CCLME.ORG - DIVISION 1. STATE BOARD OF EQUALIZATION-PROPERTY TAX

(continued)
c. Allowed expenses do not include the following: amortization, depreciation, depletion charges, debt retirement, interest on funds invested in the taxable possessory interest, the contract rent for the taxable possessory interest, property taxes on the taxable possessory interest, income taxes, or state franchise taxes measured by income.
(D) Capitalization Rate. Subsection (g) of rule 8 provides that a capitalization rate may be developed by either comparing the anticipated net incomes of recently sold comparable properties with their sales prices, or by deriving a weighted average of the capitalization rates (rates of return) for debt and equity capital appropriate to California money markets. In accordance with rule 8, the capitalization rate used in the valuation of a taxable possessory interest may be developed by (i) comparing the anticipated net incomes from comparable taxable possessory interests with their sales prices stated in cash or its equivalent and adjusted as described in subsection (e)(1)(A); (ii) comparing the anticipated net incomes of comparable fee simple absolute interests in real property with their sales prices stated in cash or its equivalent, provided the comparable fee properties are not expected to produce significantly higher net incomes subsequent to the subject taxable possessory interest's term of possession than during it; or (iii) by deriving a weighted average of the capitalization rates for debt and equity capital appropriate for the subject taxable possessory interest, weighting the separate rates of debt and equity by the relative amounts of debt and equity capital expected to be used by a typical purchaser of the subject taxable possessory interest. Consistent with subsection (f) of rule 8, the capitalization rate shall contain a component for property taxes where applicable
(f) Valuation of Pre-De Luz Taxable Possessory Interests. Except as specifically provided otherwise by law, and excluding a taxable possessory interest involving the production of gas, petroleum, or other hydrocarbons, the value of a taxable possessory interest created prior to December 24, 1955, and not since renewed or extended (i.e., a "Pre-De Luz" taxable possessory interest) is the excess of the fair market value on the valuation date of the taxable possessory interest over the present value of unpaid future contract rent for the unexpired term of possession (i.e., for the term of possession). This value may be estimated using one or more of the following methods, as appropriate for the taxable possessory interest being valued.
(1) Comparative Sales Approach to Value. A Pre-De Luz taxable possessory interest may be valued by the comparative sales approach using the direct comparison method or the indirect comparison method, as described in subsection (e)(1), but with the following modifications:
(A) Direct Comparison Method. In the direct comparison method, the present value of the unpaid future contract rent is not added to the sale price of the taxable possessory interest.
(B) Indirect Comparison Method. In the indirect comparison method, the value of the possessor's rights as if owned in fee is reduced by the present value of the unpaid future contract rent of the taxable possessory interest, as well as by the value of those property rights for the period subsequent to the term of possession.
(2) Cost Approach to Value. A Pre-De Luz taxable possessory interest may be valued by the cost approach as described in subsection (e)(2), but the present value of any unpaid future contract rent of the taxable possessory interest in land for the term of possession is also deducted.
(3) Income Approach to Value. A Pre-De Luz taxable possessory interest may be valued by the income approach using the direct income method or the indirect income method, as described in subsection (e)(3), but with the following modifications:
(A) Direct Income Method. In the direct income method, the net income to be capitalized is reduced by the unpaid future contract rent for the term of possession, as well as by allowed expenses.
(B) Indirect Income Method. In the indirect income method, the present value of the unpaid future contract rent for the term of possession is deducted from the value of the fee interest, as well as the deduction of the present value of the property rights for the period subsequent to the term of possession.

Note: Authority cited: Section 15606, Government Code. References: Sections 107 and 107.1, Revenue and Taxation Code.

s 22. Continuity of Possessory Interests.
(a) The continuity of possession or exclusive use necessary to establish a possessory interest will vary according to the location and character of the property. The continuity of use necessary for finding a possessory interest to exist is satisfied when the possessor of the property uses it to substantially the same extent as would an owner engaged in the same activity.
(b) Standards for determining the existence of taxable possessory interests based on continuity are:
(1) Actual or constructive possession or exclusive use of property on the lien date for the current year.
(2) Recurrent possession or exclusive use, whether or not the period extends through the lien date, when there is a history on the lien date of recurring use by the present or former possessors making a similar use of the property.
(3) Infrequent actual possession or exclusive use on a recurrent basis when the continuation of the right to possession or exclusive use is conditioned on or evidenced by the possessor having made a contribution to the value of the property by way of investment on or near the property occupied.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 107, 107.1 and 107.4, Revenue and Taxation Code.

s 23. Written Agreements As to Term of Possessory Interests.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 107, 107.1 and 107.4, Revenue and Taxation Code.

s 24. Possessory Interest Rights to Be Valued.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 107, 107.1 and 107.4, Revenue and Taxation Code.

s 25. Valuation of Post-deLuz Possessory Interests.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 107, 107.1 and 107.4, Revenue and Taxation Code.

s 26. Valuation of Pre-deLuz Possessory Interests.

