Preview
1 Superior
LED
Court ofCalifornia
2 County ofPlacer
3 OCT 05 2020
Jake Chatters
4 ExecutiveOfficer
By: M.Taylor,De
5
6
7
8 SUPERIOR COURT OF THE STATE OF CALIFORNIA
9 IN AND FOR THE COUNTY OF PLACER
10
11 | TSI SEMICONDUCTORS Case No. S-CV-0042318
12 CORPORATION, and TSI
SEMICONDUCTORS AMERICA
13 |LLC (f/k/a TELEFUNKEN Tentative Decision
14 SEMICONDUCTORS AMERICA LLC),
15 Plaintiffs,
16 VS.
47 |COUNTY OF PLACER, and DOES 1
~13~ through 10, inclusive, etal, fd
19 Defendants.
20
51 This action was tried to the court on July 8, 2020. Attorneys Rowena
32 Santos and Cris O’Neall appeared for plaintiffs TSI Semiconductors Corp.
23 County Counsel's Office appeared by video for defendant County of Placer.
34 The matter was submitted to the court for decision. TSI has requested a
35 statement of decision. The court has considered the administrative record,
6 the pleadings and briefs of the parties and the arguments made at trial. The
57 court issues the following tentative decision.
38 Background
The general background leading to this lawsuit is not in dispute. In
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May 2011, TSI acquired a 153-acre improved parcel located at 7501
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Foothills Blvd. in Roseville, along with personal property and fixtures, from
Renesas Electronics Corporation for an aggregate purchase price of
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$53,000,000. The purchase price included allocations of $23,000,000 for
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the real property purchased and $25,742,864 for the personal property and
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fixtures acquired inthe transaction.
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The site is a special purpose property that has been used as an
operating integrated semiconductor wafer manufacturing facility.Generally,
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the personal property at the site includes semiconductor equipment and
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fixtures, office furniture and equipment, computers and other equipment.?
There isno dispute that the manufacture of semiconductor wafers requires a
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substantial amount of expensive task-specific equipment. The
manufacturing facilityat the site was built in 1984 and originally
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manufactured 125mm wafers. Over time, as market conditions evolved,
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manufacturing turned to 150mm wafers and then in 2008 to 200mm wafers.
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Manufacturing of 200mm wafers was the predominant technology until
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~lar6und 2010 when the manufacture of 300mm wafers increased market’ ~~ |
share while the market for 200mm wafers declined and operating income for
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TSI decreased. Over the course of time, hundreds of millions of dollars were
spent on equipment and fixtures used in the manufacture of wafers at this
site.
The Placer County Assessor (“Assessor”) conducted an audit of the
subject property for the lien dates January |,2012 through January 1, 2015.
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Business owners receive annual business property statements from the
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1 Initscomplaint, TSI designates the personal property and fixturesat thislocationas the
“subject property.”For similarsake of ease, the courtwillreferto the property atissue in
the same manner.
Assessor and are required to report allfixtures and equipment. The
Assessor then values the assets as of the January 1st lien date, typically
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applying various factors recommended by the State of California Board of
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Equalization (“BOE”). In this case, after audit of the annual business
property statements of TSI for liendates 2012 to 2015, the Assessor
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determined escape assessments should be issued because of a discrepancy
between the historical costs at the siteand the values asserted by TSI,
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which TSI based on purchase price allocations in itsagreement with
Renesas. The Assessor determined the assessment value of the subject
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property by using historical costs with various depreciation factors
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recommended by the State of California Board of Equalization (BOE) and the
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California Assessor’s Association, which resulted in an increase in value of
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the subject property for allfour years audited. The Assessor issued escape
assessments for the four tax years of 2012-2015. TSI disputes the escape
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assessments, contending the subject property has been overvalued by the
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Assessor and that TSI isentitled to a refund of taxes itpaid.
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Board Proceedings _
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“TSI timely appealed the escape assessments issued by theAssessor oni ~~~ > >
the subject property. The appeal came before the County of Placer
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Assessment Appeals Board (Board) for hearing in December 2017. The value
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of the real property acquired by TSI was addressed in a separate
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assessment appeal and is no longer in issue.
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The Board succinctly summarized the challenge itfaced: “This rather
complex case requires this Board to determine the value of semiconductor
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manufacturing equipment and fixtures used to service the equipment as well
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as other personal property when the technology is changing on a daily basis.
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Real property values that can be tested against other comparable sales allow
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us to confidently arrive at estimated values for the real property.
Unfortunately, valuing personal property largely void of an active market-
place with buyers and sellers based upon depreciation of the asset is more
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imprecise, particularly when the property involves equipment used to
produce a rapidly evolving product.” (AR 1787.)
