1

Filed 5/22/14

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

SHC HALF MOON BAY,

Plaintiff and Appellant, A137218

v. (San Mateo County

Super. Ct. No. CIV499595)

COUNTY OF SAN MATEO,

Defendant and Respondent.

_______________________________________/

“[T]he California Constitution requires generally the assessment of property at 

‘fair market value’ . . . [A]ssessors have a constitutional mandate to tax all property at 

fair market value if not exempt under federal or state law.” (See Elk Hills Power, LLC v. 

Board of Equalization (2013) 57 Cal.4th 593, 606-607 (Elk Hills).) “Intangible assets 

and rights are exempt from taxation and . . . shall not enhance or be reflected in the value 

of taxable property.” (Rev. & Tax. Code, § 212, subd. (c).)1 Section 110, subdivision (d) 

prevents the direct taxation of “intangible rights and assets relating to the going concern 

value of a business” and mandates the “value of intangibles that directly enhance that 

income stream cannot be subsumed in the valuation of taxable property (§ 110(d)(1)), and 

 

1 Unless otherwise noted, all further statutory references are to the Revenue and 

Taxation Code. 
2

must be deducted . . . from an income stream analysis prior to taxation.”2 (Elk Hills, 

supra, 57 Cal.4th at pp. 618-619.) 

In Elk Hills, our high court clarified which intangible assets and rights have “a 

quantifiable fair market value that must be deducted from an income stream analysis 

prior to taxation” pursuant to sections 110 and 212. (Elk Hills, supra, 57 Cal.4th at p. 

619.) As the court explained, “intangible assets like the goodwill of a business, customer 

base, and favorable franchise terms or operating contracts all make a direct contribution 

to the going concern value of the business as reflected in an income stream analysis” and 

have “a quantifiable fair market value that must be deducted from an income stream 

analysis prior to taxation.” (Id. at pp. 618, 619.)

This appeal arises from a dispute regarding the property tax assessment of the Ritz 

Carlton Half Moon Bay Hotel (the hotel or the property) and presents “the question of 

how to properly value taxable property, with associated intangible assets, at fair market 

value.” (Elk Hills, supra, 57 Cal.4th at p. 605.) Appellant SHC Half Moon Bay, LLC 

(SHC), the hotel’s owner, claims the assessment conducted by the San Mateo County 

Assessor (Assessor) and approved by the San Mateo County Assessment Appeals Board 

(the Board) erroneously inflated the value of the hotel by including $16,850,000 in 

nontaxable intangible assets. SHC’s principal contention is the variation of the income 

approach the Assessor used to assess the hotel violates California law by failing to 

identify and remove the value of intangible assets. Respondent County of San Mateo (the 

County) urges this court to uphold the assessment.

 

2

There are three basic methods for determining full cash or fair market value: “(1) 

the market data method [citations]; (2) the income method [citations]; and (3) the cost 

method [citations].” (Bret Harte Inn, Inc. v. City and County of San Francisco (1976) 16 

Cal.3d 14, 24; Dreyer’s Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 

828.) “Using the income approach, an appraiser ‘estimates the future income stream a 

prospective purchaser could expect to receive from the enterprise and then discounts that 

amount to a present value by use of a capitalization rate.’” (Elk Hills, supra, 57 Cal.4th 

at p. 604, quoting GTE Sprint Communications Corp. v. County of Alameda (1994) 26 

Cal.App.4th 992, 996 (GTE Sprint).)
3

Applying a de novo standard of review, we conclude the income approach used by 

the Assessor and approved by the Board to assess the hotel violated California law

because it “failed to attribute a portion of [the hotel’s] income stream to the enterprise 

activity that was directly attributable to the value of intangible assets and deduct that 

value prior to assessment.” (Elk Hills, supra, 57 Cal.4th at p. 618; §§ 110, subd. (d), 212, 

subd. (c); Sky River LLC v. County of Kern (2013) 214 Cal.App.4th 720, 735 (Sky 

River).)

3

 Specifically, we conclude the income method at issue here violated section 110, 

subdivision (d) by failing to remove the value of the hotel’s workforce, the hotel’s 

leasehold interest in the employee parking lot, and the hotel’s agreement with the golf 

course operator prior to the assessment. 

FACTUAL AND PROCEDURAL BACKGROUND

The four-star luxury hotel is located on approximately 14 acres of land “on the 

bluffs of the Pacific Coast” at 1 Miramontes Point Road in Half Moon Bay.4 Constructed 

and opened in 2001, the hotel comprises five structures, including a six-story main 

building with 209 guest rooms, a “signature” restaurant, a “world class spa” and salon, a 

fitness center, and a lounge. “[T]hree adjacent bungalows” contain 52 additional guest 

rooms. The hotel also includes an executive conference center, tennis courts, a basketball 

court, a pool and jacuzzi, and a three-level parking structure. The hotel is “situated 

between two of the United States’ finest golf courses” and “[g]uests have full privileges 

at both courses.” 

SHC purchased the hotel for $124,350,000 in 2004. The purchase price included 

real property, personal property (e.g., furniture, fixture and equipment), and intangible 

assets and rights. At the time of sale, the Ritz Carlton Hotel Company, LLC managed the 

 

3 We disregard the County’s reference to an Internet article published during the 

pendency of this appeal because it was not before the Board or trial court (Vons 

Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3) and the County 

did not file a request for judicial notice in compliance with California Rules of Court, rule 

8.54. 

4

The property consists of two parcels, Assessor’s Parcel Numbers 066-092-770 and 

066-092-780 (the property), which we refer to collectively. 
4

fully-operational hotel pursuant to a long-term management agreement. In 2004, the 

Assessor assessed the hotel pursuant to Proposition 13 at its purchase price of 

$124,350,000 and deducted the value of personal property, for a total value of 

$116,980,000. The Assessor enrolled the hotel at its purchase price of $124,350,000 

because the appraised value was within five percent of the purchase price. SHC timely 

paid the property taxes. 

SHC’s Appeal to the Board

SHC challenged the 2004 property tax assessment, claiming it erroneously 

included the value of $16,850,000 in nontaxable intangible assets, specifically: (1) the 

hotel’s workforce; (2) the hotel’s leasehold interest in the employee parking lot; (3) the 

hotel’s agreement with the golf course operator; and (4) goodwill. SHC claimed the 

income approach was “not appropriate for California property tax purposes” because it 

failed to identify and exclude intangible assets. 