Note: Authority cited: Section 15606, Government Code. Reference: Section 107.1, Revenue and Taxation Code.

s 27. Valuation of Possessory Interests for the Production of Hydrocarbons.
(a) The taxable value of all possessory interests for the production of gas, petroleum, and other hydrocarbon substances from beneath the surface of the earth shall be determined by application of the comparative sales or income approach in the manner prescribed in subsections (e)(1) or (e)(3) of Regulation 21, except as provided in subsection (b) of this regulation.
(b) The taxable value of a possessory interest for the production of hydrocarbon substances from beneath the surface of the earth shall be determined by application of the comparative sales or income approach in the manner prescribed in subsections (f)(1) or (f)(3) of Regulation 21 if:
(1) the interest was created or last extended or renewed on or before July 26, 1963, and the rate of royalties or other right to share in production was not reduced because of an increase in the assessed value of such interest; or
(2) the interest was created on or before July 26, 1963, and has been extended or renewed thereafter pursuant to authority which prohibits reduction of the rate of royalty or other right to share in production because of an increase in the assessed value of such interest.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 107, 107.2 and 107.3, Revenue and Taxation Code.

s 28. Examples of Taxable Possessory Interests.
The following are examples of commonly encountered taxable possessory interests:
(a) The right to explore for, capture, and reduce to possession gas, petroleum, and other hydrocarbons in public lands.
(b) The possession of an employee in housing owned by a public agency, irrespective of whether occupancy of the housing is a condition of employment except when the facility also serves as the employee's work area to which the employer has full access.
(c) The right to cut and remove standing timber on public lands.
(d) The right to graze livestock or raise forage on public lands.
(e) The possession of public property at harbors, factories, airports, golf courses, marinas, recreation areas, parks, and stadiums. Possessory interests may include land subject to the ultimate grant of a United States patent, commercial and industrial sites, and water rights.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 107, 107.1, 107.2, 107.3 and 107.4, Revenue and Taxation Code.

s 29. Possessory Interests in Taxable Government-Owned Real Property.
(a) Definitions. For purposes of this rule:
(1) "Assessed value" is defined in subdivision (a) of section 135 of the Revenue and Taxation Code.
(2) "Improvements" are defined in rule 122.
(3) "Land" is defined in rule 121.
(4) A "lease for agricultural purposes" is a lease for the purpose of the production or husbandry of plants or animals, including gardening, horticulture, fruit growing, and the storage and marketing of agricultural products.
(5) "Other taxable improvements" are improvements owned by a local government outside of its boundaries that are taxable for property tax purposes pursuant to section 11(a), excluding taxable replacement improvements.
(6) "Real property" is the appraisal unit of real property, as defined in section 104 of the Revenue and Taxation Code, that persons in the marketplace commonly buy and sell as a unit or that is normally valued separately.
(7) "Section 11" means section 11 of Article XIII of the California Constitution.
(8) The "section 11 taxable possessory interest limitation amount" means the fair market value of the taxable government-owned real property on the lien date less the section 11 value of the taxable government-owned real property on the lien date.
(9) The "section 11 value of taxable government-owned real property" means the sum of: (i) the section 11 assessment amount for the taxable lands included in the real property on the lien date, computed pursuant to subdivisions (b) and (c) of section 11; (ii) the section 11 assessment amount for any taxable replacement improvements included in the real property on the lien date computed pursuant to the provisions of subdivision (d) of section 11; and (iii) the fair market value of other taxable improvements included in the real property on the lien date, if any.
(10) "Taxable government-owned real property" is real property owned by a local government outside of its boundaries that is taxable for property tax purposes pursuant to section 11(a).
(11) "Taxable lands" are lands owned by a local government outside of its boundaries that are taxable for property tax purposes pursuant to section 11(a).
(12) "Taxable possessory interest" is defined in rule 20.
(13) "Taxable replacement improvements" are improvements owned by a local government outside of its boundaries that are taxable for property tax purposes pursuant to section 11(a) because they were constructed by the local government to replace improvements that were taxable when acquired.
(14) The "total assessed value of all taxable possessory interests" means the aggregate assessed values of all taxable possessory interests in an appraisal unit of taxable government-owned real property on the lien date.
(b) Taxable possessory interests in taxable government-owned real property.
Except as set forth below in subsection (c) of this regulation, taxable possessory interests in taxable government-owned real property, excluding those created as a result of the possessor having a lease for agricultural purposes, shall be assessed and taxed for purposes of property taxation in the same manner as other taxable possessory interests.
(c) Limitation on the assessment of taxable possessory interests in taxable government-owned real property.
On each lien date, the total assessed value of all taxable possessory interests in an appraisal unit of taxable government-owned real property shall be determined. If the total assessed value of all taxable possessory interests on the lien date exceeds the section 11 taxable possessory interest limitation amount on the lien date, then the assessed values of the taxable possessory interests shall be reduced as follows: (i) if there is only one taxable possessory interest in the appraisal unit of taxable government-owned real property on the lien date, then the assessed value of that taxable possessory interest shall be reduced so that it does not exceed the section 11 taxable possessory interest limitation amount; or (ii) if there is more than one taxable possessory interest in the appraisal unit of taxable government-owned real property on the lien date, then the assessed value of each such taxable possessory interest shall be ratably reduced in the proportion that it bears to the total assessed value of all taxable possessory interests until the total assessed value of all taxable possessory interests no longer exceeds the section 11 taxable possessory interest limitation amount.