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Without recounting allof the evidence at this point, TSI asserted at the
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hearing that assessment values of the subject property should derive from
the allocations of value found in its purchase agreement with Renesas.
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Alternatively, in the event that approach was not accepted, TSI asserted that
a correct application of factors recognized by the Board of Equalization
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results ina substantially lower value of the subject property than determined
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by the Assessor.
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This leads to concepts recognized in the assessment of property and
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which are woven throughout the course of the administrative proceedings
and now in this litigation. In valuing the subject property for assessment
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purposes, depreciation factors come into play — including obsolescence.
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Generally, “obsolescence” can be defined as depreciation in value because of
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_|technological_ advances in the industry. (Texaco, Inc. v.County of Los
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‘|Angeles (1982) 136 Cal.App.3d 60.) When the capacity or efficiencyof a ©
property to perform the function for which it was intended declines,
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“functional obsolescence” ispresent. “Functional obsolescence” refers to
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“superadequacies” -facilities that are built but are underutilized or not
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utilized. Functional obsolescence is defined as a form of depreciation in
which the loss in value of the usefulness of a property is caused by
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inefficiencies or inadequacies of the property itself,when compared to a
more efficient or less costly replacement property that new technology has
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developed. (AR 1733.) Another type of obsolescence, “economic
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obsolescence,” can be defined as an element of accrued depreciation, caused
by influences outside the site, sometimes called “external obsolescence.” By
shorthand, the parties here have referred to these collectively by the
acronyms “SA & EO” (superadequacy and economic obsolescence].
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In assessing the value of the subject property, the Assessor
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determined that any depreciation for functional and economic obsolescence
was fully accounted for when applying the BOE depreciation schedules. On
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the other hand, suffice itto say TSI analyzed and calculated functional and
economic obsolescence differently, leading to TSI’s contention that the
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subject property has been overvalued by the Assessor and that TSI is
therefore entitled to a tax refund.
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The Board issued its finaldecision and findings on June 29, 2018. This
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lawsuit followed.
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TSI Complaint
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TSI filed itsfirst amended verified complaint for a tax refund on March
25, 2019. The complaint seeks review of the Board’s final decision of June
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29, 2018. The assessed value of the personal property and fixtures for the
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tax years 2012-13 through 2015-16, as reflected in the Board’s findings, is
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challenged in TSI’s amended complaint. The complaint alleges the Assessor,
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in determining escape assessments for those years, rejected TSI’s reported
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acquisition cost and instead adopted the historic acquisition cost of Renesas
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and applied BOE valuation factors for each year. TSI alleges the assessed
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value of the subject property should have been established with reference to
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the purchase price allocations. Specifically, TSI’s amended complaint alleges
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the Board should have accepted a valuation based on “the assessed value of
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the Subject Property [personal property and fixtures] with reference to its
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purchase price” since TSI acquired that property in an “open-market, arm’s
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length transaction” from Renesas. TSI thus alleges the prices allocated by
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it,as buyer, and Renesas, as seller, “is the best evidence of the value
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acquired.”
Alternatively, TSI alleges it presented evidence to the Board of a full
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reproduction cost value analysis consistent with BOE guidelines, including
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accounting for depreciation due to functional and economic obsolescence.
Specifically, TSI’s amended complaint alleges it presented the Board with
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evidence of “a full reproduction cost analysis,” which “reflected reproduction
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cost, less physical depreciation, but before deduction of additional functional
and/or external (also called economic obsolescence.” TSI claims itcomplied
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with applicable property tax rules by then deducting “allforms of
depreciation (i.e.,physical depreciation, functional obsolescence, and
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economic obsolescence...).” TSI asserts its evidence established that ittook
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the step of applying mandatory rules in reaching deductions of 54% for
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functional obsolescence and 43% for economic obsolescence. TSI alleges
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the Board should have accepted itsanalysis and that the Assessor erred by
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not quantifying deductions in this fashion. As TSI puts it, “The Assessor
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simply contended that itwas not necessary to comply with this mandatory
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step, because allsuch depreciation was supposedly included inthe State
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Board of Equalization depreciation schedules.”
