29 Cal.2d 385, 393, 175 P.2d 512.) Revenue and Taxation Code section 104 provides that, "real property" includes, inter alia, "improvements." Improvements include "all buildings, structures, fixtures, Under the foregoing rules, the trial court properly found under the evidence presented at trial that the foundational wiring of the security alarm systems installed by Morse in the subscriber's premises were permanent fixtures.
The real dispute between the parties herein concerns the proper application of Revenue and Taxation Code section 405, subdivision (a) to the facts at bar. That section provides, "Annually, the assessor shall assess all the taxable property in his county, except state-assessed property, to the persons owning, claiming, possessing, or controlling it on the lien date." Morse contends that even though it is properly assessed for the major components of security alarm systems which, under both the first and second contracts, it has the right to remove, the minor components as permanent fixtures, can only be assessed against Morse's subscribers. Morse, in essence, contends that mere title to and control over the major components of installed security alarm systems does not justify a finding that it controls the entire system for purposes of taxation.
Morse contends that the three factors considered by the California Supreme Court in General Dynamics Corp. v. County of L.A. (1958) 51 Cal.2d 59, 330 P.2d 794, in determining whether taxes should be levied against the legal owner or party in possession, support Morse's conclusion that the minor components are taxable only to its subscribers. These factors include: (1) which party exercises effective control over the property; (2) which party bears the risk of loss; and (3) which party is entitled to possession of the property upon termination of the agreement.
The evidence at bar shows that under the first and second contracts utilized by Morse, the subscribers bear the risk of loss to the entire security alarm systems and that they are entitled to keep the minor components of the security alarm systems in the event of breach of contract or termination of the contract. However, the evidence demonstrates that Morse effectively controls the security alarm systems it services notwithstanding evidence that a subscriber is able to turn the system on and off at will. Significantly, subscribers are not permitted to add to or tamper with the installed systems. In the event a subscriber makes unauthorized additions to his security alarm system, Morse can remove the additional parts. Thus, while a subscriber may have technical dominion and control over the security alarm systems, Morse retains effective control over the entire installed system for the duration of the contract.
The cases relied upon by Morse for the proposition that it cannot be assessed personal property taxes for the entire security alarm system because part of that system is permanently affixed to the subscriber's premises are not dispositive.
Morse also cites a decision of the Board of Tax Appeals, Hoppe, etc. v. Televue Systems, Inc. (Jul. 1, 1976) Wash. B.T.A., Dock. Nos. 13386-13390. In Hoppe, there was no evidence that the service agreements between the cable television company and its subscribers contained any provisions restraining the subscribers' use of the installed systems. In Hoppe subscribers retained effective control over the interior housedrops. Here, control over the security alarm systems is retained by Morse and not by its subscribers. here, the evidence showed that the contracts utilized by Morse prevented its subscribers from altering or tampering with the installed security alarm systems.
In Collins Electrical Co. v. County of Shasta (1972) 24 Cal.App.3d 864, 101 Cal.Rptr. 285, the Court of Appeal reversed a judgment in favor of Collins Electrical Co., which sought recovery of taxes paid under protest. Plaintiff had built an electrical transmission line and substation on land owned by the Shasta Dam Area Public Utility District. Plaintiff was given a right Collins is of no assistance since in that case the determination of ownership, for tax purposes, involved consideration of the fact that the lease and option to purchase "was a financing arrangement to avoid the possible violation of the limitation upon funded indebtedness by public utility districts ...." (At p. 869, 101 Cal.Rptr. 285.) Since the contracts involved at bar are not leases with options to purchase but are installation and service agreements, the inquiry and rationale of the court in Collins is not germane.
Tele-Vue Systems, Inc. v. County of Contra Costa (1972) 25 Cal.App.3d 340, 101 Cal.Rptr. 789, is not dispositive in the manner Morse contends. In our view, Morse has misinterpreted the case. It is our conclusion that Tele-Vue Systems, Inc. does support the trial court finding that the security alarm systems installed by Morse may be considered complete operating units. Upon this theory Morse may properly be assessed for the value of an entire security alarm system.
Plaintiffs in Tele-Vue Systems, Inc. "provided master television antennas at high, relatively unobstructed, points and then transmitted signals through a system of cables carried on utility company poles to the homes of subscribers to their service. At the terminal points a cable was suspended from a utility pole's crossarm to the subscriber's home in much the same fashion as the usual telephone or electrical connection. The cable then entered the home in which it, and related wiring and equipment, were fastened by means of clamps, screws, bolts, and other means of attachment. When new construction afforded an opportunity, the interior work was concealed in the manner of inside electric wiring. Within the home the system terminated in one or more wall outlets at locations desired by the subscriber. [p] The portion of the system extending from the utility pole and into the home was known as a housedrop. For such a housedrop plaintiffs made charges of $25 for the installation with $10 for each additional outlet. The subscribers were then charged monthly for service at the rate of $5 for one, $1 for each additional, outlet." (Id. at pp. 341-342, 101 Cal.Rptr. 789.)