According to SHC, the proper method to exclude intangible assets from the

assessment was not simply to deduct the hotel’s management and franchise fee, but to 

identify, value, and deduct specific categories of assets in accordance with Section 502 of 

the Assessors’ Handbook, which provides that “‘the deduction of [a] management fee 

from the income stream of a hotel does not recognize or remove the value attributable to 

the business enterprise that operates the hotel.’” (Bd. of Equalization, Assessors’

Handbook, Section 502; Advanced Appraisal (Dec. 1998) p. 162 (Assessors’ Handbook), 

fn. omitted.) SHC argued the Assessors’ Handbook is “completely at odds” with the 

Assessor’s appraisal and claimed the deduction of a management and franchise fee did 

not adequately remove intangible property from the assessment. 

A. SHC’s Valuation and Evidence

James A. Gavin, Director of Duff & Phelps, prepared a report allocating “relevant 

tangible and intangible assets of the [property] pursuant to the accounting and reporting 

requirements of Statement of Financial Accounting Standards, No. 141, Accounting for 

Business Combinations [(FASB 141)]. . . . The intended use of the analysis [was] to 

provide an allocation of value . . . for financial reporting purposes.” Using the cost 
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method, Gavin determined the value of the hotel’s tangible assets was $99,500,000, 

comprised of land value of $20,100,000 and $79,400,000 in building and site 

improvements. Gavin allocated $107,500,000 of the property’s purchase price to tangible 

assets. He allocated $16,850,000 to intangible assets and identified the following 

intangible assets and estimated their value: (1) the hotel’s assembled workforce 

($1,000,000); (2) the hotel’s leasehold interest in the employee parking lot ($200,000); 

(3) the hotel’s agreement with the golf course operator ($1,500,000); and (4) “goodwill”

($14,150,000).

At the Board hearing, Gavin testified as an expert for SHC and explained, among 

other things, how he calculated the $16,850,000 value of intangible property. He stated, 

“[t]he goodwill in this case is a residual. It is basically taking the purchase price and 

working your way through all the different elements and all the different . . . tangibles 

and intangibles to get down to what is left over.” Gavin explained how he calculated the 

$14,150,00 value of goodwill: “from an accounting perspective, . . . there is some type of 

premium being paid or value being asserted to a property based on whether it is the flag

[i.e., brand], whether it’s the location, whatever it might be. We think there’s something 

there. [¶] So essentially that’s how we got that [$14,150,000], because again it’s a 

residual with all the other numbers combined, and deducted off the purchase price.” 

Gavin conceded the income method “is how the people in the marketplace that are 

trading hotels look at hotels” but urged the Board to value the hotel in accordance with 

the Assessors’ Handbook, which recommends intangible assets and rights be separately 

identified, valued, and deducted from the entire business enterprise as a going concern to 

arrive at taxable value of the property. 

B. The County’s Valuation and Evidence

The County claimed the deduction of the management and franchise fee pursuant 

to the income approach excluded the value of nontaxable intangible assets. It argued

SHC’s appraisal applied a “controversial methodology that is not generally followed in 

the appraisal industry or by the Assessor’s Offices for valuing hotel real property.” As 

the County explained, SHC’s method “essentially places a per square foot dollar value on 
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the land and improvements and subtracts that amount from the purchase price. What is 

left, [SHC] says, is its ‘intangible’ goodwill value,” which it claims “cannot be taxed.” 

The County contended SHC’s “assumptions and methodology . . . do not reflect the 

realities of the hotel market. The method used by the Assessor (popularly known as the 

Rushmore Method) better recognizes those realities and is supported by the Appraisal 

institute.”5 According to the County, the FASB 141 analysis is used “for purposes of 

financial reporting” not for “deciding the real property value.” 

The Assessor employed the sales approach, the cost approach, and the income 

approach to value the hotel and determined the “income capitalization approach” 

provided “the most persuasive and supportable conclusions when valuing a lodging 

facility.” As the Assessor explained, “[w]e used the Rushmore approach to valuation

which is considered to be the accepted and widely used method in the hospitality 

industry. Basically, the net operating income from a stabilized year is calculated by 

removing the income attributable to and the business/going concern. What is left is the 

income attributable to the land and improvements. This is then capitalized into an 

estimate of value.” 

Using the income approach, the Assessor derived a stabilized income stream for 

the hotel and then estimated the hotel’s stabilized occupancy rate of 71 percent with net 

revenue per room of $330 at 3 percent. After reducing projected income for fixed 

expenses such as insurance, subtracting $1.6 million in management and franchise fees, 

and deducting for reserves and taxes, the Assessor estimated the hotel’s net operating 

income to be 18 percent. Utilizing a capitalization rate of 6.5 percent, the Assessor 

 

5

The Rushmore Method or Rushmore Approach, a species of the income method, is 

a model of hotel valuation developed by Stephen Rushmore, “‘a well recognized and 

eminent expert in the field of hotel appraisers.’” (Marriott Corp. v. Bd. of County 

Com’rs (Kan. App. 1999) 972 P.2d 793, 796.) The Rushmore Method allocates a hotel’s 

value among the real, business, and personal property components: it separates the 

business component by deducting management and franchise fees from the hotel’s 

stabilized net income and handles the tangible personal property component by deducting 

a reserve for replacement along with the actual value of the personal property in place. 

(See Chesapeake Hotel LP v. Saddle Brook Township (N.J. Tax 2005) 22 N.J. Tax 525.) 
7

concluded the fair market value of the hotel was $129,700,000. The Assessor then 

deducted $7,340,000 in personal property and determined the value of the hotel was 

$122.3 million, a value within five percent of the roll value of $116,980,000. According 

to the Assessor, “[s]ince the appraised value is within 5% of the indicated sale price of 

$124,350,000, the purchase price assumption [ ] validates the base year enrollment.” 

In a written report, Thomas E. Callahan, Co-President and CEO of what is now 

First Service PKF Hospitality, critiqued Gavin’s report. Callahan determined the cost 

approach was an “inappropriate” method to value the property “for property tax 

assessment purposes.” According to Callahan, “[h]otels, which are income producing 

properties, are typically valued using the income capitalization approach by the 

investment community and this is the approach which should be [ ] used for property tax 

purposes.” Callahan concluded the “intangible or business value associated with a hotel 

is typically removed from the value of the hotel’s real property through the deduction of a 

market rate management and (if appropriate) franchise fee. The resulting income stream 

after this deduction is typically viewed by the investment community as a return on . . . 

the hotel’s real and tangible personal property. In the case of the [hotel], the majority of 

the property’s business value has been removed through the deduction of the 

management fee payable to the Ritz Carlton Hotel Company, LLC. In addition to the 

deduction of market rate management and franchise fee, the capitalized value of preopening expenses (e.g. the cost of assembling and training a work force, pre-opening 

marketing, etc.) necessary to open the business is also often deducted as an intangible 

value of the hotel.” Callahan opined Gavin’s report “significantly understated” the 

replacement cost per hotel guest room. According to Callahan, using a “more realistic 

cost” per guest room increases the value of the hotel’s “tangible real and personal 

property . . . from approximately $107.5 million to $128.3 million[.]” 