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~ The Board generally adopted the Assessor’s methodology and = —
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conclusions. The Board found the Assessor demonstrated the subject
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property was properly valued using methods approved by the BOE, but also
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found that further adjustments were appropriate to better compensate for
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the superadequacy of the fixtures and additional economic obsolescence of
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the semiconductor equipment. The Board found that an additional reduction
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in the amount of 10% for each year for the fixtures and an additional 10%
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for each year for the semiconductor equipment was an appropriate
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adjustment. TSI alleges in itscomplaint that the 10% reduction “was
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arbitrary, insufficient to account for all economic and/or functional
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obsolescence or superadequacy in the Subject Property, and contrary to
law...” TSI contends the Board failed to explain the methodology or factual
basis supporting its ultimate determination that the deduction should be
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10%.
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TSI’s single cause of action seeks a refund for taxes itallegedly paid
as a result of the Assessor’s erroneous assessments. TSI seeks three forms
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of relief in this lawsuit: (1) that the court find the Board’s decision does not
comply with the standards of Revenue and Taxation Code section 1611.5;
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(2) that the Court remand the matter to the Board with instructions to
determine an amount of depreciation greater than the amount already
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provided by the BOE tables and the additional 10% deduction found by the ~
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Board; or (3) that the court independently determine that the SA&EO
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deduction should be 54% for fixtures and 43% for personal property based
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on the evidence produced by TSI at the Board hearing.
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Legal Standards
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‘“Where a taxpayer challenges the validity of the valuation method
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used by an assessor, the trialcourt must determine as a matter of law
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‘whether the challenged method of valuation is arbitrary, in excess of
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discretion, or in violation of the standards prescribed by law.’ [Citation.]
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(Charter Communications Properties, LLC v. County of San Luis Obispo
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(2011) 198 Cal.App.4th 1089, 1101; Next Century Associates, LLC v. County
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of Los Angeles (2018) 29 Cal.App.5th 713.) Where a“ ‘ “taxpayer
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challenges the application of a valid valuation method, the trial court must
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review the record presented to the Board to determine whether the Board’s
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findings are supported by substantial evidence but may not independently
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weigh the evidence. [Citations.] “’” (Charter Communications, supra, at Pp.
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1101.) Other factual determinations by the Board also are reviewed under
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2 Furtherstatutory references areto the Revenue and Taxation Code unless otherwise
indicated.
the substantial evidence standard. (Farr v. County of Nevada (2010) 187
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Cal.App.4th 669, 679-680.) “In reviewing a property tax assessment, the
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court must presume the assessor properly performed his or her duty and
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that the assessment was both regularly and correctly made. [Citation.] The
burden is on the taxpayer to prove the property was improperly assessed.”
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(California Minerals, L.P. v. County of Kern (2007) 152 Cal.App.4th 1016,
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1022.)
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The scope of a trialcourt's review of the administrative record of a
board of assessment appeals isthat of reviewing the entire record to
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determine ifthe findings are supported by substantial evidence. (Hunt-
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Wesson Foods, Inc. v. County of Alameda (1974) 41 Cal.App.3d 163; EHP
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Glendale, LLC v. County of Los Angeles (2011) 193 Cal. App. 4th 262.)
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In applying the substantial evidence rule, the court willneither weigh the
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evidence in the administrative record nor will itexercise its independent
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judgment. (Hunt-Wesson Foods, Inc. v. County of Alameda (1974) 41
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Cal.App.3d 163, 169; Duea v. County of San Diego (2012) 204 Cal.App.4th
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691, 699.)
‘With respectto itsfindings, Board findings are subject to the ~~
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requirements of Revenue & Taxation Code section 1611.5. That section
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provides in relevant part: “The written findings of fact shall fairly disclose the
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board's determination of all material points raised by the party in his or her
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petition and at the hearing, including a statement of the method or methods
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of valuation used in appraising the property.” The active ingredients of
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Section 1611.5 are itsrequirements that adequate findings be made that
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“fairly disclose” the basis of the Board’s determination about the material
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points raised by the party in its petition and that itstate the valuation
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method used. Section 1611.5 requires only that the board’s final
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determinations be supported by the weight of the evidence and, as noted
above, the trial court reviews the administrative record to determine
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whether substantial evidence supports the board’s final determinations.
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Case law makes clear that the findings of fact must bridge the analytic
gap between the raw evidence and ultimate decision. (Topanga Assn. for a
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Scenic Community v. County of Los Angeles (1974) 11 Cal.3d 506, 515.)
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They should include all legally relevant sub-conclusions supportive of its
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ultimate decision to facilitate orderly analysis and minimize the likelihood of
randomly leaping from evidence to conclusions. (Id. at p. 516.) That way, a
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reviewing court isable to trace and adequately examine an Assessment
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Appeal Board’s mode of analysis. (Farr v. County of Nevada (2010) 187
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Cal.App.4th 669, 686.) It isnot necessary for the findings to cover every
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evidentiary matter. However, an Assessment Appeal Board should
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specifically address its reasoning for accepting or rejecting each material
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issue raised by the parties. (Ibid.)
