Apple Inc. has earned worldwide notoriety for its efforts to reduce its tax bill — and those efforts extend to the Bay Area, where it currently has 489 pending appeals of its property tax assessments in Santa Clara County. How much does Cupertino-based Apple think its property is overvalued? Try $8.49 billion.
Genentech has its own beefs with the tax man in San Mateo County — 653 of them in fact, disputing about $19.4 billion in assessed property value. The appeals have gone on so long that the county had to reach back into its own past for help in defending them.
“We had to bring a senior appraiser out of retirement because he had so much knowledge about the Genentech stuff,” said Rebecca Archer, a San Mateo County deputy counsel, noting that the county is still dealing with appeals from the South San Francisco company that began in 2000.
Welcome to one of the most arcane battlegrounds in the Bay Area, where corporate giants engage public tax assessors in a war over estimated values and equipment depreciation until — and often long past when — exhaustion sets in. Just as Apple controversially avoided U.S. income taxes by basing some of its operations in Ireland, here it makes the case that equipment for which it paid millions of dollars is now worth . . . practically nothing.
“Any taxpayer, from a homeowner to a big tech company, has the right to file an assessment appeal if they believe their assessment is too high,” Santa Clara County Assessor Lawrence Stone said. “The problem is, some corporations want to play games with the process.”
Apple says it is not playing games, but its penchant for property tax appeals has only grown. Three years ago, when this news organization last wrote about the issue, Apple was challenging $5.4 billion in value. Today the total is more than 50 percent higher.
For Apple, Santa Clara County’s largest property tax payer, the appeals could reduce its property tax liability by about $85 million — given the 1 percent base property tax rate — if they were resolved in the company’s favor.
The average age of Apple’s pending appeals in the county is 2.4 years, according to the Santa Clara County Assessor’s Office, but some stretch back as far as 2004.
After Apple, the other companies with the biggest disputes in Santa Clara County are Santa Clara-based Applied Materials, with 94 appeals and $6.13 billion of disputed assessed value; San Jose-based Hitachi Global Storage Technologies, now a unit of Western Digital known as HGST, with 30 appeals and disputed assessed value of $4.22 billion; and Alphabet’s Mountain View-based Google, with 132 appeals and $2.8 billion in assessed value in dispute. These are totals of the companies’ pending appeals, which may be spread over years and various parcels.
At the 1 percent base property tax rate, that means the county could hold onto roughly $216 million in disputed tax payments if those appeals were resolved in the county’s favor, Stone estimated.
The disputes arise from widely divergent views over the value of the companies’ real estate holdings and — primarily — its business equipment.
Property owners are obliged to pay the taxes that a county demands, even during an assessment appeal. But the companies disputing assessed values hope to obtain refunds for some or all of the taxes on the disputed amounts when the disagreements are resolved.
Apple didn’t respond to a recent request for comment about its property tax disputes. But in response to a 2015 inquiry from this news organization, the company said, “We’ve always paid our fair share of taxes, as one of the county’s largest taxpayers, and will continue working with the assessor to ensure we are equitably charged.”
Genentech, a unit of Swiss drug maker Roche, noted that it continues to pay in full all the tax bills the company receives from the county — as it is required to do.
“The current tax disputes that we have with the county cover a very small percentage of the total taxes that we pay to the county each year,” Genentech said in an email. “Those disputes primarily have to do with how the county determines and taxes the value of equipment that we purchase to install in our research and manufacturing facilities in South San Francisco. We believe the approach taken by the county has resulted in the overbilling of taxes.”
Although the statewide base property tax rate is 1 percent of the assessed value of a parcel, Santa Clara County’s Stone said variances can occur with each parcel because additional levies by government jurisdictions — such as school districts, sewer districts and sanitary districts — are added to that base rate.
Business equipment used by the companies at properties they own must be part of the assessment, which adds to the complexity for county experts. Determining the value of equipment extends well beyond trying to figure out how much a computer costs. Complex items such as semiconductor manufacturing devices must be assessed, and then assessors must determine how the value has changed over time. Machines used to produce automobiles also must be scrutinized, which means a plant such as Tesla’s electric-vehicle factory in Fremont offers a tangled challenge.
“Anytime you get a large company such as Tesla, it is difficult to ascertain the true market value of a parcel,” said Alameda County Chief Deputy Assessor Brian Hitomi.
The good news for Santa Clara, San Mateo and Alameda counties is that the numbers of these appeals have fallen in both of the last two fiscal years ending June 30. But in Contra Costa County, the number of appeals grew during each of those years, county officials reported.
Santa Clara County reported 3,291 property tax appeals in fiscal 2018, a 4.2 percent drop from the prior year. It saw a much larger 29.2 percent drop in fiscal 2017.
San Mateo County reported a 28.7 percent drop in appeals during fiscal 2018, and a 15.7 percent drop in fiscal 2017.
Alameda County saw an 11.9 percent drop in appeals during fiscal 2018, and a 12.3 percent drop in fiscal 2017.
Contra Costa County bucked the trend, however, reporting a 1.2 percent rise in tax appeals during fiscal 2018, and an 8.8 percent rise in appeals during the prior year.
These days, some longstanding property tax disagreements in Contra Costa and Santa Clara counties are being settled peacefully — or at least somewhat peacefully.
“Historically, we had disputes with the oil refineries, but they are not using a confrontational strategy anymore,” Contra Costa County Assessor Gus Kramer said. “They are meeting with us annually, and they share more data with us now. We had an ongoing appeal with Chevron that lasted nine years, but that was eventually settled to the county’s advantage of $25 million. After that, the oil companies started to come to the table.”
Google, through a spokesperson, said that in Santa Clara County, the company’s approach is to act cooperatively.
The search giant said it continues to appeal assessments on several properties, primarily for the purpose of protecting its rights to do so. However, Google stated that the company and the county Assessor’s Office go over properties and issues with real estate parcels without being confrontational.
“Some companies are very cooperative with providing the information that we need, but others want to play a game of cat-and-mouse, and those are the ones that create problems,” Santa Clara County’s assessor said, without naming the companies causing such problems.
In the final analysis, county officials are committed to getting the numbers right, Stone said.
“Appraisal is more of an art than a science,” he said. “We do over-assess people at times. We want accurate values on the assessment rolls.”
