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HomeMy WebLinkAbout1947-07-14,� ky O BOARD OF EQUALIZATION MINUTES Council Chamber, City Hall Huntington Beach, California 'Monday, July 14, 1947. The regular annual meeting of the•Board of Equalizationi. of the City of Huntington Beach was called to order at 7:45 P.M. by, Chairman Bartlett. - Members present: Grable, Terry, Hawes, Bartlett. Members absent: Langenbeek. The Mayor asked the City Clerk if his -office had received any protests, either written or verbal, cover :ig,~assessments as assessed by the City Assessor for the fiscal year 1947-»1948. the Cle rk•reported that one verified protest -was received from Robert W.-Bachelor of the Southern California Tavern Association, protesting the personal property tax levied•on said year on an item of "ON AND OFF" sale liquor license #P-584B. This protest made in accordance with the provisions of Sections 5136 to 5140 both inclusive, of the Revenue and Taxation Code of the State of California! The amount of assessed valuation is $9,000.000 personal property tax $144.00. The Clerk reported further to the -Council that protests by communication presented by Mr. Dave Wilson, public accountant, were received representing the oil companies as follows: - A. & G. Oil Company, Beloil Corp., Ltd., Blake & Frampton, L.H. Bennigsdorf, J.W.E. Oil Company, F.A. Burkett & J.C. Isbell, Chas. W. Camp, Centralia-011 Company, Consolidated Petroleum Co., D.D. Coplin, Davis, Davis & Davis, Eagle Oil•& Refining Co., E.E. Fairbanks, The Four oil Company, Harry L. Hopkins, Lido Petroleum Company, M. & A. Oil Company, J.H. Marion, Mar Rico Oil Company, W.E. Medearis, McVicar-Rood, Ocean Front Oil Company; Orco Oil Company, Quartette•011 Company, Sextette Oil Company, - Milton Silverstone, Simaroo Oil Company, So. California Drilling Company Stanton Oil Company," Surf Associates, Inc., The Termo Company, S.C. Thomas, S.M. Trimble, West Shore Petroleum Company, Western States Drilling Company, Tower Petroleum Company The Clerk reported the following verbal protests ,received: D. & M. Petroleum Company, H.B. Oil Company, The Mayor asked if anyone, in the audience was present representing the companies as read by the City Cleo, had any objections or discussion regarding the assessments. Mr. Dave Wilson, public accountant, req uested to speak before the body for his clients as referred to in the document.read by him as follows: - 8 July 1947 Honorable City Council City of Huntington Beach Huntington Beach, California Gentlemen: As the Representative of the following oil companies I paid.0hrough 30 Page #2, _ Minutes,. July.B, 1947 (Document by.Dave Wilson - Cont'd.) the City Treasurer, Personal -Property and Mineral rights taxes in the amounts . shown on -the -following statement: S.M. Trimble 1 well 56.16 The Termo Company 6 wells 8601.60 West Shore Petro Co. .71 well 168.64 Orco Oil Company 1 well 1976.45 Beloil Corp., Ltd. 12 wells 2907.20 J.W.B. Oil Company 1 well 48.64 Lido Petroleum Co. 1 well 1.652.12 Ocean Front Oil Co. 1'well 284.E+8 Chas. W. Camp 7 wells 769.12 'Mar Rico Oil Co. 1 well 2598.80 M.V.M. Oil Company 1 well 1200.90 John H. Marion 6 wells 774.32 F.A.Burkett & J.C.Isbell 2 wells 59.20 D.D. Coplin 1 well 70.09 Quartette Oil Co. 2 wells 109.76 Sextette Oil Co.- :.:2 wells 65.12 Davis, Davis & Davis 1 well . 65.04 E.E. Fairbanks 2 wells 1 5.84 `Harry.L. Hopkins 8 wells f5b.88 Blake & Frampton 3 wells 241.04 Tower Petroleum Co. 1 well 276.80 Western States Drlg. 3 wells 1172.64 Eagle Oil & Refining 6 wells 1652.16 M. &:A. Oil Company 3 wells 77.76 In addition "to the amounts paid above the following statement shows the amounts paid by other oil companies direct: S.C. Thomas A: & G. Oil Co., The Four Oil -Co. M.E..Medearis- stanton Oil Co. Surf Associates, Inc. Timaroo oil Co. McVicar-Road M. Silverstone Centralia Oil Co. Consolidated Petro. Co.. Co. Calif. Drilling Co.. L.H. Benningsdorf 1 well 995.68 5 wells 647.52 1 well, 174.24 8 wells 685.44 2 wells 435.84 1 well.. 408.00 2 wells 3006.40 6 wells 8680.80 1 well 349.12 1 well 49.20 wells 209.76 wells 445.6o 1 well 98.08 These two statements represent two different bases of calculation. The first statement represents the taxes as paid covered by"the revised tax bills issued by your office. The second statement shown the taxes as paid on the original tax bills which had not been revised at the time of payment. The differences between these amounts and the amount of the revised tax bills will, I understand, be refunded