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Board Findings
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With the above principles inmind, the court turns to the Board's
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-|findings with respect to the material points raised by TSI in itspetition and
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at the administrative hearing to see whether the Board’s findings bridge the
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analytic gap between the raw evidence and its ultimate decision. A review
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of the administrative record discloses that the Board lefta visible trailof
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analytical breadcrumbs between the evidence at the hearing and its ultimate
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findings. Stated in the rubric of section 1611.5, the court concludes the
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Board’s findings fairly disclose itsdeterminations as to all material points
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raised by TSI, including a statement of the method or methods of valuation
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used in appraising the property. It isevident to the court that the Board
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clearly appreciated the unique challenge itfaced in determining whether the
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Assessor correctly valued the subject property. As ultimately described in
the Board’s findings, the Board considered this case to be a rather complex
case which “requires this Board to determine the value of semiconductor
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manufacturing equipment and fixtures used to service the.equipment as well
as other personal property when the technology is changing on a daily basis”
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and “unfortunately, valuing personal property largely void of an active
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market-place with buyers and sellers based upon depreciation of the asset is
more imprecise, particularly when the property involves equipment used to
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produce a rapidly evolving product.” (AR 1802.) In meeting the challenge,
itis clear that the Board carefully considered the testimony and exhibits
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received at the appeal hearing and then drew from the evidence in reaching
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itsfindings. The Board’s findings are supported by substantial evidence,
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including the Board’s determination to apply an additional 10% reduction for
economic obsolescence and superadequacies.
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TSI’s Contention That Values Should Be Based On Allocations Under
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Purchase Agreement
TSI firstalleges the Assessor should have valued the subject property
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_|according .to.the allocations. of value contained in its purchase agreement
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with Renesas. Underlying TSI’s allegation isits contention that the purchase
agreement with Renesas was the result of a fair, arms-length transaction
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and, therefore, is the best indicator of value for assessment purposes. The
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Board rejected this approach to value (Finding #1), and the Board found
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that the Assessor met her burden in establishing that the purchase
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agreement did not reflect the actual value of the assets (Finding #2). The
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Board found that the depreciation tables from the BOE used by the
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Assessor more accurately reflected the value of the subject property,
although the Board also found additional adjustments of 10% were
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appropriate under the circumstances (Finding #5), as discussed further
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below.
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As part of her audit, the Assessor reviewed historical records, including
costs reported by Renesas as part of the January 1, 2011 appeal, and noted
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a large change in value from the January 1, 2011 assessment and the value
of assets stated by TSI for 2012-2015 assessments. This review showed
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that TSI restated the value of the assets to 5% of the historical cost when
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TSI acquired the assets in May 2011. As a result, the Assessor issued
escape assessments using the historical cost with depreciation factors
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instead of the 5% cost arbitrarily selected by TSI. The escape assessments
also accounted for clean room fixtures that TSI had not reported on its
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business property statement. The historical cost of semiconductor
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equipment acquired from 1978 - 2007 ($165,123,237) and from 2008 -
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2011 ($160,371,731) totals $325,494,968. The historical cost of
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semiconductor fixtures acquired from 1984 to 2011 is $141,462,685, with
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the bulk of the fixtures being installed in 1992. The Assessor applied
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depreciation factors recommended by the BOE and California Assessors’
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Association. The Assessor considered using the income, sales or cost
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approaches to value the subject property and determined the cost approach,
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utilizing known historical costs, was the preferred methodology. -
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The record shows that after certain adjustments, TSI arrived at a value
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of $37,932,502 for the subject property based upon the allocation of assets
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under the purchase agreement as of the 2012 lien date. On the other hand,
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the Assessor arrived at a 2012 value for the subject property of
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$112,272,788. Substantial evidence supports the Board’s rejection of TSI’s
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contention that the subject property should have been valued based on the
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self-determined allocations agreed to by TSI and Renesas under their
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purchase agreement. The Board found that while the allocation of values
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between the buyer and seller may have been logical to the buyer and seller
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for business purposes, the allocations appear arbitrary inthe context of an
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assessment appeal. The Board noted that TSI acquired $325,000,000 worth
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of equipment from 1978 -2011 and that almost half, or slightly over
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$160,000,000, was acquired from 2008 - 2011. The 200mm wafer was the
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predominant technology until approximately 2010 when 300mm wafer
manufacturing consumed greater market share. The Board noted, however,
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that despite this manufacturing shift, “there was no evidence to suggest that
the 200mm wafer was obsolete or that its market share had fallen to a level
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that would justify a decrease in manufacturing equipment to a level roughly
approximate to salvage value.” Or, as the Assessor correctly argued, “It is
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unreasonable to expect that a business owner would believe that equipment
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of this type purchased within the previous four years would only have a
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value of approximately 9% of the original cost as [TSI] is claiming.”