Callahan testified as an expert on hotel valuations for the Assessor. He explained 

“almost all investors primarily use the income approach or the income capitalization 

approach in developing the value of a hotel” and that, “generally speaking in the industry, 

the view is the deduction of a market rate management franchise fee from the income 
8

stream of the hotel strips out the majority — not all, but the majority of the intangible 

value of the property.” Callahan explained “[t]he reason for that [ ] is . . . hotels are 

operating businesses. . . . They do rent guest rooms, sell food and beverage facilities. 

They put on weddings, events, all those types of things. [¶] In lieu of leases, which are 

typical in most other types of real estate[,] [p]eople enter into management agreements 

with companies like the Ritz Carlton Hotel Company.” 

Callahan described management agreements and noted, “the concept in the hotel 

industry is [to] . . . deduct an appropriate market rate management fee and sometimes 

franchise fee, and . . . you’re getting down to pretty much a pure point asset income that’s 

a return on the tangible, real and personal property.” He noted “other components . . . 

should be deducted” such as “the deduction of a capitalized value for developing the 

workplace in force . . . but those are pretty small dollar amounts.” Callahan conceded 

these assets — the hotel’s workforce, the hotel’s leasehold interest in the employee 

parking lot, and the hotel’s agreement with the golf course operator — totaled $2.7 

million. 

Later, Callahan elaborated: “[a]nother argument . . . is also deducting the 

capitalized value of the labor in force, pre-opening expenses and working capital. [¶] For 

a property of this caliber, that would probably be about $6,000 per guest room. . . . So . . . 

the question is [whether] the majority of the business value is taken out in the 

management and franchise fee. It’s either a hundred percent or it’s like ninety percent. 

[¶] There’s an argument that I think is worthy of making[,] of taking off an additional 

item. . . . Not the goodwill line item for 14 million dollars,

6

but . . . a million dollars for 

labor in place. . . . But it’s relatively small dollars when we’re talking about a hotel of this 

caliber.” Finally, Callahan opined the Assessor used the proper methodology to value the 

 

6

The County took the position that “[i]f you follow the income approach, the 

goodwill is accounted for within the management fee.” Callahan testified “there is no 

residual goodwill” using the cost method. He explained, “Even forgetting about the 

argument that should you deduct management fees, is that the proper way to determine 

intangible value, pushing that all off, just using a buildup approach of replacement cost, 

the value of this hotel is at least equal to the purchase price. There is no goodwill.” 
9

property. He testified the cost method was not “the appropriate approach to value the real 

tangible and personal property” and was “absolutely always wrong for luxury properties.”

Callahan also noted he “disagreed” with the Assessors’ Handbook.

Deputy Assessor Angela Hunter explained how the assessment was conducted and 

testified — without explanation — the deduction of $1.6 million for the management and 

franchise fee accounted for all intangible assets, including goodwill. The County 

submitted articles describing the Rushmore Approach for valuing hotel property; it also 

submitted the California Assessors’ Association’s position paper 99-003 rejecting the 

Assessors’ Handbook and recommending assessors use the California Assessors’

Association’s version of those materials. The County explained the “California 

Assessor[s’] Association does not agree with the [ ] Assessor[s’] Handbook. . . . It’s not 

binding on the assessor’s effort. [¶] While it may be interesting, it’s not the final word on 

how to value the hotel.” 

C. The Board’s Decision

The Board upheld the assessment. First, the Board noted “an assessor’s property 

assessments generally enjoy the presumption of correctness” and “applicants typically 

have the burden of establishing by a preponderance of the evidence that the Assessor’s 

valuation was incorrect.” Second, the Board concluded the Assessor’s income 

methodology “is an appropriate and permissible approach to determine valuation. 

Moreover, even if the Board were to reject the Assessor’s income approach and use the

[ ] cost approach, the preponderance of the evidence supported higher construction costs 

than those set forth in the [ ] FASB 141 report.” As the Board explained, “even if the 

Board were to determine that the so-called Rushmore Approach were deficient, the 

balance of the evidence still supported the roll value after adjusting [SHC’s] analysis to 

reflect increased construction costs.” 

In reaching this conclusion, the Board rejected SHC’s argument that the 

“‘Rushmore Approach’” utilized by the Assessor “improperly included intangible 

property.” The Board noted it understood the “criticism of the Rushmore Approach,” but 

concluded “the evidence and testimony presented at [the] hearing did not persuade [it] to 
10

reject its application to the . . . [p]roperty in the instant case. As noted above, the balance 

of testimony was that potential purchasers of the [p]roperty would generally utilize the 

Rushmore Approach, or a substantially similar approach in determining value. Further, 

while [SHC] contended that a better approach would be to capitalize the rent that a

typical vendor would pay to lease space in the hotel, [SHC] did not present any such 

evidence for the Board to consider.” 

Third, the Board determined the FASB 141 allocation proffered by SHC may be 

“acceptable for financial reporting purposes” but did not “provide an accurate ‘appraisal’ 

for property tax purposes” and that SHC’s “testimony and evidence at [the] hearing was 

insufficient to persuade the Board to concur with [SHC’]s opinion of value. The Board 

instead found that the balance of the evidence supported the Assessor’s opinion of value.” 

The Board explained it “was not convinced that FASB 141 reports may be utilized in the 

same manner as an appraisal prepared for California property tax purposes” in part 

because SHC did not present “credible evidence that the requirements for such reports are 

the same as those for property tax purposes.” Additionally, the Board agreed “with the 

Assessor’s argument that goodwill in the instant case should be $0 as opposed to $14.15 

million in light of the fact that the management and/or franchise fees would largely 

capture that goodwill for the benefit of the Ritz-Carlton Hotel Company, LLC as opposed 

to [SHC].” Finally, the Board concluded the Assessors’ Handbook provides guidance to 

County Assessors and “is not binding upon them. [¶] On balance, the Board finds that the 

Assessor’s proposed income methodology is an appropriate and permissible approach to 

determine valuation.” The Board affirmed the assessment of $116,980,000. 