Note: Authority cited: Section 15606(c), Government Code. Reference: Article XIII, Section 11, California Constitution.

s 31. Petroleum Products Value Schedule.

Note: Authority cited: Sec. 15606, Gov. Code. Reference: Articles 1 and 1.5, Chapter 1, Part 3, Division 1 and Sections 110, 401 and 401.5, Revenue and Taxation Code.

s 41. Market Value of Timberland.
(a) The Timber Appraisal Unit. In determining the timber to be valued as a unit, there shall be combined those parcels having:
(1) The same legal ownership. Timber sale contracts shall not be included in the unit.
(2) Commercial timber production as a dominant use.
(3) Geographical and physical conditions which permit similar treatment and economic removal of the timber to a common processing center. The typical practices of timberland owners and timber purchasers shall be used as a guide to indicate the geographical areas which are suitable for inclusion in the unit. Parcels shall not be excluded from the unit because they are outside the county, or because they are eligible for assessment under section 423.5 of the Revenue and Taxation Code.
(b) Immediate Harvest Value of Timber. The immediate harvest value of the timber on each of the separate parcels in the unit shall be determined. Immediate harvest value is the amount of cash or its equivalent for which timber would be transferred from a willing and informed seller to a willing and informed buyer, both seeking to maximize their incomes, if the timber could be harvested in the forthcoming year. The appraiser must consider all elements of value, such as volume by species, quality, defect, market conditions, volume per acre, size of timber, accessibility, topography, logging conditions, and distance from a processing center capable of utilizing the timber.
(c) Market Value of Timber. This section shall only apply to timber in the unit not eligible for assessment under section 423.5 of the Revenue and Taxation Code. The immediate harvest value of the timber on the timber appraisal unit is synonymous with market value if all the merchantable timber may reasonably be harvested in the forthcoming year. If the immediate harvest value of the timber on the appraisal unit is not synonymous with market value, it shall be converted to market value by application of a valuation factor to the immediate harvest value of the timber on each parcel in the unit. In determining the valuation factor, the appraiser shall consider the effect on market value of the total timber volume on the unit and the length of time over which the owner and knowledgeable prospective purchasers might reasonably be expected to harvest the timber, as indicated by sales of comparable timbered properties.
(d) Market Value of Timberland. This section shall only apply to areas in the unit not eligible for assessment under section 423.5 of the Revenue and Taxation Code. The market value of the timber on each parcel in the appraisal unit shall be added to the market value of the land as determined by the comparative sales approach. When land included within the timber appraisal unit has uses in addition to timber production, the appraiser shall determine its value with consideration for such uses, as evidenced by recent sales of comparable land. Allowances must be made for the value of any trees or improvements included in the sales of properties used as indicators of the value of land in the appraisal unit.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 110, 401, 423.5, 1816.1 and 1816.2, Revenue and Taxation Code.

s 45. Separate Determination of Value for Owner-Occupied Residential Dwellings.

Note: Authority cited: Section 15606, Government Code. Reference: Section 401.6, Revenue and Taxation Code.