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In further support of itsfindings, the Board noted that only 6 pages of
the 56-page purchase agreement was in evidence at the appeal hearing and
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that none of the agreement’s exhibits were submitted. Thus, the Board was
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not able to conclude from the missing evidence that the overall $53,000,000
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purchase price included the “wafer supply agreement” that was an exhibit to
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the purchase agreement. ‘The Board could-not-verify from the evidence -
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whether the wafer supply agreement provided for the sale of the wafers at
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market price or not. The Board cited to testimony of Mr. Gray that
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expiration of the wafer supply agreement could impact the profitability of the
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operation and, therefore, the ongoing business relationship between the
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parties and the various side agreements were quite possibly valuable assets
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not reflected inthe total $53,000,000 purchase price. As the Board
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concluded from the evidence — or lack thereof - “It isdifficult to accept the
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allocation of values for the $53M purchase price when the [purchase]
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Agreement and itsvarious side agreements are not included as part of
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the evidence in this proceeding.” (AR 1804.)
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Finally, putting it mildly, the Board had clear reason to be skeptical of
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the allocation values urged by TSI. In a separate proceeding, the Board had
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already determined the value of the real property for TSI’s manufacturing
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facilitieswas $62,000,000 - almost three times the value TSI and Renesas
had allocated for real property under the purchase agreement. The Board
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noted that while the previous decision did not address the value of the
property subject to this subsequent proceeding, “itcertainly establishes the
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fact that the allocation of value for a major asset class under the Agreement
did not correspond to fair market value.”
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All told, the record contains substantial evidence supporting the
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Board’s rejection of TSI’s contention that the subject property should have
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been valued by the Assessor according to allocations inthe purchase
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agreement with Renesas. Supported by substantial evidence, the Board
found (Finding #2) that utilizingthe historical cost for the subject property
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and applying accepted depreciation tables, with adjustments based upon the
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particular facts of the case, was a more reliable method to determine value
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for assessment purposes.
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Valuation By Cost Approach
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As an alternative analysis to its allocation approach, by using a
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reproduction cost analysis to determine the value of the subject property,
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TSI asserted at the appeal hearing that the total 2012 value of the subject
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property was $42,600,341. This estimate of value iscomprised of
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$27,884,658 for personal property and $14,715,683 for fixtures. In
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contrast, using the cost approach to value, the Assessor arrived at a 2012
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value for the subject property of $112,272,788.
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There isno dispute that the cost approach is an appropriate
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methodology. This method of valuation isexpressly permitted by regulation.
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Thus, in this case, the method of valuation used by the Assessor isnot
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challenged as arbitrary so much as TSI challenges the application of this
valid method, especially the Board’s findings with respect to depreciation for
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forms of obsolescence. According to TSI’s trial brief,TSI does not disagree
with the Board’s finding that additional reductions for functional and
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economic obsolescence should be made - rather it disagrees with the
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Board’s determination that 10% is the correct amount. Stripped to its
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essence, TSI’s challenge isto the application of a valid methodology and
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does not present a question of law but, instead, the question for the court is
whether substantial evidence in the record supports the Board’s findings.
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At the heart of this dispute iswhether the additional 10% adjustment
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determined by the Board was sufficient or appropriate in light of the
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evidence at the appeal hearing, or whether the adjustment was arbitrary
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and unsupported. The Board spelled out at some length its specific concerns
regarding the Assessor's strict reliance on BOE tables which the Board felt
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did not fully account for depreciation. The Board explained the limitations it
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saw in a straight application of the BOE table relied upon by the Assessor
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_((AR_1790):
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“While the Board understands the Assessor’s reluctance to vary from
the BOE tables, the Board finds that further adjustments are necessary
to adequately address the changing technology and the super
adequacy of the fixtures. The Assessor relies upon the semiconductor
study first published in Assessor’s Handbook 581 for liendate 2009.
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The Assessor explained the semiconductor valuation tables published
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by the BOE are the result of a study performed by the BOB, California
Assessor's Association (“CAA”), Intel, and PricewaterhouseCoopers in
which the team reviewed accounting records to develop a lifeanalysis
of the equipment and to develop semiconductor tables and retirement
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estimates (the “Study”). (Vol.1, page 100, lines 12-25), The Assessor
notes that the study group involved in developing the final evaluation
factors was formed in 2006 and concluded the Study in 2008 and that
the factors were firstpublished in 2009. (Vol 2, page 234, lines 13-
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23).