to the tax- payers in accordance with the statements which have already been filed with your office. The original tax bills, as Ise ued by your Assessor's -Office, were arriv- ed at by using'the assessed valuation furnished you by the Orange County Assessor's office based on what is generally known as the'Sleeper 10 year plan. This plan takes the average per barrel selling price of the oil from the lease, deducts seventy-five cents (750) per:barrel for production cost, multiplies this remainder by ten (10) to capitalize on the ten-year bases. This gives the total value of oil. Then forty percent (40%) of this is taken, which is considered a factor. The to- tal barrels of oil produced is multiplied by the factor, and the answer is the assessed value of the oil. The total value in dollars of the gas produced is then multiplied by a factor of 3.2, and this figure together with the crude oil figure represents the assessed mineral rights value. t Page #3 31 Minutes, July 8, 1947 ( Document by Dave Wilson -- Cont td.-) The case o-f A. Otis Birch, et al vs the County of Orange, 59 Califor- nia Appellate 133, was a protest against this method of arriving at the assessed value of mineral rights. The County of Orange was upheld There has, ae.well, been other cases along the same lines and in each case the decision has been against the taxpayer. I have no particular complaint with the method used since it seems as good as any other method. The protest is against the figures used in making the calculation. In filing the case with the County Assessor's Office I took.exception to the allowance of seventy-five cents (750 per barrel for pro- - duction cost. During the course of our argument it developed that-.this cost figure was an average arrived at mostly fron.costs furnished by the major companies; most of these had costs, I was told, of .from 35¢ to 45¢ per barrel. This allowance, of`course, would be very satisfactory to these taxpayers but would severely penalize the small producer with costs of one dollar ($1.00) or better, and in.this connection it should be remembered that the small producer does'not have the overhead costs of the large producer, since he does a large part of his own work. The Assessor's Office informed me that some of these welleshould be abandoned if costs were that high. I believe that such statements are not within the province of the Assessor's Office, and frankly is none of their business - sr and is not'a valid excuse for over -valuation. a As a result of our argument, and other arguments presented by others, .the Assessor's Office revised all assessment and the City of Huntington Beach sent out corrected bills. When these bills were received the Assessor's Office in Santa Ana, Mr. Waite was contacted and asked to furnish me with the new bases being used to arrive at the corrected assessments. This Information was refused me, and I was informed that the amount of assessment was the assessed taxable value and their bases was not for publication. In referring to the above noted case we find .the following in the findings of the court: "(3) It is not disputed that the conclusion of assessing officers as to the value of property for purposes of taxation, when honestly arrl�ed at and when not made in i2ursuance of some fixed rule or eneral system. The result of which is necessarily discrimatory and inequitable, is conclusive on the courts, however erroneous the conclusion of -those officers may be." Since a flat expense production rate of 75¢ per barrel was used by the Assessor's Office in their original assessed values, which was contrary to the findings of .the Court, we can only assume that this condition_ is still present in the corrected assessment since the Assessor's Office refuses to divulge their corrected basis of assessment. Since the County has not presented their bills we can have no argument with them at this time. Your bills, however, have been paid, and paid under protest. It may be that the inequalities have been adjusted, but we have no method of determining this unless we have the basis used of arriving at the ascessed value. We believe that all bills have not been equalized, and sinc4 the County Assessor's Office refuses to supply the basis it would appear that they have something to cover up, other*1se the information to which a taxpayer is entitled would be furnished to our clients. In order that the matter of the proper assessment of mineral rights tax may be clearly understood and adjusted for this year and future years we ask that you instruct your city assessor to furnish us with the basis used in arriving at the assessed valuation for the taxpayers above noted. 