Tax dispute emerges over leases at ports: long-term tenants take short-term lease benefit.

Terminal operators at the ports of Los Angeles and Long Beach are battling county tax assessors over how much they should pay in property taxes.

Tax assessors are asking the state Board of Equalization to reverse a major tax break the shipping industry pushed through three years ago. The rule makes it easier for terminal operators who invest large amounts in their port facilities--and rarely leave--to argue that they are short-term leaseholders and should receive reductions in their tax bills.

"Some people had been playing games with this, saying they were only short-term leaseholders when everybody knew they were in it for the long term," said Board of Equalization Vice Chairman Claude Parrish, who is pushing for the change. "This is about fairness, about people not skipping out on taxes."

The Board is set to consider the proposed changes in January. Meanwhile, terminal operators are mounting a statewide letter-writing campaign to halt the proposed changes, accusing tax collectors of a money grab.

"We have no problem with paying our fair share of taxes. But the California Assessors Association is having visions of green flash before their eyes," said Michael Jacob, vice president of the Pacific Merchant Shipping Association.

At stake are millions of dollars in property taxes on leases at ports and other marine-related facilities throughout the state.

At the ports of Los Angeles and Long Beach, the L.A. County Assessor's office estimates that the total assessed value of harbor property leases would drop to $2.1 billion from the current $3.5 billion if the tax break is upheld. That translates into $15 million in lost property tax payments made by port leaseholders each year.

Major terminal operators say their taxes could jump by as much as $3 million apiece should the assessors be successful. Higher taxes, they add, would slow progress on environmental improvements and measures planned to reduce the impact of their operations on surrounding communities.

"This is a giant cat-and-mouse game that we're seeing played out everywhere from downtown Los Angeles to the ports ever since Proposition 13 passed," said Larry Kosmont, an L.A.-based economic development consultant. "Companies are always looking for ways to lower their tax appraisals while tax assessors seek every dollar they can get ahold of."

Valuing lease time

Since the change in state tax rules was approved by the Board of Equalization three years ago, harbor leaseholders throughout the state have appealed dozens of property tax assessments.

In L.A. County alone, the assessor's office reports 15 appeals pending on port lease valuations totaling $406 million, representing about $4.1 million in actual property tax payments.

At the core of the tussle is how to value the time remaining on multi-year port leases. The longer the lease period, the higher the property tax assessment.

County tax assessors have taken the position that major terminal operators act in ways that resemble permanent ownership of the property or at least the intent to hold very long-term leases. So even if there are only a couple of years left on a lease, they assess the property as if there were another 10, 20 or 30 years to go.

"Terminal operators make long-term investments on their sites, building rail lines to transfer cargo, bringing in those huge cranes and the like, even when they have only a couple years left on their leases," said L.A. County Assessor Rick Auerbach, who has led the latest charge on behalf of tax assessors. "They are definitely making plans that their leases will be renewed for another 20 or 30 years and should be taxed accordingly."

Terminal operators and shipping company representatives say it's unfair to value property beyond the term of the current lease. Three years ago, they lobbied the Board-of Equalization to change the rule, saying that in order for a county assessor to value a property beyond the term of an existing lease, the assessor must come up with "clear and convincing evidence" that the leaseholder will retain the lease beyond the term.

"They are in essence saying that we are responsible for taxes on the land that's leased, even when we don't have the fight to use the property," said Jacob.

Individual shipping companies and terminal operators referred calls to the PMSA.

The Board of Equalization adopted the industry stance in 2002. Since then, county assessors have been lobbying to overturn it. Previously, the four-member Board of Equalization rejected the attempts outright.

But the latest attempt gained some traction when Parrish took up the cause and drafted the proposed changes to the rule that assessors had been seeking.

"I'm, willing to grant tax breaks when the need is pressing. I'm the guy who after 9/11 voted to grant tax breaks to the airlines," he said. "But here, we've got people who are saying, 'We don't want to pay our taxes.'"