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HomeMy WebLinkAboutItem 5.1 Viacom Possessory Interest Tax (2) CITY OF DUBLIN AGENDA STATEMENT CITY COUNCIL MEETING DATE: August 26, 1991 SUBJECT: Written Communication from Viacom Cablevision regarding Alameda County Assessment of Property Tax Report prepared by Paul Rankin, Assistant City Manager EXHIBITS ATTACHED: 1 ) Letter dated August 7, 1991 from Michal Dittrich, Government Affairs Manager 2) Draft Letter to Board of Supervisors RECOMMENDATION: Oxonsider request FINANCIAL STATEMENT: Company anticipates a $1 .50/month rate increase in addition to any other operating cost increases as a result of the action by the County Assessor. DESCRIPTION: Pursuant to Federal Law, the City has no authority to regulate cable television rates. Congress has enacted legislation which allows operators to charge whatever the market will bear. Viacom has requested the City's support in an appeal of a property tax assessment being levied in Alameda County. The taxes paid by the company are considered operating expenses which are eventually passed on to the consumer. Basis For Issue In 1987, Viacom went through a merger which was deemed a change of ownership. During any change in ownership under California Law, a reassessment of the company's property holdings is undertaken by the County Assessor. This reassessment is not any different than a property owner who sells their property. Typically, a transfer would involve two different parties and therefore, the seller would not be familiar with the amount of increase in the tax bill received by the buyer. In addition to property tax on buildings owned by the firm, the company also pays a "possessory interest" tax. This provision recognizes an interest in real property which exists as a result of the exclusive use or right to possession which is not accompanied by title ownership of property. Viacom has a franchise which grants them the right to operate within the public streets and right- of-way. The current franchise runs through December 31 , 2000. The appraisal of a firm's possessory interest is not as clean cut as the appraisal of real property. For example, the Assessor cannot review recent transactions to determine a comparable value. The State Board of Equalization publishes proposed methods of appraising assets of cable television companies. Viacom used one of the three approved methods to calculate their estimated taxes. Rates have been based upon an assumption that one of these methods would be used. Viacom representatives have indicated that the Assessors in several California counties in which they operate have developed their own methodology, instead of choosing from the standard methods published by the State Board of Equalization. Staff has discussed the issue with Mr. John Scott, the Alameda County Assessor. It is the Assessor's position that the State Handbook is only a guideline and not the only method available. The County Assessor indicated that all utilities are appraised by the State Board of Equalization; however, cable television franchises are not regulated as utilities and therefore the assessment is up to each County Assessor to determine the appraisal. Mr. Scott also stated that his office currently has pending appraisals on 6 other cable television franchises. Four of the reassessments are due to a change in ownership and 2 are due to the negotiation of a new franchise. He indicated that the methodology used to develop the value of the possessory interest included the firm' s income, number of subscribers and other factors. --------------------------------------------------------------------------- COPIES TO: Michal D' ., - ITEM NO. jf OA& Cable isio,, 1 T Y CLERK FILE 1 /101 0 0 Impact of Alameda County Assessment The impact on the local franchise is that the assessed value upon which Viacom's possessory interest tax is calculated will be $65.6 million, compared to the 1987 assessed value of $1 .2 million. Viacom has indicated that they did assume that some sort of assessment would occur, however, they consider the Assessor' s action excessive. This amounts to a 5,003% increase. The increase anticipated by Viacom was consistent with the methods developed by the State Board of Equalization. Ms. Myrt Jones, Viacom General Manager, indicated that the impact has resulted in substantial changes to Viacom's 1987 property tax bill. The following figures include both Possessory Interest, as well as other assets combined: Pre-1987 Alameda County Property Taxes - $151 ,900; 1987 Property Taxes Due after Reassessment - $945, 100 Impact on Rates Viacom representatives have indicated that they anticipate a $1 .50 per month rate increase as a result of this action. This amount is independent of any additional general rate increase. Company representatives have verbally stated to City Staff that if the entire amount attributable to the tax increase were passed on, the necessary increase would be $4.50 per month. Viacom's position is that they intend to pay the tax as required and then pursue legal and administrative appeals. In the event that this action is successful, Viacom would then make appropriate adjustments. It is important to note that seeking relief will also require Viacom resources, which in all likelihood the cost for attorneys and others will be recovered through the rates. Of course, in the event of a dispute and actual litigation, the County will also incur certain costs. In the event that a negotiated settlement is not reached, Dublin rate payers will contribute towards legal costs of both sides in the dispute. The County Assessor's legal costs would be paid by taxpayers and Viacom' s legal costs will presumably be passed on to the rate payers. Viacom Request Viacom has requested that the City request that Alameda County repeal the excessive assessment and select from