California Supreme Court Holds That Taxing Entities Such as Cities and Special Districts, May Recover Misallocated Property Taxes from Counties


Today, the Supreme Court announced in City of Dinuba v. County of Tulare, S143326, that cities, agencies and special districts may recover property taxes misallocated by counties. The Court's ruling is a victory for all California entities that rely on counties to properly allocate and distribute property tax receipts.

The Court's ruling stems from a long-running controversy between the Dinuba Redevelopment Agency and Tulare County. In 2002, the Agency audited the County's tax-allocation procedures. The audit revealed several coding errors that led to misallocations, meaning the County wrongfully withheld more than $300,000 in tax receipts that it was statutorily and constitutionally mandated to provide to the Agency. The Agency promptly brought the errors to the County's attention. The Agency asked the County to correct the coding errors and to pay all amounts due the Agency for the limitations period going back four years. The County agreed to correct the coding errors but refused to provide retrospective relief, citing its own "internal policy."  The Agency sued the County. The trial court held that the County could not be compelled to provide retrospective relief. The Fifth District Court of Appeal reversed, holding that the County could be held liable for retrospective relief. The California Supreme Court granted review.

The Court affirmed the Fifth District's holding. In a ruling joined by all seven justices, the Court rejected the County's reliance on Government Code § 860.2, which confers immunity upon public entities and their employees for “an injury” caused by an act or omission in the “interpretation or application” of a tax law. The Court held that the Agency's request for distribution of tax receipts improperly withheld did not involve an "injury," which is defined as  a loss of property, or any other injury that a person may suffer to his person, . . . . , of such nature that it would be actionable if inflicted by a private person.”  The Agency's request for proper distributions, by its nature, is not a claim of "such nature that it would be actionable if inflicted by a private person" because the Legislature vested counties, not private individuals, with the responsibility to properly distribute tax receipts. The Court noted that its interpretation is supported by other statutes that contemplate retrospective corrections to tax allocations and distributions.

Tulare County is not alone in refusing to provide improperly withheld property taxes. Many California counties take the same approach. Today's ruling, however, makes it clear that cities, special districts and agencies across California can hold counties to answer for property tax misallocations and distribution errors.

The Agency was represented by Steve Meyers and Joseph Quinn of Meyers, Nave, Riback, Silver and Wilson and Daniel T. McCloskey and Tuttle. To read the entire opinion, click here

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