Plaintiffs in Tele-Vue Systems, Inc. were assessed personal property taxes for the exterior housedrops (from utility pole to subscriber's home) and for the interior housedrops (the portion of housedrop inside the subscriber's home). Plaintiffs contended that the interior housedrops were permanent fixtures and that they were improperly assessed against plaintiffs. The trial court entered judgment denying plaintiffs' prayer for refunds of property taxes paid for the interior housedrops.
The Court of Appeal reversed the trial court's judgment. The decision involved a discussion of whether the interior housedrops were permanent fixtures and whether plaintiffs owned, controlled, claimed or possessed the property at issue. The appellate court concluded that the evidence in that case established that the interior housedrops were permanent fixtures. With respect to a second issue, the court concluded that "plaintiffs neither owned, nor claimed, nor possessed, nor controlled the property...." (Id. at p. 344, 101 Cal.Rptr. 789.) On this point the evidence was the following:
Service to the subscribers could be discontinued at any time and in such event nothing was removed because the system was merely disconnected at the utility pole. The subscriber "could do anything with the interior system he wished; he had full control over it" and there was no agreement to prevent the subscriber from hooking the interior system to his own rooftop antenna. (At p. 342, 101 Cal.Rptr. 789.) Also, there was no agreement with respect to what the subscriber could do with the equipment.
Here, unlike Tele-Vue Systems, Inc., in the event of discontinuance of service, One more aspect of Tele-Vue Systems, Inc., is worthy of discussion. In that case it was contended that actual ownership of the interior housedrops was irrelevant because each of plaintiffs' systems " 'was assessed at a single figure representing the total value of the system as a complete operating unit....' " (Tele-Vue Systems, Inc. v. County of Contra Costa, supra, 25 Cal.App.3d at p. 344, 101 Cal.Rptr. 789.) This contention was rejected because the record there established "that the county assessor chose not to assess plaintiffs' property at its value as a complete operating unit." (Id. at p. 344, 101 Cal.Rptr. 789.) The court also noted that "[a]t the trial there was no evidence, or contention, that the systems were assessed at their value as operating units...." (Id. at p. 344, 101 Cal.Rptr. 789.)
From our review of the record here, it is clear that the security alarm systems installed by Morse were assessed by respondent as complete operating units and respondent continued to maintain that position during trial.
We conclude, then, that the trial court properly considered the security alarm systems installed by Morse as complete operating units and properly concluded that all parts of the system were assessable to Morse on that basis.
II. The trial court did not err in finding that there was no double taxation of the security alarm systems.
Section 102 of the Revenue and Taxation Code provides that "Nothing ... shall be construed to be double taxation." Morse contends that the facts of the case at bar, as to the security alarm systems it installs and services, establish the existence of double taxation of the kind proscribed by section 102. Morse claims that the value of the installed security alarm systems is included in the value of the property which is assessed against the owner of the premises within which the security alarm system is installed. Morse claims, therefore, that the assessment against it for the value of installed security alarm systems constitutes double taxation.
The evidence adduced at trial contradicts the bald assertion by Morse that property owners are taxed for the value of the security alarm systems. William Leonard, Principal Appraiser for the Los Angeles County Assessor's Office, testified that the practice of the assessor's office is that it does not consider the security alarm systems in the appraisal of real property. Mr. Leonard also testified that the Assessor's Handbook, utilized by assessors in Los Angeles County, provides that security alarm systems are treated as fixtures but are to be assessed only to the lessors of the security alarm systems.
There is no evidence in the record of double taxation of security alarm systems. The trial court properly found that there was no double taxation in the case at bar.
III. The assessment against Morse for the security alarm systems is not arbitrary or discriminatory.
Morse contends that the assessment against it for the security alarm systems is arbitrary and discriminatory because fire alarm systems installed by Morse which are virtually identical to the security alarm systems, are assessed as part of the subscriber's realty.
At trial, Mr. Leonard testified that the basis for the disparate treatment of fire and security alarm systems for taxation purposes was that the purpose of fire alarms is to protect the real property itself, whereas the purpose of security alarm systems is primarily to protect the contents contained within the premises.
The trial court found "[t]he fact that fire alarm systems were not taxed to Morse, but to the owner of the premises in which they were installed, has no bearing on the proper treatment of the taxability of burglar alarm systems." The court further found that the testimony of Deputy Assessor We agree with the finding by the trial court. While the distinction between the protective purposes of fire alarm and security alarm systems may be thin, such paucity does not establish that the disparate treatment of the two systems for taxation purposes is arbitrary or discriminatory. Furthermore, we also agree with the trial court's finding that the fact that each alarm system is treated differently for tax purposes is not relevant to the determination of whether the assessment against Morse for the security alarm systems is proper.
DISPOSITION
The judgment is affirmed.
McCLOSKY, Acting P.J., and TROOST, J. , concur.
Assigned by the Chairperson of the Judicial Council.