32 _ Page #4, Minutes, July 8, 1947 - (Document by Dave Wilson -- Continued:) in order that we may make our position clear and that we may help you gentlemen understand this problem we submit the following details. Our protest is not an endeavor to embarrass you gentlemen but is rather to clarify the basi of arriving at the assessed valuation of mineral rights and get them on such a basis, that we will not have the same battle to go through next year. 'Such statements as were made to us from members,in the Assessor's Office to the effect that the ; oil companies had gotten a break during the war and now was the time to raise taxes since. the price of crude oil had advanced,.and other things of ast:milar nature, would naturally lead one to suppose that the Assessor's Office had in mind the over -assessment of oil companies this year; some increases were 400%. I do not believe this to be a -fact but do say that I think these matters should be 'Very definitely and conclusively adjusted. In the method in use, which is known as the Sleeper 10-year plan, the first figure used -. namely the average selling price of crude oil per barrel -' as a known figure that can be checked and proved. It may vary, of course, on each well because the specific gravity, of oil in each well may vary; thereby affecting the,price. The second figure, namely the production cost per barrel, is a figure that could not be checked -unless each individua.l,operating statement of each well were examined, sinche this too varies with each well. Since It has been pointed out to me by the Assessor's Office thatthis is really an Income tax rather -than an assessment of known values then the cost of production on each individual -well should be taken into consideration the same as the selling price of the . ©il on each individual well. I understand the decreased assessment applied to all wells. This could only be done through an increase in the production cost. I have been told by the Assessor's Office that a number of wells showed production -costs of 350 to 450, and I L know from figures that I compiled that we have a number of.other wells showing a production cost in excess of $1.00. So, if the production cost basis was changed on all wells in the same ratio then we are as far from equalizationas we were at the beginning. We submit the following for your consideration, which has been taken from the report on the FINDING, DEVELOPING & PRODUCING CRUDE PETROLEUM submitted to the Office of Price Administration by the National - Crude Oil Industry Advisory Committee and dated February 11, 1946: "SUMMARY OF COMMITTEE'S STUDY OF COST SURV TA Adequacy of cost study -- Appendix A: This Committee's cost study (Except with respect to bookkeeping cost and profit) is based upon data reported by 149 pxloducers,of crude Oil., which in 1944 produced 52.1% of total domestic net production. The data reported by these producers is shown in Exhibit A. The data considered under -state crude oil costs and over -state book- keeping profits,, particularly- with respect to 1944, for the reasons set forth below: 1. The output of producers Included in the cost study was 37% greater in 1944 than in 1941, whereas the output of producers not included in the study increased only 6% during.the same period.. 2. The data considered are heavily weighted by the integrated companies whose costs were smaller and profits larger than those of either the large or small independent producers whose returns are. considered. 33 P age #5 Minutes, July 80 1947-- (Document by Dave Wilson - Cont'd.-) 3. The data considered do not reflect the results of the thousands of small producers not considered in this study. As the average production and average production per well -of such producers were'much smaller than the averages of those considered, their costs undoubtedly were much larger and their profits (if any) were undoubtedly smaller than those of the producers considered in this study. The data considered in this report unquestionable show lower costs ('both replacement cost and bookkeeping cost) and larger profits tHan the average for the industry as a whole but nevertheless reveal certain facts and trends which show the present price of crude oil to be inadequate. The Office of Price Administration therefore can have no valid objection to consideration of this. report. Changes in