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Although the Study ishelpful in developing valuation factors, the
testimony also indicated that the Study has not been updated since its
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completion; the core industry participant Intel no longer has a200mm
fabrication facility in Santa Clara County as itdid at the time of the
Study; and that itwas unclear whether the Study contemplated the
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technology shift from 200mm to 300mm. (Vol.2, page 234, line 22 to
page 236, line 4.) While it isreasonable to assume that a lifingstudy
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of semiconductor equipment would include acomponent for changing
technology, itwas less than clear whether the Study was intended to
address a situation where, as here, the technology shift was already
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well under way. Without a clear understanding of whether the Study
considered the technology shift from 200mm to 300mm wafers and
without any further update of the Study, we question whether the
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Study truly captures allforms of depreciation and obsolescence during
the relevant time frames for the Subject Property, especially since a
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technology shift was occurring during this time and continues today.”
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In light of the Board’s concern above, the Board received additional
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briefing on the issue of whether deductions beyond that provided for in the
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BOE tables for depreciation and regular obsolescence should be included in
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the valuation of the subject property. The Board asked the parties to
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address the following:
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“1. Assuming that the Board accepts the initialapproach submitted by
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the Assessor, what additional factor should be applied to the
semiconductor equipment if the Board believes that an additional
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adjustment is necessary to further address the functional obsolescence
of the equipment? The Board is questioning the appropriateness of
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using the Board of Equalization valuation factors that are based upon
the 2006 study due to the age of the study and some of the unique
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facts of this case. Ifan additional adjustment is made, please provide
us with your thoughts on what the adjustment should be and the basis
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for the adjustment.”
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In response, the Assessor asserted the BOE tables adequately
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accounted for all forms of obsolescence and, therefore, did not recommend a
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reduction in value. On the other hand, TSI responded by submitting further
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briefing and evidence to support deductions of 54% due to superadequacy of
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the fixtures serving the semiconductor equipment and 43% for economic
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obsolescence of both the fixtures and the personal property (i.e.,the
- 15
semiconductor manufacturing equipment). The Assessor argued to the
Board that no reduction in the escape assessments should be granted.
DY
Ultimately, the Board adopted neither position, as detailed in its findings.
BW
In its final findings, the Board rejected TSI’s opinions of value that
were based upon allocations of value included in the purchase agreement
ON
with Renesas. The Board found that the Assessor met her burden in
HD
establishing that allocations in the purchase agreement did not reflect actual
DOAN
value of the subject property for purposes of assessment. The Board also
expressly rejected the methodology used by TSI to arrive at further
oO
deductions of 54% due to superadequacy of the fixtures and 43% for
CHOMANAUKRANEO
economic obsolescence of both the fixtures and the personal property. The
ee
Board disagreed with TSI’s suggested level of
Preview
1 Superior LED Court ofCalifornia 2 County ofPlacer 3 OCT 05 2020 Jake Chatters 4 ExecutiveOfficer By: M.Taylor,De 5 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 IN AND FOR THE COUNTY OF PLACER 10 11 | TSI SEMICONDUCTORS Case No. S-CV-0042318 12 CORPORATION, and TSI SEMICONDUCTORS AMERICA 13 |LLC (f/k/a TELEFUNKEN Tentative Decision 14 SEMICONDUCTORS AMERICA LLC), 15 Plaintiffs, 16 VS. 47 |COUNTY OF PLACER, and DOES 1 ~13~ through 10, inclusive, etal, fd 19 Defendants. 20 51 This action was tried to the court on July 8, 2020. Attorneys Rowena 32 Santos and Cris O’Neall appeared for plaintiffs TSI Semiconductors Corp. 23 County Counsel's Office appeared by video for defendant County of Placer. 34 The matter was submitted to the court for decision. TSI has requested a 35 statement of decision. The court has considered the administrative record, 6 the pleadings and briefs of the parties and the arguments made at trial. The 57 court issues the following tentative decision. 