s 51. Agreements Qualifying Land for Assessment As Open-Space Lands.
An agreement made pursuant to the Land Conservation Act of 1965 prior to November 10, 1969, qualifies for restricted-use assessment pursuant to sections 423 and 426 of the Revenue and Taxation Code if, taken as a whole, it provides restrictions, terms, and conditions which are substantially similar to or more restrictive than those which were required by such act for a contract at the time the agreement became effective or which have subsequently been made less restrictive by the Legislature.
(a) Mandatory Provisions. The agreement must contain provisions at least as restrictive as the following:
(1) An initial term of years sufficient to make the agreement effective for ten successive lien dates and an annual renewal date at which time another year is automatically added to the term unless a notice of nonrenewal is given prior to such date.
(2) An exclusion of uses for the duration of the agreement other than agricultural uses and compatible uses as defined by the Land Conservation Act, the agreement, or the resolution establishing the agricultural preserve in which the property is located.
(3) A provision making the agreement binding upon and inuring to the benefit of all successors in interest of the owner.
(b) Disqualifying Provisions. An agreement in order to qualify for restricted use assessment must not contain any of the following:
(1) A provision purporting to bind the assessor to a particular assessment formula.
(2) A provision nullifying the agreement by reason of the owner's death or factors arising because of his death.
(c) Cancellation. The agreement may contain a cancellation provision as to all or part of the land if the following procedures are required under the terms of the agreement:
(1) Cancellation by mutual agreement, which may consist of a request by the owner and the approval by the board of supervisors or city council of the cancellation.
(2) A public hearing before the board or council.
(3) Notice of hearing by mail to each owner in the agricultural preserve of land under contract or agreement and publication of notice pursuant to section 6061 of the Government Code, provided, however, that a county or city may provide for such notice by ordinance instead of incorporating this requirement in the agreement.
(4) Findings by the board or council that cancellation is not inconsistent with the purposes of the Land Conservation Act of 1965 and is in the public interest.
The existence of an opportunity for another use of the land shall not be sufficient reason for cancellation. A potential alternative use of the land may be considered only if there is no proximate land not subject to a Land Conservation Act contract or agreement suitable for the use to which it is proposed the subject land be put. The uneconomic character of an existing agricultural use shall not be sufficient reason for cancellation. The uneconomic character of the existing use may be considered only if there is no other reasonable or comparable agricultural use to which the land may be put.
(d) Cancellation Fee-Waiver or Deferral. A provision for cancellation of the agreement must carry with it a cancellation fee payable by the owner to the county treasurer as deferred taxes which is at least 50 percent of the full market value of the land when relieved of the restriction, as found by the assessor, multiplied by the latest assessment ratio that had been published pursuant to section 251 of this code when the agreement was initially entered into. The determination of unrestricted value may be made the subject of an equalization hearing.
The agreement may provide for waiver or deferral by the board of supervisors or city council and may authorize the board or council to make the waiver or deferral contingent upon future action of the landowner if the agreement provides for a lien on the subject land securing the performance of the act upon which the waiver or deferral is made contingent. Waiver or deferral of the cancellation fee or a portion thereof may be allowed by the agreement if the waiver is subject to these findings by the board or council:
(1) It is in the public interest and the best interests of the program to conserve agricultural land that such payment be waived or deferred.
(2) The reason for the cancellation is an involuntary transfer or involuntary change in the use of the land and the land is not suitable and will not be immediately used for a purpose which produces a greater economic return to the owner.
(e) Other Provisions. If an agreement contains a clause relating to any of the following subjects, it may do so only under the conditions stated:
(1) A provision nullifying the agreement at or immediately before the time an action in eminent domain is filed or land is acquired in lieu of eminent domain (a) if the fee title, or other interest less than fee which would prevent the land from being used for agricultural or compatible uses, is being condemned and (b) if the agreement is nullified only as to land actually condemned or acquired or as to such land and a remaining portion that is rendered unsuitable for agricultural or compatible uses.
(2) A provision requiring the payment of liquidated damages by the landowner in case of breach of the agreement if this remedy does not impair enforcement of the agreement by injunction or specific performance.
(3) A provision cancelling or terminating an agreement upon annexation of the subject land by a city if the land was within one mile of the city at the time the agreement was initially executed, the city protested the execution of the agreement pursuant to section 51243.5 of the Government Code, and the city states its intent not to succeed in its resolution of intention to annex.
(f) Substantial Similarity. An agreement having a provision which is more restrictive than required by the Land Conservation Act of 1965 for a contract may qualify even though it is deficient in some other respect. The mandatory provisions of subparagraph (a), however, are minimum requirements which if deficient cannot be compensated for from some other source. Similarly, the disqualifying provisions of subparagraph (b) are such a substantial departure from the statutory provisions for a contract that their existence cannot be offset by other more restrictive provisions. A deficiency in the procedures set forth in subparagraphs (c) and (d) or in the conditions in subparagraph (e) may be compensated for by other more restrictive provisions except that, with respect to subparagraphs (c) and (d), an agreement that contains a cancellation provision cannot dispense with basic requirements of (1) a public hearing on a cancellation request of which the public is given notice and (2) findings by the board or council based on the evidence.
An agreement that does not allow a county or city to waive the cancellation fee under any circumstances is more restrictive than the requirements of the Land Conservation Act for a contract. Such an agreement is substantially similar to a contract even though it also allows a reduction of the cancellation fee after notice of nonrenewal has been given by the proportion that the number of whole years remaining until expiration of the agreement bears to ten.
(g) Effective Date. This rule shall be effective from and after March 1, 1971.

