COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Counsel

DATE:

March 7, 2005

BOARD MEETING DATE:

March 29, 2005

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

County Counsel

SUBJECT:

Claim for Property Tax Refund Submitted by SRI International (301 and 333 Ravenswood Drive, Menlo Park, APN 062-390-660/670/730/760/780)

Recommendation

Deny the claim of SRI International for refund of property taxes paid in the amount of $1,412,955 for the 2000-2001 tax year for the property located at 301 and 333 Ravenswood Drive, Menlo Park, APN 062-390-660/670/730/760/780.

Vision Alignment

The recommended action furthers the following commitment and goal:

Commitment Nine: Responsive, Effective, and Collaborative Government.

Goal 20: Government decisions on based on careful consideration of future impact, rather than temporary relief or immediate gain.

Background

According to the claim, SRI International (“SRI”) is a non-profit institution that promotes “educational purposes by encouraging, fostering and conducting research in the physical, biological and social sciences, engineering and the mechanic arts, and to extend scientific knowledge in the several pursuits and professions of life, and to develop and research new idea, products, and policy for use in various disciplines.”

In February 2002, SRI filed an application for a welfare exemption from property taxation pursuant to section 214 of the California Revenue and Taxation Code. The San Mateo County Assessor (the “Assessor”) reviewed SRI’s application materials and conducted a field inspection of its facilities in Menlo Park. The Assessor determined that SRI had not demonstrated any charitable aspect to its operations in the County and that SRI does not use all of the Menlo Park campus for its operations. The Assessor therefore recommended to the State Board of Equalization (the “SBE”) that SRI’s welfare exemption claim be denied.

After review, the State Board of Equalization agreed with the Assessor and denied SRI’s welfare exemption claim. The SBE determined that “[t]he primary purpose [of SRI] to ‘promote the educational purposes of Stanford University’ and to provide scientific and industrial research . . . is not considered an exclusive eligible activity for exemption from property taxes under section 214 of the California Revenue & Taxation Code.” The SBE also noted that part of SRI’s campus “is leased to nonqualified tenants and part is vacant/unused.” The SBE denied welfare exemption claims for SRI for 2002-2003 and 2003-2004 tax years.

SRI has filed this claim for a refund of property taxes for taxes paid in December 2000 (2000-2001 tax year), apparently on the theory that had its earlier welfare exemption application been granted, a roll change for 2000-2001 would have been processed on the basis of that application. Your Board has denied two similar claims for refund by SRI in the last two years.

Discussion

Section 214 of the Revenue and Taxation Code provides that “[p]roperty used exclusively for religious, hospital, scientific, or charitable purposes” is exempt from property taxation where certain criteria are met: (1) the property owner is not operated for profit; (2) no part of the net earnings of the owner inures to the benefit of any private shareholder or individual; and (3) the property is used for the actual operation of the exempt activity and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.

The Assessor determined that SRI’s use of its Menlo Park property is not exempt under Section 214 because it is not charitable, and the State Board of Equalization agreed. This finding is correct. The courts have construed “charitable” activities as including “a wide range of activities beneficial to the community.” Stockton Civic Theatre v. Bd. of Sups. (1967) 66 Cal. 2d 13. SRI’s research and development activities, conducted under contract with governmental and private corporate clients, do not appear to afford a benefit broadly to the public. Further, the Assessor and the SBE found that SRI does not use all of the property at issue here for its activities and, to the extent SRI does not do so, the property is not being used for any exempt activity and it exceeds the amount reasonably necessary for SRI to accomplish its purposes, whether or not exempt.

Moreover, it is the SBE, rather than the Assessor or this Board, that has the last word regarding whether property is eligible for a welfare exemption. Simply put, the Assessor may not grant a welfare exemption where the SBE has found the property ineligible for such property tax relief. See former Cal. Rev. & Tax. Code § 254.5(b), which applies to applications for the exemption that were filed before January 1, 2004: “The assessor may deny the claim of an applicant that the [SBE] finds eligible, but may not grant the claim of an applicant the [SBE] finds ineligible.” Here, the SBE has determined that SRI’s property is ineligible for a welfare exemption, and the Assessor may not grant a claim. SRI should pursue the mandated processes for challenging this finding before the SBE, prior to pursuing a claim for refund before this Board.

Fiscal Impact

No fiscal impact is anticipated, unless the claim for refund is granted.