Earlier this week Texas out of home attorney Richard Rothfelder reviewed the legality of taxing billboards based on earnings.  California out of home attorney Richard Hamlin tells Billboard Insider California property taxes can’t be based on a billboard’s income.

California property taxes must be based on real property. They may not be based on intangibles, such as the value of a permit or providing design services, etc. Since billboards require a permit to operate, a tax assessor would have to deduct the permit’s contribution (and the contribution of any other intangibles) from the revenue stream. The State Board of Equalization has said that using a revenue stream to value a billboard for property tax purposes is “disfavored.”

In formal guidance issued in 2002, the Board of Equalization said, “The Board decided that (1) the use of operating income is disfavored because of the difficulty in isolating the income attributable to the taxable property, and (2) since a billboard use permit is necessary to put the land to beneficial and productive use as a billboard site, the land must be assessed and valued by assuming the presence of the use permit.”

Probably due to that guidance, we have not found a case in California directly addressing valuation of billboards for property tax purposes. We have found cases that apply the same reasoning to hotels and a power plant. That is, if the tax assessor wants to use revenue stream to value property, it must deduct from the revenue stream the contribution of permits and other intangibles.

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