Reserve Position of Producers included in cost study'- A22ndix B: During the base period years, 1936-1939, the reserves discovered and developed by.producers included in the cost study, were both greatly in excess of their production whereas --during 1943 and 1944 there were substantial deficiencies. Bookkeeping costs & profits. - Appendix.C: This Committee's study of bookkeeping costs and profits is based upon consideration of complete bookkeepting figures sub- mitted by 210 producers whose 1944 net production comprised 53•2% of total domestic net production.. Part -of the costs charged off during the base period applied to the excesses of reserves discovered and.developed over the volume of oil produced. Consequently, base period costs were over --stated and.profits under -stated. Conversely, in 1943 and 1944 costs were under -stated and profits over -stated as, because of deficiencies in those years, it was necessary to draw on the excess of reserves discovered and developed in earlier years In order to meet production requirements. Bookkeeping costs are under -stated and profits over -stated for 1943 and 1944 for the following additional: reasons: 1. - Absence of provision to cover-- under- maintenance of properties which accrued during the past few years. 2. Loss of reserves otherwise recoverable caused by recent production in excess of maximum efficient rates. 3. Insufficient charges for amortization of capitalized cost of properties;.during recent,period of abnormal production,. which reduced realizable value to a greater extent than in proportion .to production of oil. It is difficult to -determine the amounts by which- the . bookkeeping;:, figures should be adjusted to m orrect the several inaccuracies. mentioned but these -amounts undoubtedly would be very large, especially for 1944. If an allowance were made to reflect the unfavorable experience of non -reporting small producers particularly in 1544 and to correct the inaccuracies explained above, the bookkeeping figures alone would undoubtedly show a substantial increase in crude oil cei ing prices to be fully justified. 34 -� Page $6 Minutes, July 8, 1947 (Document by Dave Wilson - Cont'd.) Crude Oil Replacement Cost - Appendix D: Crude oil replacement cost per barrel has been determined by dividing all cash.expenditures or costs incurred into three parts corresponding to' the three, distinct activities of the industry: (1) operation of productive wells, (2) drilling of productive wells, and (3) exploring for oil. The costs of each of these activities are related to the volume of oil pertaining to each. Crude oil cost per barrel on a replacement basis, determined in this manner, is shown below: Table Analysis of total cost per barrel on replacement -basis Gross Income per barrel and margin of gross income over replacement cost. 1936 1937 1939 1939 Average (Un weighted) 1941 194P 1944 (Based on Development Operating cost (line Cost (Line D2C divided DlC divided by reserves by, net pro- developed duction shown shown on, on Line B1 Line A20 $ .2 2 .212 .274 .213 .311 .2©1 .295 .191 Exhibit A) Finding cost (Line D3C divided by, new reserve discovered from Table .163 .36o .286 .204 . .212 .292 .199 .262 ..434 .3©7 .296 .308 .383 •907 (.) Indicates deficit The foregoing table under -states replacement cost for the industry as a whole because the. data considered in this study are mainly those of the largest producers whose costa are smaller than,the average for the industry and who had the- bulk' of the increase in production from 1941 and 1944. The replacement cost data were developed through the consistent application of the same statistical method to the figures for each of the eight years considered.. It is maintained that.the sharp upward trend in replacement cost cannot validly be questioned and that a very considerable excess of 1944 replacement cost over the price of oil likewise has been established conclusively." These costs are through 1944 only, since that time there has been considerable increases. I know that even in the last year labor alone has advanced from $1.10 per hour to $1.50 per hour. You gentlemen can therefore -readily see that although we have had increases in the selling price of oil we have, at the same time, had even greater increases in production expenses. Again' going back to the case cited above we find that in 1922 the Court recognized a production cost of 65¢ per barrel, and now your assessors office comes.f orward in 1947 and use a cost of 75¢ per barrel. We believe that during this period most costs have increased at least 100%. 