Marin faces demands from utilities for tax refunds
Several major utilities are seeking millions of dollars in property tax refunds from Marin County.
AT&T, T-Mobile and Sprint have filed similar claims with 34 other California counties. Their claim for $12 million in refunds from Santa Clara County was initially upheld by a Superior Court judge, but the decision was overturned in January by the 6th District Court of Appeal.
Meeting in closed session last month to discuss anticipated lawsuits from the utilities, Marin County supervisors decided to extend the statute of limitations affecting the companies’ right to sue.
“The companies are seeking California Supreme Court review, and we agreed to extend the tolling agreement to allow for that process to run its course,” Marin County Counsel Brian Washington said in an email following the supervisor’s decision on April 18.
A “tolling agreement” involves a potential plaintiff and defendant extending the statutory time limit on the plaintiff’s claim, typically so the parties will have more time to settle a dispute without going to court.
The tolling agreement ended April 30. On April 19, the California Supreme Court declined to review the case.
“We consider the issue resolved and hope the utilities agree as well, but I do not know if others are still trying to pursue this issue,” Washington said.
Sandra Kacharos, Marin County’s assistant director of finance, said, “My understanding is the companies will probably try to pursue the case through a different district court to see if they can get a different result.”
Washington said such an action “is a possibility.” Marin County is in the jurisdiction of the 1st District Court of Appeal.
Jim Kimberly, a spokesman for AT&T, declined to comment on whether it plans to litigate the matter further.
“We are disappointed the California Supreme Court declined to hear our appeal and are reviewing our options, as we believe this case has important implications for all Californians who pay utility bills,” Kimberly said.
Property taxes consist of two components: the general levy assessed on real property, and a debt-service component that residents and businesses pay to cover interest on school bonds and other financing measures.
The utilities aren’t contesting the general levy component of their tax bills. The objection stems from the amount of debt service the utilities are paying, and the fact that they are charged at a higher rate than other taxpayers.
“Our property in Santa Clara County is currently being assessed at twice the levy rate of all other locally assessed property in Santa Clara County,” Kimberly said.
Kacharos said that in Marin, the debt-service tax rate this year is 0.9461%, while the average debt-service tax rate for individual properties is 0.0127%.
“But that is comparing apples and oranges,” Kacharos said.
Kacharos said the comparison isn’t apt because the state uses a unique procedure to determine how much utilities should pay in property tax. Rather than valuing individual assets, the state values most utility properties as a unit. After assessing the value of the property as a whole, the Board of Equalization uses a formula to allocate a certain amount of that value to each county.
The tax rate that these utilities are assessed for debt service also differs from the average taxpayer. Most taxpayers pay some debt service if they live in a school district or other special district where voter-approved bonds have been issued. But the debt service rate for property valued as a unit is higher because it is based on all of the bonds issued by all of the districts in that county.
Even so, Kacharos said, the state formula used for calculating the final debt service rate results in somewhat lower assessment than if the cost of all the bond indebtedness for the county were simply summed. For Marin, that rate would be 1.0293%.
Kacharos said the county began receiving tax refund claims from AT&T, T-Mobile and Sprint in 2019. The initial claims were for the 2015-16 fiscal year, since there is a four-year statute of limitations on such actions. Kacharos said the companies have filed claims with the county every year since then.
In November 2022, AT&T filed a claim with Marin County seeking a property tax refund of $368,633 for the 2018-19 fiscal year. The utility paid $948,875 in property taxes that year.
In October 2022, Sprint filed a complaint with the county seeking a tax refund of $73,467 for the 2018-19 fiscal year. It paid $190,943 in property taxes that year.
Kacharos said other utilities began filing claims with the county around the same time.
Last month, the county received a claim from Pacific Gas & Electric Co. seeking a property tax refund of more than $3.47 million for the 2018-19 fiscal year. PG&E paid more than $9 million in property tax that year.
Kacharos said if a court were to accept AT&T’s legal argument, the county could lose a major portion of its debt-service levy on 38 utilities. In the 2021-22 fiscal year, that amounted to about $7 million, while in 2022-23 it came to more than $7.8 million.
“The county isn’t the recipient of the funds,” Kacharos said. “These are levies that are generated through the tax rolls to pay debt service, which is largely held by school districts.”
“It would need to be clawed back from debt service, which is basically unheard of,” she said. “I don’t know how you would ever do that.”
Kimberly said that “about 80% of the excess property taxes being paid because of this rate discrimination falls on rate-regulated utilities.”
“These utilities recover 100% of those property taxes from their ratepayers resulting in higher energy costs,” he said. “Today this amounts to $500 million annually, but in six short years it is expected to climb to $1.5 billion annually.”
In its ruling against the utilities, the 6th District Court of Appeal said it recognized the force of the utilities’ arguments that they are being asked to pay a “disproportionate share of the debt burden of certain counties in California.”
“The remedy for such disparate treatment, however, lies with the Legislature,” the ruling said.