SHC’s Trial Court Action for a Property Tax Refund

In a verified complaint seeking a property tax refund, SHC alleged: (1) the Board

failed to exclude intangible assets from the valuation; (2) the Board erred by placing the 

burden on SHC to show the assessment was incorrect; (3) the assessment failed to 

comply with federal and California constitutional law; and (4) the Board’s findings failed 

to include a determination of unidentified “material points” SHC raised at the hearing. 
11

The complaint sought a refund of taxes paid and a remand to the Board for a 

redetermination of property value. 

Following a bench trial, the court issued a statement of decision upholding the 

Board’s decision. Relying on EHP Glendale, LLC v. County of Los Angeles (2011) 193 

Cal.App.4th 262, 272 (EHP Glendale), the court concluded the income approach was a 

valid method for determining property value. As the court explained, “the Assessor 

selected the Rushmore method to sufficiently account for and isolate the income stream 

attributable to the taxable real property. . . . The Rushmore approach is widely used to 

appraise hotel real property for either lending or tax purposes.” The court then 

determined there was substantial evidence supporting the Board’s conclusion that the 

assessment “excluded non-taxable intangible value.” 

Next, the court determined the assessment was “made in accordance with law” and

the Board’s “decision upholding the Assessor’s enrolled value for the property fully 

complie[d] with the requirements” of the Revenue and Taxation Code. According to the 

court, “[t]he Assessor properly performed his duties in assessing the real property and 

there is substantial evidence in the record to support the [Board’s] conclusion that he did. 

The Assessor presented evidence of its analysis utilizing all three methods authorized by 

statute to determine the fair market value of the property. The Assessor provided a 

comprehensive analysis of each method including details of the parcels at issue, 

comparable sales of luxury hotels nationwide, Marshall & Swift cost estimates, a 

discounted cash flow analysis and historical costs, background articles on the valuation of 

hotels as income producing properties, a position paper by the California Assessors’

Association on excluding intangible value from income producing properties by the 

Rushmore approach, expert opinion, and legal analysis and briefing regarding the 

propriety of the . . . assessment. There is nothing in the record to indicate the assessment 

is contrary to law.” 

Additionally, the court rejected SHC’s claim that the Assessor’s failure to follow 

the Assessors’ Handbook was contrary to law. The court concluded the Assessors’

Handbook was “not mandatory” but rather “a set of recommendations for how to value 
12

property.” (Fn. omitted.) Finally, the court rejected SHC’s argument that the Board 

improperly placed the burden of proof on SHC, as well as SHC’s claim that the Board 

failed to address all “material points raised” by SHC at the evidentiary hearing before the 

Board. The court entered judgment for the County. 

DISCUSSION

To place the issues in context, we review “preliminary considerations which are 

not in dispute or are at least we think well settled, but which require our brief recitation 

before approaching the central issue of this case.” (Service America Corp. v. County of

San Diego (1993) 15 Cal.App.4th 1232, 1234 (Service America).) 

I.

General Taxation Principles and Principles Related

to Taxation of Intangible Property

As we have already stated, “the California Constitution requires generally the 

assessment of property at ‘fair market value’ . . . [A]ssessors have a constitutional 

mandate to tax all property at fair market value if not exempt under federal or state law. 

[Citations.]” (Elk Hills, supra, 57 Cal.4th at pp. 606-607.) “Fair market value means 

‘the amount of cash or its equivalent that property would bring if exposed for sale in the 

open market under conditions in which neither buyer nor seller could take advantage of 

the exigencies of the other, and both the buyer and the seller have knowledge of all of the 

uses and purposes to which the property is adapted and for which it is capable of being 

used.” (Ibid., quoting § 110, subd. (a).)

Intangible property, however, is “exempt from taxation” pursuant to section 212, 

subdivision (c), which “broadly exempts intangible assets and rights from taxation.” (Elk 

Hills, supra, 57 Cal.4th at p. 607.) Section 212 “provides, ‘Intangible assets and rights 

are exempt from taxation and, except as otherwise provided in the following sentence, the 

value of intangible assets and rights shall not enhance or be reflected in the value of 

taxable property.” (Ibid.) But section 212 also provides that “[t]axable property may be 

assessed and valued by assuming the presence of intangible assets or rights necessary to 
13

put the taxable property to beneficial or productive use.’ [Citation.]” (Elk Hills, supra, 

57 Cal.4th at p. 607.) 

Section 110 “provides rules of construction that harmonize section 212(c)’s tax 

exemption with the command that assessors tax all property at its fair market value.” 

(Elk Hills, supra, 57 Cal.4th at p. 607.) “[S]ection 110(d)(1) and (2) prevents the direct 

taxation of intangible rights and assets when assessors use methods of unit valuation. 

Section 110(d)(1) prevents tax assessors from including the value of intangible assets that 

relate to the going concern value of a business within the unit value of property prior to 

assessment. Section 110(d)(2) requires taxing authorities to value intangible assets and 

actively remove that value from a unit’s taxable base value, so that the intangibles are not 

directly taxed.” (Elk Hills, at p. 608.) “The procedures in section 110(d) operate in 

conjunction with section 110(e). [Citation.] . . . [¶] Section 110(e) provides: ‘Taxable 

property may be assessed and valued by assuming the presence of intangible assets or 

rights necessary to put the taxable property to beneficial or productive use.’” (Elk Hills,

at p. 608.) “Section 110(e) applies to intangible assets or rights that are ‘necessary’ to the 

beneficial or productive use of taxable property.” (Elk Hills, at p. 608.)

Put another way, “[s]ection 110(d)(1) prevents the value of intangible assets from 

enhancing or being reflected in the valuation of taxable property. Section 110(e) allows 

assessors to enhance the valuation of taxable property, not by including the value of 

intangible assets in the valuation . . . but simply by assuming the presence of intangible 

assets when valuing the taxable property put to beneficial or productive use.” (Elk Hills, 

supra, 57 Cal.4th at p. 615.) As our high court has explained, “assessors cannot tax the 

value of intangible assets directly . . . but that principle does not prevent assessors from 

assuming the presence of intangible assets when valuing taxable property. . . . In other 

words, assessors must do their constitutional duty to assess taxable property at fair market 

value . . . while making sure that the value of intangible assets is not improperly 

subsumed within the value of taxable property. . . .” (Id. at p. 614.) 

“The taxability of intangibles has long been a subject of controversy between 

assessors and taxpayers.” (Ehrman & Flavin, Taxing Cal. Property (4th ed. 2013) § 4:4, 
14

p. 4-4 (Taxing Cal. Property).) In 1998, and in “an effort to resolve the controversy,” the 

State Board of Equalization adopted the Assessors’ Handbook, “a 15-page statement of 

its position” on the taxability of intangible property, to provide instruction to county 

assessors. The discussion on intangibles “is the most controversial part of the handbook. 