11 35 Page #7 Minutes, .July 8, 1947 1 (Document by Dave Wilson - Cont'd.) The matter of costs is important since a chance of one cent in costs changes the factor four cents. We therefore submit the fact'that the assessed value of mineral rights have increased more than the value of other properties, that the increase exceeds the general increase in all other commodities from 1946 and 1947, and that this increase is due to improper calculation of the factor In use due to unequalized.production costs. ..e We ask that you instruct the City Assessor to furnish us with the details of the method of arriving, at the .assessed value of the mineral rights for the tax payers listed above in order that we' can submit our case to prove the inequities in the assessment. Respectfully submitted on behalf of companies noted above, (Signed) Dave Wilson DAVE WILSON _ DW:bds Wm. H.• Cree, attorney representing the MoVicar-Rood Company, discussed the Sleeper method of valuation,. a method of assessment for oil valuation as approved by the Appellate Court in 1922. Reference was made to the Act admitting California to the union: "They shall never lay any tax or assess- ment of any description whatsowver upon the public domain of the United states." Mr. Cree pointed out what he thought were inequities and said that there should be other methods that could be adopted such as the method used in Long Beach taking Into consideration the life of each well to arrive at the assessed value .of-. each, well. He further urged the Board of Equalization, if possible, to arrive at some other formula. that might be more equitable than the,Sleeper method. Attorney R.C. Mize, representing other operators, also discussed the Sleeper method and took exception to the method or manner in which the cost of production was arrived at, other- wise he had no further information or recommendations that the previous protestors had brought up. D.M. Waite, deputy tax assessor for the City of Huntington Beach and also deputy assessor of Orange County, addressed the representatives of the oil companies and very thoroughly reviewed the Sleeper method from its inception in 1913. He also explained in detail how the accounting mechanics of the formula works to arrive at the factor used to capitalize the mineral rights. This method is used to compute the mineral rights value, not only in this city but for the 2600 wells Included in the County, and at this time, he informed them that due to Mr. Wilson's.figures he had raised the cost of production used in the factor to a 95¢ minimum and a $1.16 maximum, and that therefore the cost of production was raised to more than the amount of $1.00 per barrel as requested, and the corrected assessed valuation do mineral rights were re- flected by the corrected bills mailed out from the City Assessor's Office in Huntington Beach. Mr..Waite also pointed out that the present method in relation to the current posted price of crude oil is going to be studied for further clari- fication at a meeting.of assessors to be held in the City of Long Beach sometime in February 1948. He also pointed out to 36 Page #9 Minutes, July g, 1947 the oil operators present that they should be very happy that their properties are located in the City of Huntington Beach where they are enjoying the lowest taxes within the County of Orange. C.M. Rood, oil operator, also spoke briefly on the Sleeper method and, in,his opinion, it was more equitable as compared to the methods used in Los Angeles and in Kern County but believed that there could be some form of clarification in the formula that would adjust some of the factors to bring about a more equitable method in arriving at the assessed valuation. Mr. i Rood stated that the oil interests, as represented, were ` willing to pay the expense of someone to work with -Mr. Dave Wilson to assimilate the actual production coat of the pro- testing companies. The Board of Equalization agreed to continue the hearing to allow admittance of coat of production of wells of the pro— testing operators, and.such information to be presented to the Board at the adjourned meeting to be held July 21, 1947, at 7:30 P.M. On motion by Grable seconded by Terry, the protest of Robert W. Bachelor for the Southern California Tavern Association was denied. On motion by Grable seconded by Hawes, the meeting was adjourned until 7:30 P.M. Monday, July 21st, 1947. Cle'r of t e Board of Equg izAtion. r c= Chairman ri