Note: Authority cited: Section 15606, Government Code. Reference: Article 1.5, Chap. 3, Part 2, Div. 1, Revenue and Taxation Code.

s 52. Restricted Value of Perennials Other Than Timber As Open-Space Lands.
(a) Minimum Value. The restricted value of land planted to fruit-bearing trees, nut-bearing trees, vines, bushes, or other perennials except timber, and the perennials thereon, pursuant to sections 423 and 429 of the Revenue and Taxation Code, shall be determined by capitalizing the larger of (1) the net income that the land and such perennials can be expected to yield under prudent management and subject to the applicable restrictions or (2) the net income that the land can be expected to yield over a typical rotation period, as evidenced by historic cropping patterns and agricultural commodities grown, if planted to typical annuals grown in the area. "Typical annuals grown in the area" means annual crops that are actually grown in substantial quantities on land that is comparable to the subject property within the meaning of section 402.5 of the Revenue and Taxation Code.
(b) Capitalization of Rental Income. In estimating such net income, property tax appraisers shall consider the rental income from recently consummated leases, negotiated at arm's length, for comparable plantings and the net income from owner-operated comparable plantings, giving more weight, other things equal, to the former than to the latter. Leases, however, must be for the full life of the perennials, or multiples thereof, if the rental income is to be used without adjustment for variations in expected yields as young perennials mature and older perennials decline. Allowance must also be made, when using rental income, for amortization of the landlord's investment in perennials and other depreciable property used in the enterprise.
(c) Capitalization of Owner-Operator's Income. When estimating the value of a planting of perennials by capitalizing the income it is expected to yield a prudent owner-operator, property tax appraisers shall first estimate the annual net income from the total operating unit over and above the income required to provide a fair return on capital invested in operating assets other than the land and perennials and to amortize such investments if they are depreciable. Such net income shall then be segregated into (1) the net income that can be fairly attributed to the land which shall not be less than the net income the land could be expected to yield if planted to typical annual crops grown in the area, and (2) the balance, which shall be considered the income from the perennials. The income attributed to the land shall be capitalized in perpetuity by dividing it by the capitalization rate prescribed in section 423(b) of the Revenue and Taxation Code. The income from perennials shall be capitalized by a method that provides for return of capital utilizing the capitalization rate prescribed in section 423(b). The present worths of the income streams thus imputed to the land and the perennials shall be added to derive the restricted value of the land and perennials.
(d) Estimation of Income. The income attributable to the land shall be estimated by one of the following procedures:
(1) Estimate the amount of net income the land would yield if planted to typical annual crops grown in the area. This procedure is particularly appropriate where comparable lands are commonly planted to annual crops.
(2) Estimate the amount of net income required under current market conditions to justify an investment equal to the replacement cost of the perennials with a life equal to the estimated total economic life of the perennials and subtract this amount of net income from the estimate of the total net income from the land and perennials. This procedure is particularly appropriate where bare land sales are uncommon and comparable land is seldom planted to annuals.
(3) Estimate the market value of the land by the comparative sales approach and multiply this estimate by a market-derived rate of return. Sales used for comparative purposes shall not include those materially influenced by the possibility of non-agricultural uses. The market value thus derived for the land shall be used only for the purpose of allocating income between the land and perennials.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 423 and 429, Revenue and Taxation Code.