. . . .” (Taxing Cal. Property, supra, § 4:4, p. 4-9; see also § 32:4, p. 32-167.) The 

Assessors’ Handbook provides in pertinent part: “The value of intangible assets and 

rights cannot be removed by merely deducting the related expenses from the income 

stream to be capitalized. Allowing a deduction for the associated expense does not allow 

for a return on the capital expenditure. For example, allowing the deduction of wages 

paid to a skilled work force does not remove the value of the work force in place from the 

income indicator, because the amount of the wages paid does not necessarily represent a 

return of and on the work force in place, and further bears no relationship to the costs 

associated with locating, interviewing, training and otherwise acquiring the work force. 

Similarly, the deduction of a management fee from the income stream of a hotel does not 

recognize or remove the value attributable to the business enterprise that operates the 

hotel.” (Assessors’ Handbook, supra, at p. 162, fns. omitted.)

Tax assessors use the Assessors’ Handbook “as a basic guide[.]” (Exxon Mobil 

Corp. v. County of Santa Barbara (2001) 92 Cal.App.4th 1347, 1353 & fn. 2 (Exxon 

Mobil).) “[A]ssessors’ handbooks are not regulations and do not possess the force of 

law,” but “they serve as a primary reference and basic guide for assessors, and have been 

relied upon and accorded great weight in interpreting valuation questions. [Citation.]” 

(Sky River, supra, 214 Cal.App.4th at p. 735; see also Watson Cogeneration Co. v. 

County of Los Angeles (2002) 98 Cal.App.4th 1066, 1070, fn. 2.) The California 

Supreme Court cited the Assessors’ Handbook with approval in Elk Hills, supra, 57 

Cal.4th at pages 616, and 620 through 621.

II.

The Income Method of Determining Property Value

Of the three appraisal methods, the Assessor used the income method to determine 

the hotel’s value, “which is described in . . . Rule 8.” (Sky River, supra, 214 Cal.App.4th 
15

at p. 726, fn. omitted; see fn. 2, ante.) Rule 8 describes two general methods for 

estimating future income.7 As relevant here, the second method uses “income from 

operating a property” — or business operating income — so long as sufficient income is 

excluded “to provide a return on working capital and other nontaxable operating assets 

and to compensate unpaid or underpaid management.” (Cal. Code. Regs., tit. 18, § 1.)

“‘Under the income method the assessor capitalizes the sum of future income 

attributable to the property, less an allowance for the risk of partial or no receipt of 

income [citation]. The income method rests upon the assumption that in an open market 

a willing buyer of the property would pay a willing seller an amount approximately equal 

to the present value of the future income to be derived from the property.’ [Citation.]” 

(Olen Commercial Realty Corp. v. County of Orange (2005) 126 Cal.App.4th 1441, 

1446; see also De Luz Homes v. County of San Diego (1955) 45 Cal.2d 546 (De Luz 

Homes) [property’s value under the income method is “‘the sum of anticipated future 

installments of net income from the property, less an allowance for interest and the risk of 

partial or no receipt’”]; Sky River, supra, 214 Cal.App.4th at p. 726, quoting FreeportMcMoran Resource Partners v. County of Lake (1993) 12 Cal.App.4th 634, 642 

(Freeport) [describing income method].)

III.

The De Novo Standard of Review Applies 

The parties “dispute whether this court should employ a de novo or substantial 

evidence standard of review.” (Freeport, supra, 12 Cal.App.4th at p. 640.) Our high 

 

7 Rule 8(e) provides: “Recently derived income and recently negotiated rents or 

royalties (plus any taxes paid on the property by the lessee) of the subject property and 

comparable properties should be used in estimating the future income if, in the opinion of 

the appraiser, they are reasonably indicative of the income the property will produce in its 

highest and best use under prudent management. Income derived from rental of 

properties is preferred to income derived from their operation since income derived from 

operation is the more likely to be influenced by managerial skills and may arise in part 

from nontaxable property or other sources. When income from operating a property is 

used, sufficient income shall be excluded to provide a return on working capital and other 

nontaxable operating assets and to compensate unpaid or underpaid management.” Rule 

8(e) is binding on assessors and the Board. (Cal. Code. Regs., tit. 18, § 1.)
16

court recently summarized the applicable standards of review: “‘When the assessor 

utilizes an approved valuation method, his factual findings and determinations of value 

based upon the appropriate assessment method are presumed to be correct and will be 

sustained if supported by substantial evidence.’ [Citations.] However, where the 

taxpayer attacks the validity of the valuation method itself, the issue becomes a question 

of law subject to de novo review.” (Elk Hills, supra, 57 Cal.4th at p. 606.) Numerous 

courts have restated this well-settled law but have struggled to determine whether “a 

challenge is to ‘method’ or ‘application’” (Freeport, supra, 12 Cal.App.4th at p. 640) and 

have noted it can be “difficult to distinguish between the two types of challenges.” (GTE 

Sprint, supra, 26 Cal.App.4th at p. 1001.) 

SHC characterizes the issue as a challenge to the validity of the income method at 

issue here and urges us to apply a de novo standard of review. According to SHC, the 

Assessor’s failure to remove the value of intangible assets from the assessment “presents 

a question of valuation methodology, which is a legal issue subject to . . . independent 

review.” We agree. SHC’s contention “goes to the methodology used” by the Assessor 

and approved by the Board and, as a result, “the appeal presents a question of law.” 

(Main & Von Karman Associates v. County of Orange (1994) 23 Cal.App.4th 337, 342.) 

Numerous cases support our conclusion. (Sky River, supra, 214 Cal.App.4th at p. 

731; Exxon Mobil, supra, 92 Cal.App.4th at p. 1352 [reviewing claim that the Board used 

“the wrong valuation methodology” de novo]; GTE Sprint, supra, 26 Cal.App.4th at p. 

1001 [treating taxpayer’s attack on “the validity of the valuation methods used, alleging 

the Board improperly included the value of nontaxable, intangible property . . . as an 

issue of law”]; Service America, supra, 15 Cal.App.4th at p. 1235 [“whether the assessor 

erred by including in his valuation of assets the value of Service America’s going 

business” was an issue “of law”]; County of Orange v. Orange County Assessment 

Appeals Bd. No. 1 (1993) 13 Cal.App.4th 524, 529 (County of Orange) [attack “directed 

at the Board’s method of valuation” subject to de novo review]; County of Stanislaus v. 

