Northern California - Appeals Court Allows Intangible-Rights Inclusion

Recently the California Court of Appeal held in Watson Cogeneration Co. v. County of LA, that an assessor properly included the value of an above-market power purchase contract in the value of a power generating plant. The Court reasoned that the consideration the assessor accorded the contract was justified since it resulted in a valuation that reflected the highest and best use of the subject property and did not constitute a direct assessment of the contract itself.

The Court also based its rationale on the fact that the power plant was developed as a result of favorable government incentives. Therefore, the Court held that it was appropriate for the assessor to consider the effect of the power contract on the plant’s actual income stream.

This case marks a considerable departure from the general rule excluding intangible rights and assets, such as above-market contracts, from assessment and may open the door to further inclusions.

David ColkerGray Cary Ware & Freidenrich [email protected] Property Tax Counsel (APTC)