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Two major Silicon Valley companies contend that Santa Clara County has overcharged them millions of dollars in taxes during the past decade. IBM Corp. and Apple Computer Inc. are separately asking for nearly $14 million plus interest in tax refunds. But the county assessment appeals board has refused IBM’s request for an appeal and says Apple already appealed and can’t do so again. Santa Clara County Assessor Lawrence Stone says to do so would constitute giving IBM and Apple special treatment. And if they were to win their appeals, he says the fiscal impact would ravage county coffers and devastate funding for local school districts. “We all have deadlines, whether it’s filing an income tax return or returning a library book,” Stone said. “The home owner and the small business have to meet these deadlines, and so does IBM,” Stone says. Now the Santa Clara County Superior Court will decide whether the appeals board must hold additional hearings. Both companies have separately petitioned for a writ of mandamus. Apple’s case goes to a bench trial today, and the IBM case rolls into court Dec. 4. Attorneys for Apple are asserting its complaint that the county owes the company a $2.75 million tax return for what Apple claims are overassessments on mostly business personal property, such as equipment and machinery, between 1994 and 1997. In a separate complaint, IBM is asking the court to require the county assessor to hold hearings to reconcile assessments of real property between 1990 and 1994. If IBM prevails, Stone estimates the company will collect an $11 million tax refund. Attorneys following the case say what’s at issue is property owners’ right to appeal tax assessments. Such appeals have become more of an issue because companies say new technology is difficult to value. But county officials say a win for IBM or Apple could set a devastating precedent. IBM says it has the right to appeal its tax assessment for prior years when it receives notice from the assessor of proposed “escape assessments” that follow audits. But the county says that unless new taxes are actually imposed, the companies can’t reopen the appeals process. Apple, meanwhile, says it has a right to a new appeal because it believes the county aborted its audit after discovering that it would actually have to issue Apple a refund. Allowing corporations unlimited opportunities to appeal, county officials say, could open a Pandora’s box for other companies to challenge decade-old tax returns. “They are trying to introduce novel interpretations of the law,” said Ann Ravel, Santa Clara county counsel. If IBM prevails, one school district could be particularly hard hit. The Oak Grove Elementary School District in San Jose is paying off a bond for technology improvements, primarily with tax revenue from IBM. County Assessor Stone has notified the Oak Grove School Board about the possible ramifications of a judgment in favor of IBM, the county’s biggest taxpayer, and Apple. The school board mailed 25,000 letters to home owners explaining that their property taxes could increase to help pay off the bond if IBM were to get its refund. Stone said debating the matter in court puts the county at even greater risk because the bench usually has limited knowledge of tax code, and companies have infinite financial resources to spend on attorneys. “Most property tax matters are solved by the local assessment appeals board. Rarely does a superior court judge have to deal with a tax matter,” Stone said. “Judges will acknowledge that they are not experienced and knowledgeable in tax matters.” IBM officials declined to comment and officials at Apple said in a statement, “It’s unfortunate that we have to take this action to court. We don’t believe this action will negatively impact local schools, since state law protects funding for them.” Attorneys from Pillsbury Madison & Sutro, who are representing both Apple and IBM, also refused to comment on the case. While companies and county tax assessors agree that the difficulty in assessing the value of new technology has increased the number of appeals, officials with the California Taxpayers’ Association — a lobbying group that counts both IBM and Apple as members — blame county tax assessors for making the appeals process contentious. “The assessor has publicly criticized the taxpayers for appealing under the law,” said CTA president Larry McCarthy. “We are in a circumstance now where the taxpayer is being vilified for exercising their right of appeal. We think it’s an unfortunate problem.” W. Gregory Turner, CTA general counsel, said the IBM suit doesn’t constitute a unique interpretation of the law. Companies have the right to appeal after an assessor’s audit uncovers escape assessments, or property that was overlooked and not assessed in previous years. Turner said it’s frustrating when counties hold up school districts as victims when business entities appeal tax assessments. “[Businesses] are not insensitive to the fact that they can have an impact,” Turner said. “But at what point do you deny [businesses] their rights because the county is outspending itself.” Stone said he is just protecting the interests of all Santa Clara County taxpayers. He questions the motive of the taxpayers’ association for supporting IBM and Apple. “The principal goal of Cal Tax and its members and others is to eliminate the business personal property tax on equipment, machinery and computers,” said Stone. According to IBM’s complaint, the county assessor sent several notices of proposed escape assessments in December 1996. The escape assessments were for computer equipment that was the subject of dispute over whether the equipment should be taxed. IBM is using the proposed escape assessments to reopen tax assessments between 1990 and 1994. In April 1999, IBM filed several applications for changed assessment, primarily for real property, for those years. But calling IBM’s appeal untimely, the appeals board refused to hear it. Companies have from the beginning of July until Sept. 15 to appeal tax assessments each year. County attorneys argue that while notices of “proposed escape assessment” had been sent, no escape assessment had been charged. In the Apple suit, Apple’s attorneys allege that the county assessor started an audit of Apple between 1994 and 1998. During the audit, Apple officials disclosed to the county that it had overvalued some property during the first three years of the audit period. According to the complaint, the county halted the audit of the first three years and only finished auditing the 1997-98 year. Apple filed applications for changed assessments with the county’s assessment appeals board for the three earlier years, and contends that, had the county completed the four-year audit, it would have leveled escape assessments that would give Apple the right to a new appeal. The county denies that the assessor ever aborted an audit and claims that Apple has no grounds for additional appeals because initial appeals hearings have already been held.

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