Assessment Appeals Bd. (1989) 213 Cal.App.3d 1445, 1450 (County of Stanislaus) 

[same].)
17

Two cases are instructive. (Sky River, supra, 214 Cal.App.4th 720; Elk Hills, 

supra, 57 Cal.4th 593.) In Sky River, the assessor used the income approach to value the 

taxpayers’ “wind farm electricity generation facilities.” The assessment appeals board

upheld the assessor’s property valuation and the taxpayers “filed actions in the superior 

court” for a partial property tax refund, arguing the “assessor overvalued the property.” 

(Sky River, at p. 725.) The trial court found in favor of taxpayers, concluding the assessor 

“used a flawed methodology in calculating the value of the property, resulting in an 

inflated value and an overstated tax.” (Ibid.) The County appealed, arguing “the trial 

court should have deferred to the board’s findings of fact and should have reviewed the 

decision only to ascertain whether it was supported by substantial evidence.” The 

taxpayers, however, claimed a de novo standard of review applied on appeal because “the 

dispute relate[d] to one element of the methodology—the appropriate income tax rate to 

apply to the conversion—rather than to factual matters.” (Id. at p. 728.) 

The Sky River court applied a de novo standard of review. (Sky River, supra, 214 

Cal.App.4th at pp. 728, 728-730.) It explained: “plaintiffs in this case contend the 

assessor used an improper method to calculate the value of their property and the amount 

of their tax. Plaintiffs contend that, although the assessor correctly chose the income 

approach to determine value, and the band-of-investment method to calculate the 

capitalization rate, he improperly used an estimated average income tax rate, rather than 

the marginal rate prescribed by the assessor[s’] handbook, when converting the discount 

rate from an after-tax rate to a before-tax rate. We conclude that plaintiffs are correct, 

and the issue presented constitutes a question of law as to an element of the chosen 

method to be used in calculating the market value of the property. Which income tax rate 

should be used . . . is a question about the method of calculating the appropriate 

conversion rate. . . . Determining which rate should be used does not present a question 

about the facts specific to plaintiffs’ case or the data to insert when calculating the value 

of the property. Rather, it presents a question about the methodology prescribed by [State 

Board of Equalization] rules for calculation of the property value.” (Id. at p. 731.)
18

The California Supreme Court reached a similar conclusion in Elk Hills and 

applied a de novo standard of review to analyze a taxpayer’s claim that the State Board of 

Equalization improperly taxed intangible assets and rights, including emission reduction 

credits (ERCs), when it assessed the taxpayer’s electric power plant. (Elk Hills, supra, 57 

Cal.4th at pp. 601-602.) The Elk Hills court explained, “[b]ecause Elk Hills challenges 

the Board’s methodology that includes the value of the ERCs in its unitary valuation of 

the power plant, the issue here is a question of law.” (Id. at p. 606.) Here as in Sky River

and Elk Hills, SHC challenges the Assessor’s “methodology that includes the value of 

[intangible assets] in its valuation of [the property].” As a result, “the issue here is a 

question of law.” (Elk Hills, supra, 57 Cal.4th at p. 606; Sky River, supra, 214 

Cal.App.4th at p. 731.) 

Relying on EHP Glendale, supra,193 Cal.App.4th 262, the County contends the 

substantial evidence standard of review applies because SHC’s challenge is to the 

application of a valid methodology.

8

 We are mindful “courts have expressly approved 

the income method of valuation for property tax purposes” (Taxing Cal. Property, supra, 

§ 17:15, p. 17-33-17-34, citing De Luz Homes, supra, 45 Cal.2d 546), and we do not 

disagree with the abstract proposition that the income approach is an acceptable valuation 

method. We are not persuaded, however, by the County’s argument. Here, SHC “attacks 

the validity of the valuation methods used, alleging the [Assessor] improperly included 

the value of nontaxable, intangible property, and we treat this as an issue of law.” (GTE 

Sprint, supra, 26 Cal.App.4th at p. 1001.) “By challenging the validity of the premise 

upon which the [Assessor] relied in reaching its decision,” SHC “has presented this court 

with a question of law.” (County of Stanislaus, supra, 213 Cal.App.3d at p. 1450.)

 

8 At the hearing before the Board, counsel for the County seemed to agree with 

SHC that the “proper way to frame [the issue] is the methodology by which you assess a 

hotel[.]” County counsel explained the question of whether the assessment deducted the 

value of intangible assets “really depends on what the methodology is” and noted, “the 

Assessor’s position is basically [a] methodology issue and . . . we do not agree with 

[SHC’]s methodology.” 
19

Second, the County’s reliance on EHP Glendale is misplaced.

9

In EHP Glendale, 

Eagle, a hotel owner, filed an action for a property tax refund. In the trial court, Eagle 

argued “the assessor and Board failed to appropriately consider and remove the value of 

the hotel’s franchise license agreement, the workforce in place and other claimed 

intangibles in determining the cash value of the hotel upon transfer.” The trial court 

granted summary judgment for Eagle, concluding the assessor and assessment appeals 

board used the wrong methodology to appraise the hotel. (EHP Glendale, supra, 193 

Cal.App.4th at p. 271.) The County of Los Angeles appealed and the EHP Glendale

court reversed, determining the trial court erred by granting summary judgment “based 

on a fragmentary record.” (Id. at p. 272.) The EHP Glendale court rejected Eagle’s 

“claim that the assessor and Board employed an ‘invalid appraisal methodology’” 

presented “an issue of law.” (Id. at p. 271.) The EHP Glendale court rejected this 

argument. It stated: “[t]he assessor in this case applied an income approach to value the 

hotel. The income approach is a valid methodology for determining full cash value. 

[Citations.] Eagle’s contention that the assessor improperly applied the income approach 

by not deducting intangibles presents a question of fact.” (Id. at p. 272.) 

EHP Glendale is distinguishable because it concerned an appeal from the grant of 

summary judgment, which as the court itself explained, “call[s] for the weighing of 

facts[.]” (EHP Glendale, supra, 193 Cal.App.4th at p. 273.) As such, the EHP Glendale

court’s holding was limited to whether summary judgment was appropriate where an 

incomplete record suggested there were triable issues of fact; the court’s statement 

regarding the validity of the income approach is dicta. (Dammann v. Golden Gate 

Bridge, Highway & Transportation Dist. (2012) 212 Cal.App.4th 335, 354.) We have no 

quarrel with EHP Glendale’s statement that “the income approach is a valid methodology 

 

9

The County also relies heavily on EHP Glendale, LLC v. County of Los Angeles, a 

case depublished by the California Supreme Court after the County filed its brief. 