s 53. Open-Space Value of Timberland.
(a) The Timber Appraisal Unit. The timber appraisal unit shall be as defined in Property Tax Rule No. 41, except that it shall include only properties eligible for assessment under section 423.5 of the Revenue and Taxation Code.
(b) Taxable Value. Land and standing timber used for the production of timber for commercial purposes, whether planted or of natural growth, when eligible for assessment under section 423.5 of the Revenue and Taxation Code, shall be valued by determining the present worth of the net income which the future harvest of timber crops can reasonably be expected to yield and the present worth of the net income attributable to other allowed compatible uses of the land. The value of timber which is exempt under Article XIII, section 3(j) of the State Constitution shall be excluded when determining taxable value of the property, but the value of land supporting exempt timber shall be included and determined in accordance with section (f).
(c) Net Income. The amount of income to be capitalized is the net income which an informed owner or an informed buyer of the timber appraisal unit may anticipate on the lien date that the property assessable under section 423.5 of the Revenue and Taxation Code will yield in the future from the harvest of timber crops and the net income from other allowed compatible uses of the property. Net income shall be estimated as follows:
(1) When computing the expected annual or periodic net income from the harvest of timber crops, the appraiser shall determine the difference between revenue and expenditures. Revenue shall be estimated by multiplying the expected annual or periodic volume of timber to be harvested in the future by the immediate harvest value per unit of volume for similar timber. Revenue shall include all income from all forest products. Expenditures shall include the estimated outlays of money which are ordinary and necessary for the production and maintenance of revenue as defined in section 423 of the Revenue and Taxation Code.
(2) When computing the net income attributable to compatible uses, the appraiser shall determine the difference between revenues and expenditures for each type of compatible use. Revenue shall be estimated on the basis of rents, fees, or charges for the use as provided by recently consummated leases, contracts, or verbal agreements on the subject property or comparable properties. Expenditures shall include any outlays which are ordinary and necessary for the production of revenue from the compatible use.
(d) Income Capitalization. The shape of the future net income stream shall govern the method used to discount the various future incomes.
(1) If the property is capable of producing an equal annual income in perpetuity or may be valued as if it will produce an equal annual income, the expected annual net income shall be divided by the capitalization rate to estimate present worth.
(2) If the property is capable of producing an equal periodic income or an income in perpetuity or may be valued as if it will produce an equal periodic income, the expected net income shall be divided by (1+p) [FNn]-1, where n is the number of years between receipt of the periodic incomes and is the capitalization rate.
(3) If the property is not capable of producing perpetually and equal annual income or an equal periodic income, but is capable of producing unequal annual or periodic incomes at regular or irregular intervals, the present worth of the net income stream shall be estimated by computing the sum of the present worths of the individual incomes on a year-by-year or period-by-period basis.
(e) Areas Without Timber Exemption. The appraiser shall estimate the annual or periodic net income from these areas in accordance with section (c). Taxable value will be the present worth of land and timber in accordance with section (d), using the capitalization rate prescribed in section 423(b)(1), (2), and (3) of the Revenue and Taxation Code.
(f) Areas with Timber Exemption. In determining the taxable value for these areas by excluding the value of exempt timber, the appraiser shall:
(1) Derive a total value for the land and exempt timber by:
(A) Estimating the annual or periodic net income from these areas in accordance with section (c).
(B) Computing the present worth of the land and timber in accordance with section (d), using a capitalization rate which is the sum of the bond and risk rate components prescribed in section 423(b)(1) and (2) of the Revenue and Taxation Code.
(2) Allocate the total value derived in (1) between the land and exempt timber by:
(A) Estimating the market value of the property using the comparative sales approach.
(B) Subtracting the estimated market value of the timber. The remainder will be the estimated market value of the land under the exempt timber and is to be used only for purposes of allocating present worth between the exempt timber and the land thereunder.
(C) Multiplying present worth of the property, as determined in (1)(B), by the ration of the market value of the land to the total market value of the property, as determined from (2)(A) and (B), to derive the present worth of the land plus the present worth of the taxes.
(D) Computing the taxable value of the land by multiplying the present worth derived in (2)(C) by a fraction in which the numerator is the sum of the capitalization rate components prescribed in section 423(b)(1) and (2) and the denominator is the sum of the capitalization rate components prescribed in section 423(b)(1), (2), and (3).
(g) Total Taxable Property Value. The taxable value for the nonexempt areas, as determined in section (e), shall be added to the taxable value for the exempt areas, as determined in section (f), to determine the total taxable property value. The value assigned to each parcel in the unit shall reasonably reflect each source of income that is attributable to the parcel.
(h) Effective Date. This rule shall be effective from and after March 1, 1973.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 110, 401 and 423.5, Revenue and Taxation Code.