38 Background The general background leading to this lawsuit is not in dispute. In B&B May 2011, TSI acquired a 153-acre improved parcel located at 7501 WDN Foothills Blvd. in Roseville, along with personal property and fixtures, from Renesas Electronics Corporation for an aggregate purchase price of BP $53,000,000. The purchase price included allocations of $23,000,000 for UU the real property purchased and $25,742,864 for the personal property and HD fixtures acquired inthe transaction. DAN The site is a special purpose property that has been used as an operating integrated semiconductor wafer manufacturing facility.Generally, Oo the personal property at the site includes semiconductor equipment and WNHKHOHOCOANAAKRANEO fixtures, office furniture and equipment, computers and other equipment.? There isno dispute that the manufacture of semiconductor wafers requires a N ee substantial amount of expensive task-specific equipment. The manufacturing facilityat the site was built in 1984 and originally NNNNNNNN eB manufactured 125mm wafers. Over time, as market conditions evolved, eB manufacturing turned to 150mm wafers and then in 2008 to 200mm wafers. eB Manufacturing of 200mm wafers was the predominant technology until BB ~lar6und 2010 when the manufacture of 300mm wafers increased market’ ~~ | share while the market for 200mm wafers declined and operating income for BP TSI decreased. Over the course of time, hundreds of millions of dollars were spent on equipment and fixtures used in the manufacture of wafers at this site. The Placer County Assessor (“Assessor”) conducted an audit of the subject property for the lien dates January |,2012 through January 1, 2015. AUR Business owners receive annual business property statements from the ON 1 Initscomplaint, TSI designates the personal property and fixturesat thislocationas the “subject property.”For similarsake of ease, the courtwillreferto the property atissue in the same manner. Assessor and are required to report allfixtures and equipment. The Assessor then values the assets as of the January 1st lien date, typically DY applying various factors recommended by the State of California Board of BW Equalization (“BOE”). In this case, after audit of the annual business property statements of TSI for liendates 2012 to 2015, the Assessor DU determined escape assessments should be issued because of a discrepancy between the historical costs at the siteand the values asserted by TSI, ON which TSI based on purchase price allocations in itsagreement with Renesas. The Assessor determined the assessment value of the subject oO property by using historical costs with various depreciation factors © recommended by the State of California Board of Equalization (BOE) and the F OR pe California Assessor’s Association, which resulted in an increase in value of WN the subject property for allfour years audited. The Assessor issued escape assessments for the four tax years of 2012-2015. TSI disputes the escape BR assessments, contending the subject property has been overvalued by the Oo Assessor and that TSI isentitled to a refund of taxes itpaid. DW Board Proceedings _ SN ht “TSI timely appealed the escape assessments issued by theAssessor oni ~~~ > > the subject property. The appeal came before the County of Placer OO Assessment Appeals Board (Board) for hearing in December 2017. The value OO of the real property acquired by TSI was addressed in a separate FP assessment appeal and is no longer in issue. WN The Board succinctly summarized the challenge itfaced: “This rather complex case requires this Board to determine the value of semiconductor BR manufacturing equipment and fixtures used to service the equipment as well OF as other personal property when the technology is changing on a daily basis. D Real property values that can be tested against other comparable sales allow On us to confidently arrive at estimated values for the real property. Unfortunately, valuing personal property largely void of an active market- place with buyers and sellers based upon depreciation of the asset is more WY imprecise, particularly when the property involves equipment used to produce a rapidly evolving product.” (AR 1787.) BR Without recounting allof the evidence at this point, TSI asserted at the DO hearing that assessment values of the subject property should derive from the allocations of value found in its purchase agreement with Renesas. On Alternatively, in the event that approach was not accepted, TSI asserted that a correct application of factors recognized by the Board of Equalization oO results ina substantially lower value of the subject property than determined OO ee by the Assessor. AWNHEH This leads to concepts recognized in the assessment of property and ee which are woven throughout the course of the administrative proceedings and now in this litigation. In valuing the subject property for assessment ee purposes, depreciation factors come into play — including obsolescence. AO Generally, “obsolescence” can be defined as depreciation in value because of eB _|technological_ advances in the industry. (Texaco, Inc. v.County of Los DAN BBB ‘|Angeles (1982) 136 Cal.App.3d 60.) When the capacity or efficiencyof a © property to perform the function for which it was intended declines, OHO “functional obsolescence” ispresent. “Functional obsolescence” refers to NNN “superadequacies” -facilities that are built but are underutilized or not BWNHH utilized. Functional obsolescence is defined as a form of depreciation in which the loss in value of the usefulness of a property is caused by NN inefficiencies or inadequacies of the property itself,when compared to a more efficient