(Previously published at 219 Cal.App.4th 1015, ordered nonpub. Dec. 18, 2013 

(S214290).) The County cites, but does not discuss, Elk Hills, supra, 57 Cal.4th 593, and 

does not explain why we should not be bound by the standard of review articulated in that 

case pursuant to Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455. 
20

for determining full cash value” but we are not bound by that court’s summary 

conclusion that the assessor’s failure to deduct intangibles in that case “present[ed] a 

question of fact.” (EHP Glendale, supra, 193 Cal.App.4th at p. 272.) 

As we have explained, where — as here — the taxpayer contends “the challenged 

method will produce systematic errors if applied to properties in that class, the issue is 

not factual but legal. The issue is not whether the assessor misunderstood or distorted the 

available data, but whether he or she chose an appraisal method which by its nature was 

incapable of correctly estimating market value.” (Union Pacific Railroad Co. v. State Bd.

of Equalization (1991) 231 Cal.App.3d 983, 992 (Union Pacific); see also American 

Sheds, Inc. v. County of Los Angeles (1998) 66 Cal.App.4th 384, 391 [de novo review 

applies where assessing authority “adopt[s] a position concerning the inclusion or 

exclusion of intangibles, which [can] be tested as a matter of law against pertinent 

authority”].) 

IV.

The Assessor’s Methodology Improperly Assessed 

Certain Intangible Assets and Rights

Having determined the de novo standard of review applies, we turn to the question 

in this case: whether the income approach used here properly identified and excluded 

intangible assets prior to the assessment as required by California law. As we explain 

below, the deduction of the management and franchise fee from the hotel’s projected 

revenue stream pursuant to the income approach did not — as required by California law 

— identify and exclude intangible assets such as the hotel’s assembled workforce, the 

hotel’s leasehold interest in the employee parking lot, and the hotel’s agreement with the 

golf course operator. (See Elk Hills, supra, 57 Cal.4th at pp. 618-619 & authorities cited 

therein.) The deduction of the management and franchise fee did, however, exclude the 

intangible asset of goodwill.

The Assessor’s expert, Callahan, conceded the Assessor’s approach did not 

remove all intangible assets and rights. His report stated “the majority of the property’s 

business value has been removed through the deduction of the management fee” and 
21

acknowledged that “[i]n addition to the deduction of market rate management and 

franchise fee, the capitalized value of pre-opening expenses (e.g. the cost of assembling 

and training a work force, pre-opening marketing, etc.) necessary to open the business is 

also often deducted as an intangible value of the hotel.” (Italics added.) At the 

evidentiary hearing before the Board, Callahan conceded the deduction of the 

management and franchise fee accounted for the “majority. Not all, but by in large, the 

majority” of intangible property. Callahan admitted “other components” such as “labor 

in place” “should be deducted” in addition to the management and franchise fee. Later, 

Callahan elaborated: “[a]nother argument . . . is also deducting the capitalized value of 

the labor in force, pre-opening expenses and working capital. [¶] For a property of this 

caliber, that would probably be about $6,000 per guest room. . . . So . . . the question is 

[whether] the majority of the business value is taken out in the management and franchise 

fee. It’s either a hundred percent or it’s like ninety percent. [¶] There’s an argument that 

I think is worthy of making of taking off an additional item. . . . Not the goodwill line 

item for 14 million dollars, but . . . a million dollars for labor in place. . . . But it’s 

relatively small dollars when we’re talking about a hotel of this caliber.” 

Callahan’s report and testimony before the Board demonstrate the methodology 

used by the Assessor and approved by the Board “failed to attribute a portion of [the 

hotel’s] income stream to the enterprise activity that was directly attributable to the value 

of intangible assets and deduct that value prior to assessment.” (Elk Hills, supra, 57 

Cal.4th at p. 618.) As a result, the methodology was “legally incorrect.” (Sky River, 

supra, 214 Cal.App.4th at p. 737.) Our conclusion is consistent with a long line of 

authority — culminating with Elk Hills — requiring intangible assets and rights that 

directly enhance a property’s income stream to be separately identified and “deducted

from the income stream analysis prior to taxation.” (Elk Hills, supra, 57 Cal.4th at p. 

619; § 110, subds. (d)(1), (d)(2); GTE Sprint, supra, 26 Cal.App.4th at pp. 1004, 1007; 

Service America, supra, 15 Cal.App.4th at pp. 1240-1242 [assessor erred in using entire 

income flow earned by franchisee ballpark concession company]; Shubat v. Sutter County 

Assessment Appeals Bd. (1993) 13 Cal.App.4th 794, 804 [assessor erred by failing to 
22

exclude value of cable television company’s intangible assets, such as right to conduct 

business, subscriber list, and going concern]; County of Orange, supra, 13 Cal.App.4th at 

pp. 532-534 [assessor’s valuation of cable television system failed to exclude value of 

intangibles that enhanced value of business, e.g., existing franchises, licenses to 

construct, goodwill]; County of Los Angeles v. County of Los Angeles Assessment 

Appeals Bd. (1993) 13 Cal.App.4th 102, 111-113 [assessment of airport car rental 

concession based on capitalized fees improperly included value of intangibles such as the 

right “to do business”]; see also Assessors’ Handbook, supra, at p. 162.) The County 

does not discuss, or attempt to distinguish, these cases.

GTE Sprint is instructive. There, the appraiser used several approaches, including 

the income approach, to value stock held by GTE Corporation in its subsidiary, Sprint. 

(GTE Sprint, supra, 26 Cal.App.4th at pp. 995-996.) In a petition for reassessment, 

Sprint argued the Board “impermissibly included the value of the following nontaxable 

intangible assets: the Sprint trade name; customer base; assembled workforce; favorable 

broadband leases of transmission capacity from other carriers; favorable property leases; 

advertising agency relationships; favorable debt financing contracts; inventory of 

advertising materials; and the benefit of avoiding significant start-up costs by purchasing 

a going concern, which Sprint identified as goodwill and other intangible assets.” (Id. at 

p. 998.) Sprint contended “the Board’s method of appraisal was fundamentally flawed 

because it made no allowance for the values of the nontaxable, intangible assets as 

California law requires. . . . Sprint argue[d] that its fair market value contained both 

tangible and intangible assets and the Board attributed virtually the entire fair market unit 

value of its California property solely to its tangible (taxable) property, without making 

proper allowances for its nontaxable, intangible assets.” (Id. at p. 999.) 