s 54. Valuation of Land Under a Land Conservation Act Agreement That Fails to Qualify Under Rule 51.
Land (other than timberland), fruit-or nut-bearing trees, and vines subject to an enforceable Land Conservation Act agreement that, according to the criteria set out in section 51 of this chapter, do not qualify for assessment under section 423 of the Revenue and Taxation Code shall be appraised at market value, pursuant to section 402.1 of that Code. Any conflicting assessment provisions in the agreement are unconstitutional and shall be disregarded.
The market value of such land, or of such land and perennials, shall be estimated by using either the comparative sales method or the income method or both.
(a) The Comparative Sales Approach. If the comparative sales method is used and the restrictions imposed by the agreement have more than a minimal effect on the value of the property, the recently sold properties to which the subject property is compared shall be those similarly restricted as to use and preferably so restricted for a similar remaining period. If there is substantial evidence, however, that the restrictions on the subject property will be removed or materially modified in the predictable future, the subject property may also be compared with recently sold properties which have natural limitations on their use that are adjudged to have substantially the same effect as the legal limitations on the subject property. The sold properties shall also have the characteristics described in section 402.5 of the Revenue and Taxation Code.
(b) The Income Approach. If the income method is used and the restrictions imposed by the agreement have more than a minimal effect on the value of the property, the appraiser shall proceed as follows:
(1) Estimate, preferably by reference to sale prices of comparable properties not subject to Land Conservation Act agreements or contracts, the market value that the land, or the land and perennials, would have on the current lien date if the property were not subject to the agreement but were subject to any other applicable restrictions and assume that this will be the value of the land, or of the land and perennials, when free of the agreement restrictions;
(2) Using a market-derived capitalization rate (including an appropriate property tax component), find the present worth of the value derived in step 1 deferred by the number of years or fractions thereof until the land, or the land and perennials, will be freed of the agreement restrictions by a notice of nonrenewal that has already been given or by a notice that could be given prior to the agreement's next anniversary date;
(3) Using the capitalization rate prescribed by section 423(b) of the Revenue and Taxation Code or a capitalization rate otherwise derived that is appropriate for an income stream which does not include capital appreciation, estimate the present worth of the income (including any amenities not represented by money income) from the restricted use of the land, or of the land and perennials, during the period between the lien date and the date to which the value derived in step 1 is deferred:
(4) Add the present worths derived in steps 2 and 3.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 402.1, 402.5 and 421, Revenue and Taxation Code.

s 60. Historical Property Contracts.

Note: Authority cited: Section 15606, Gov. Code. Reference: Sections 402.1, 402.5 and 1161 of Div. 1, Revenue and Taxation Code.

s 101. Board-Prescribed Exemption Forms.
The procedure and forms prescribed by the board for claiming the exemptions named in Article 2, Chapter 1, Part 2, Division 1, of the Revenue and Taxation Code shall be employed by each assessor in the administration of the laws relating to such exemptions. Except as specifically authorized by the board with respect to heading, name and address of the property owner, location of the property, assessor's use columns, the sequence of questions, and the like, the assessor shall not change, add to, or delete the specific wording of the exemption form prescribed by the board, but he may otherwise arrange the content and alter the size and design of an exemption form to meet the needs of his office procedures and facilities. Annually, on or before December 1, the assessor shall notify the board, on a check list provided by the board, of those board-prescribed exemption claim forms, including instructions, which he will reproduce from the current prototype forms and instructions distributed by the board for use for the succeeding assessment year, those forms and instructions which he will produce by other means for use for that year, and those for which he will have no need. When filing the check list, he shall submit to the board in duplicate for approval a draft copy of each form, including instructions, which he will produce by means other than reproduction of the prototypes. If a draft copy does not conform with the specifications prescribed by the board, as required by Section 251 of the Revenue and Taxation Code and this rule, the assessor shall be notified in writing of the variances. He shall submit a revised draft within 30 days of the date of the notice. Not later than February 10, annually, the assessor shall submit to the board a printed copy of each exemption form and its accompanying instructions.

Note: Authority cited: Section 15606, Government Code. Reference: Section 251, Revenue and Taxation Code.

s 121. Land.
Land consists of the possession of, claim to, ownership of, or right to possession of land; mines, quarries, and unextracted mineral products; unsevered vegetation of natural growth; standing timber, whether planted or of natural growth; and other perennial vegetation that is not an improvement (see section 122). Where there is a reshaping of land or an adding to land itself, that portion of the property relating to the reshaping or adding to the land is land. However, where a substantial amount of other materials, such as concrete, is added to an excavation, both the excavation and the added materials are improvements, except that whenever the addition of other materials is solely for the drainage of land to render it arable or for the drainage or reinforcement of land to render it amenable to being built upon, the land, together with the added materials, remains land. In the case of property owned by a county, municipal corporation, or a public district, however, fill that is added to taxable land is an improvement.

Note: Authority cited: Section 15606, Gov. Code. References: Sections 110 and 401, Revenue and Taxation Code.

s 122. Improvements.
Improvements consist of buildings, structures, fixtures, and fences erected on or affixed to land; planted fruit and nut trees and vines that are taxable, other than date palms between four and eight years of age; and planted ornamental trees and vines. Where a substantial amount of materials other than land, such as concrete, is added to an excavation, both the excavation and the added materials are improvements, except that whenever the addition of other materials is solely for the drainage of land to render it arable or for the drainage or reinforcement of land to render it amenable to being built upon, the land, together with the added materials, remains land. In the case of property owned by a county, municipal corporation or a public district, fill that is added to taxable land is an improvement.