the methodologies identified in the State Board of Equalization Handbook, as it relates to cable television. Staff has prepared a draft letter to the Board of Supervisors based upon the request. It is recommended that the City Council consider the request. y PSR/K2/lss a:CABLETV$.agenda#5 L r AU G 8 1991 IT/ViacomCablevision August 7, 1991 Richard C. Ambrose City K-Hager City of Dublin P.O. Box 2340 Dublin, CA 94568 Dear City Manager Ambrose: In 1987 Viacom went through a merger, currently deemed to be a change of ownership, which triggered a reassessment of our property in the cen California counties in which Viacom operates. Anticipating this :reassessment, Viacom created a reserve to pay the expected tax in- crease, using the traditional appraisal methods outlined in the State Board of Equalization's Handbook on Cable Television, as they have been previously applied to us. Viacom was prepared to absorb this expected increase in property tax as a cost of doing business. How- ever, the recently completed appraisal resulted in a 5707. increase in the combined property tax bills for Viacom's California operations in 1987, with further increases frcxn 1988 and beyond. The bulk of the increased assessment is for "possessory interest", which taxes Viacom's use of public rights-of-way. For example, the appraised value of Viacom's possessory interest in California for 1987 went from $18.5 million to $506.0 million, an increase of over 27 times. This is an exLraord:-easy increase, even in California's inflated real property market. Further, cn top of this tax, Viacom already pays a franchise fee for the same right to use public rights-of-way. This excessive tax is beyond what Viacom can absorb; therefore, we antic- ipate a significant increase in cable rates on October 1, 1991. We believe the Assessors acted arbitrarily in their valuation methodology. By accepting the valuation prepared by the Alameda, Contra Costa, Marin, San Francisco and Sonoma appraisers, your Assessor has endorsed a radical new method of valuation. State law requires that Viacom pay the increased tax even though we believe it to be excessive and plan to challenge it. 6640 Sierra Lane,Dublin,CA 94568 4151828-8520 V City Manager Ambrose. August 7, 1991 Page 2 Therefore, Viacom will pay the additional tax, including back taxes commencing in 1987, and then seek relief through administrative appeals and court action. We are truly outraged by being forced into this property tax and rate increase and Viacom pledges to exhaust every possible remedy to overturn this unfair and dubious tax assessment. We intend to make appropriate adjustments after all taxes are paid and costs are recovered, should we prevail. We ask your assistance in appealing to the Alameda County Board of Supervisors and the Assessor to repeal this grossly unfair reassess- ment. I am hereby requesting that the City Council send a resolu- tion to these elected officials asking them to reconsider the Assessors valuation methodology to reflect the approved State Board of Equalization Handbook method for property appraisal as it relates to Cable Television. Sincerely, Michal Dittrich :tanager, Governmm*_ Affairs MD/jwc ti August 27 , 1991 The Honorable Mary King, President and Members of the Board of Supervisors County of Alameda 1221 Oak Street, Room 555 Oakland, CA 94612 Subject: Calculation of Property Tax Assessment for Viacom Cablevision Dear President King and Board Members: The purpose of this letter is to request assistance from the Board of Supervisors in reviewing the methods used by the County Assessor to reassess Viacom Cablevision property after a 1987 merger. This letter is being directed to you following consideration and input by the Dublin City Council at their meeting on August 26, 1991. In 1987, the assessed value upon which Viacom's possessory interest tax was calculated in Alameda County was $1.2 million. As a result of the merger, the company anticipated that a reassessment would occur, based upon one of the traditional methods identified in the State Board of Equalization's Handbook on Cable Television. Instead, the Alameda County Assessor has relied upon a new method of valuation, not shown in the State Handbook. This action results in a new assessed value for possessory interest tax purposes in Alameda County of $65. 6 million. This is an increase in assessed value of over 5, 003%, and is not based on the methods identified by the State Board of Equalization Handbook. The company has advised the City Council that this will result in significant rate increases to residents receiving this service. The Board Members should be aware that the Valley cities are in a difficult location to receive regular television signals. In most of Dublin, it is impossible to receive television reception without cable service. Unnecessary tax increases will further impact our residents access to regular news and entertainment services provided by cable television. The City of Dublin concurs that a reassessment is appropriate, however, alternative methods need to be explored. If litigation to appeal the assessment is the only option available, our residents will lose twice since in all likelihood they would be contributing toward expensive legal costs for both sides. It would appear that the Board of Supervisors could undertake a leadership role in rectifying the current situation. Given that there have been published guidelines developed by the State Board of Equalization, we would support using one of the traditional methods. v The Honorable Mary King, President and Members of the Board of Supervisors Page 2 On behalf of the entire City Council, we appreciate your consideration of this important matter. Sincerely, Peter W. Snyder Mayor cc: John Scott, Alameda County Assessor Steve Szalay, Alameda County Administrator Mayors of Livermore, Pleasanton & San Ramon