America's Property Tax Advisor

California Court Upholds Exemption
for Intangibles


A California Appeals Court has ruled assessors cannot ignore the tax-exempt status of intangible assets for property tax purposes. Furthermore, the burden of proof shifts to the assessor when an assessment includes the value of intangibles.


This published decision sets precedence as a property tax matter in the State of California.


DFS Group LP v. County of San Mateo


DFS Group L.P engages in the business of duty-free sales at airports around the county and holds an exclusive lease and concession at San Francisco Airport (SFO).


The San Mateo County Assessor assessed the value of the company’s possessory interests using the income method, which estimated the fair market value of an income-producing property by calculating the property’s expected future income stream.


In applying the income method, DFS’s leasehold interest was based upon the entire fee the company paid the airport, in effect treating the entire amount as economic rent.


Exclusive Operating Right is Tax Exempt


DFS contended that the annual payment to SFO was consideration not only for its taxable use and occupancy of retail space at the airport but also for the valuable, but non-taxable concession rights it holds.


It argued that by capitalizing the entire payment without deducting the value of its exclusive concession rights, the assessor directly taxed those non-taxable intangible rights.




After examining the evidence, the Court of Appeals held that DFS’s exclusive right to sell duty-free goods at SFO was a valuable intangible right. Justices ruled that the assessor’s method of capitalizing the entire concession fee made the assessor’s method of valuation unlawful under California’s Revenue and Taxation Code.


The appellate court’s decision expressly held that a taxpayer need only show that the assessment includes the value of intangible assets. Having done so, the burden shifts to the assessor to prove by a preponderance of evidence that the intangible value has been removed.