Note: Authority cited: Section 15606, Government Code. Reference: Sections 105, 110, 401 and 401.5, Revenue and Taxation Code.

s 122.5. Fixtures.
(a) Definition.
(1) A fixture is an item of tangible property, the nature of which was originally personalty, but which is classified as realty for property tax purposes because it is physically or constructively annexed to realty with the intent that it remain annexed indefinitely.
(2) The manner of annexation, the adaptability of the item to the purpose for which the realty is used, and the intent with which the annexation is made are important elements in deciding whether an item has become a fixture or remains personal property. Proper classification, as a fixture or as personal property, results from a determination made by applying the criteria of this rule to the facts in each case.
(3) The phrase "annexed indefinitely" means the item is intended to remain annexed until worn out, until superseded by a more suitable replacement, or until the purpose to which the realty is devoted has been accomplished or materially altered.
(b) Physical Annexation.
(1) Property is physically annexed if it is attached to, imbedded in, or permanently resting upon land or improvements in accordance with section 660 of the Civil Code, or by other means that are normally used for permanent installation. If the property being classified cannot be removed without substantially damaging it or the real property with which it is being used, it is to be considered physically annexed. If the property can be removed without material damage but is actually attached, it is to be classified as a fixture unless there is an intent, as manifested by outward appearance or historic usage, that the item is to be moved and used at other locations.
(2) Property may be considered physically annexed if the weight, the size, or both are such that relocation or removal of the property would be so difficult that the item appears to be intended to remain in place indefinitely.
(3) Property shall not be considered physically annexed to realty solely because of attachment to the realty by "quick disconnect" attachments, such as simple wiring and conduit connections.
(c) Constructive Annexation.
(1) Property not physically annexed to realty (including fixtures) is constructively annexed if it is a necessary, integral, or working part of the realty. Factors to be considered in determining whether the property is a necessary, integral, or working part of the realty are whether the nonattached item is designed and/or committed for use with specific realty, and/or whether the realty can perform its desired function without the nonattached item.
(2) Property connected to the realty by quick disconnect conduits which contain power or electronic cable, or allow for heating, cooling, or ventilation service to the connected property is constructively annexed only if it satisfies one of the factors in paragraph (c)(1).
(d) Intent.
(1) Intent is the primary test of classification. Intent is measured with -not separately from -the method of attachment or annexation. If the appearance of the item indicates that it is intended to remain annexed indefinitely, the item is a fixture for property tax purposes. Intent must be inferred from what is reasonably manifested by outward appearance. An oral or written agreement between parties, such as a contract between lessor and lessee, is not binding for purposes of determining intent.
(2) The phrase "reasonably manifested by outward appearance" means more than simple visual appearance. A reasonable knowledge of the relationship of the item being classified to the realty with which it is being used is required to determine whether physical or constructive annexation has occurred.
(3) Historic usage of a property may be considered in determining whether or not a property is intended to remain annexed indefinitely. "Historic usage" means the normal and continuing use of the property as an item that is annexed either indefinitely or only temporarily.
(e) Examples. The following examples are illustrative of the foregoing criteria. The classification in each example is based only on the limited description offered. Classification of an actual property must be based on all the relevant facts concerning that property.
(1) A stair and a walkway that are bolted to a large machine (the machine is a fixture) to facilitate operation and routine maintenance of the machine are fixtures because they are physically annexed by the bolts and they are necessary for the normal operation of the machine. A stair and a walkway that are bolted to a machine to facilitate a major overhaul of the machine and that will be removed and used elsewhere after the overhaul is completed are personal property because the physical attachments are clearly temporary.
(2) A printing press that weights several tons, is held in place by gravity, and which because of its size cannot be removed from the building without substantial damage to the building is regarded as physically annexed and is a fixture. A free-standing safe, although of considerable weight, is personal property if it is movable without damage to itself or to the real property wherein it is located and the real property was not designed or constructed specifically to accommodate the safe.
(3) Headsets and special stools designed to be used with a telephone switchboard (the switchboard is a fixture) are not physically annexed, but they are constructively annexed because they are designed specifically for use with the switchboard, the switchboard cannot be used properly without them, and they are not usable or only marginally usable independently of the switchboard. Ordinary office chairs used with a switchboard remain personal property because their design makes them fully usable for other purposes.
(4) A special tool, die, mold, or test device is constructively annexed to a fixture if it is specifically designed for and is in use or has been used on or in conjunction with the particular fixture and the intended use of the fixture would be impaired without the item. A common hand tool or general-purpose test device is personal property even if in practice the item is used only on the fixture.
(5) A crane that operates on rails but is too large or too heavy for ordinary railroad tracks or cannot be operated off the property because the rails are not connected to railroad tracks is constructively annexed to the rails.
(6) A floating dry dock that is designed for use with adjacent shore facilities at a single location is a fixture even though the dry dock is occasionally moved tofacilitate dredging under the dry dock. A floating dry dock that is used at several locations is personal property even though it is used primarily at one location in conjunction with special shore facilities. (continued)