A division of this court agreed, concluding “the Board erred by actively ignoring 

Sprint’s evidence of separate intangible assets. . . .” (GTE Sprint, supra, 26 Cal.App.4th 

at p. 1001.) The court explained, “the Board’s appraisers are required by law to identify 

and value intangible assets, if any, and exclude these values from the appraisal of the 

taxpayer’s property. The Board’s own appraisers admitted that they did not attempt to 
23

identify any intangible assets, but instead ignored the detailed evidence produced by 

Sprint, which identified and separately valued numerous intangible assets.” (Id. at p. 

999.) The GTE Sprint court continued, “In our view the Board and its appraisers erred in 

assuming that unit valuation, especially when calculated by the [income] method, 

necessarily taxes only the intangible values as they enhance the tangible property. This 

absolutist approach obscures the Board’s duty to exclude intangible assets from 

assessment.” (Id. at p. 1004.) 

The same is true here. As in GTE Sprint, the Assessor and the Board ignored 

SHC’s credible evidence in the form of Gavin’s report and his testimony at the 

evidentiary hearing that certain intangible assets — i.e., the hotel’s workforce, the hotel’s 

leasehold interest in the employee parking lot, and the hotel’s agreement with the golf 

course operator — were “necessary to the beneficial or productive use of the property” 

and “that the fair market value of those assets [was] improperly subsumed in the 

valuation.” (Elk Hills, supra, 57 Cal.4th at p. 615.) 

We disagree with the County’s claim that “the intangible value was removed by 

deducting the management and franchise fee[.]” The Assessor removed the management 

and franchise fee from the hotel’s income stream, but did not explain how that deduction 

captured the “majority” of intangible property. Moreover, the Assessor’s expert 

conceded the deduction of the management and franchise fee did not account for all of 

the intangible value of the property, and admitted other intangible assets “should be 

deducted[.]” The Assessor’s reliance on the deduction of the management and franchise 

fee — and its refusal to identify and value certain intangible assets — is akin to paying

“lip service to the concept of exempting intangible assets from taxation[,]” a practice 

condemned in GTE Sprint. (GTE Sprint, supra, 26 Cal.App.4th at p. 1005.) 

We are not persuaded, however, by SHC’s claim that the income method at issue 

here is invalid for the additional reason that it failed to exclude goodwill. As our 

Supreme Court has held, “goodwill of a business” is an intangible asset “that must be 

deducted from an income stream analysis prior to taxation.” (Elk Hills, supra, 57 Cal.4th 

at pp. 618-619; GTE Sprint, supra, 26 Cal.App.4th at p. 1004.) It is undisputed an 
24

assessor’s property assessment generally enjoys the presumption of correctness and SHC 

had the burden of establishing by a preponderance of evidence the assessor’s valuation 

was incorrect. (Cal. Code Regs., tit. 18, § 321.) “Courts have long presumed that the 

Board assesses all property correctly, placing on the taxpayer the burden of proving that 

an assessment is incorrect.” (Trailer Train Co. v. State Bd. of Equalization (1986) 180 

Cal.App.3d 565, 584.)

At the evidentiary hearing before the Board, there was a factual dispute about the 

value of goodwill. SHC argued the value of goodwill was $14,150,000 using the residual 

approach identified by Gavin. In contrast, the Assessor calculated the value of goodwill 

at $0 and offered the testimony of Hunter and Callahan demonstrating the Assessor 

identified and quantified the value of goodwill in the amount attributed to the 

management and franchise fee. In this way, the Assessor deducted the value of goodwill 

from the hotel’s income stream prior to taxation. Here, the Board was presented with “a 

question about . . . the data to insert when calculating the value of the [goodwill].” This 

was a “question of fact to be determined by the [B]oard on the evidence presented.” (Sky 

River, supra, 214 Cal.App.4th at p. 731.) The Board resolved this factual dispute in favor 

of the Assessor, agreeing “with the Assessor’s argument that goodwill in the instant case 

should be $0 as opposed to $14.15 million in light of the fact that the management and/or 

franchise fees would largely capture that goodwill for the benefit of the Ritz-Carlton 

Hotel Company, LLC as opposed to [SHC].” Reviewing the Board’s resolution of this 

factual dispute for substantial evidence (Elk Hills, supra, 57 Cal.4th at p. 606), we cannot 

conclude substantial evidence did not support the Board’s finding on this issue. There 

may be situations where the taxpayer can establish the deduction of a management and 

franchise fee from a hotel’s income stream does not capture the intangible asset of 

goodwill, but SHC, the taxpayer, has failed to do so here.

We conclude the Assessor’s valuation of the hotel failed to exclude certain 

intangible assets in violation of section 110, subdivision (d)(1), which prohibits an 

assessor from using the value of intangible rights and assets to enhance the value of 

taxable property, and section 110, subdivision (d)(2) which requires “the fair market 
25

value of those assets . . . be removed pursuant to section 110(d)(2).” (Elk Hills, supra, 57 

Cal.4th at p. 615; see also § 212, subd. (c).) Having reached this result, we decline to 

address SHC’s other claims of error. 

DISPOSITION

The judgment of the trial court is reversed. The trial court is directed to enter a 

new and different judgment in favor of SHC and against the County, determining the 

method used by the Assessor and approved by the Board to calculate the value of the 

property violated the standards prescribed by law because it failed to identify, value, and 

remove the value of the following intangible assets and rights from the hotel’s income 

stream prior to taxation: (1) the hotel’s workforce; (2) the hotel’s leasehold interest in the 

employee parking lot; and (3) the hotel’s agreement with the golf course operator. The 

trial court shall remand the matter to the Board to recalculate the value of the property 

applying the income method consistent with the views expressed in this opinion. As 

SHC suggested at oral argument, “a de novo hearing before the Board” on these 

intangible assets is “not necessary because ‘[a]ll of the facts necessary to compute the 

proper valuation are in the record.’” (Union Pacific, supra, 231 Cal.App.3d at p. 1001.) 

Each party is to bear its costs on appeal. (Cal. Rules of Court, rule 8.278.)

_________________________

Jones, P.J.

We concur:

_________________________

Simons, J.

_________________________

Needham, J.
26

Superior Court of the County of San Mateo, No. CIV499595, John W. Runde, Judge.

Cahill, Davis & O’Neall LLP, C. Stephen Davis, Cris K. O’Neall and Andrew W. 

Bodeau for Plaintiff and Appellant.

John C. Beiers, County Counsel and Rebecca M. Archer, Deputy County Counsel, for 

Defendant and Respondent.

A137218