or less costly replacement property that new technology has UU NNNN developed. (AR 1733.) Another type of obsolescence, “economic ONDA obsolescence,” can be defined as an element of accrued depreciation, caused by influences outside the site, sometimes called “external obsolescence.” By shorthand, the parties here have referred to these collectively by the acronyms “SA & EO” (superadequacy and economic obsolescence]. DN In assessing the value of the subject property, the Assessor BW determined that any depreciation for functional and economic obsolescence was fully accounted for when applying the BOE depreciation schedules. On DOH the other hand, suffice itto say TSI analyzed and calculated functional and economic obsolescence differently, leading to TSI’s contention that the ON subject property has been overvalued by the Assessor and that TSI is therefore entitled to a tax refund. Oo The Board issued its finaldecision and findings on June 29, 2018. This OO lawsuit followed. fF RR TSI Complaint WN TSI filed itsfirst amended verified complaint for a tax refund on March 25, 2019. The complaint seeks review of the Board’s final decision of June BR 29, 2018. The assessed value of the personal property and fixtures for the WO tax years 2012-13 through 2015-16, as reflected in the Board’s findings, is HO PER challenged in TSI’s amended complaint. The complaint alleges the Assessor, N in determining escape assessments for those years, rejected TSI’s reported & @ acquisition cost and instead adopted the historic acquisition cost of Renesas OO &S and applied BOE valuation factors for each year. TSI alleges the assessed CO NY value of the subject property should have been established with reference to FP NY the purchase price allocations. Specifically, TSI’s amended complaint alleges NY BWN the Board should have accepted a valuation based on “the assessed value of NY the Subject Property [personal property and fixtures] with reference to its NY purchase price” since TSI acquired that property in an “open-market, arm’s NY DO length transaction” from Renesas. TSI thus alleges the prices allocated by NY it,as buyer, and Renesas, as seller, “is the best evidence of the value NN On acquired.” Alternatively, TSI alleges it presented evidence to the Board of a full F& reproduction cost value analysis consistent with BOE guidelines, including WYN accounting for depreciation due to functional and economic obsolescence. Specifically, TSI’s amended complaint alleges it presented the Board with BR evidence of “a full reproduction cost analysis,” which “reflected reproduction DO cost, less physical depreciation, but before deduction of additional functional and/or external (also called economic obsolescence.” TSI claims itcomplied ON with applicable property tax rules by then deducting “allforms of depreciation (i.e.,physical depreciation, functional obsolescence, and Oo economic obsolescence...).” TSI asserts its evidence established that ittook OC the step of applying mandatory rules in reaching deductions of 54% for KF functional obsolescence and 43% for economic obsolescence. TSI alleges NY the Board should have accepted itsanalysis and that the Assessor erred by W Oe not quantifying deductions in this fashion. As TSI puts it, “The Assessor BP OR simply contended that itwas not necessary to comply with this mandatory RA OM step, because allsuch depreciation was supposedly included inthe State DW Pee Board of Equalization depreciation schedules.” SN ~ The Board generally adopted the Assessor’s methodology and = — OO HB conclusions. The Board found the Assessor demonstrated the subject FF OO property was properly valued using methods approved by the BOE, but also CO NY found that further adjustments were appropriate to better compensate for FP NY the superadequacy of the fixtures and additional economic obsolescence of NY NY the semiconductor equipment. The Board found that an additional reduction NY RW in the amount of 10% for each year for the fixtures and an additional 10% NY for each year for the semiconductor equipment was an appropriate NY UV adjustment. TSI alleges in itscomplaint that the 10% reduction “was DAD NY arbitrary, insufficient to account for all economic and/or functional NN On obsolescence or superadequacy in the Subject Property, and contrary to law...” TSI contends the Board failed to explain the methodology or factual basis supporting its ultimate determination that the deduction should be DN 10%. BW TSI’s single cause of action seeks a refund for taxes itallegedly paid as a result of the Assessor’s erroneous assessments. TSI seeks three forms DMO of relief in this lawsuit: (1) that the court find the Board’s decision does not comply with the standards of Revenue and Taxation Code section 1611.5; AN (2) that the Court remand the matter to the Board with instructions to determine an amount of depreciation greater than the amount already Oo provided by the BOE tables and the additional 10% deduction found by the ~ OC ip Board; or (3) that the court independently determine that the SA&EO FF ee deduction should be 54% for fixtures and 43% for personal property based WN on the evidence produced by TSI at the Board hearing. ee Legal Standards BR ‘“Where a taxpayer challenges the validity of the valuation method Be UN used by an assessor, the trialcourt must determine as a matter of law BD Be ‘whether the challenged method of valuation is arbitrary, in excess of WAN fu discretion, or in violation of the standards prescribed by law.’ [Citation.] BB (Charter Communications Properties, LLC v. County of San Luis Obispo HO (2011) 198 Cal.App.4th 1089, 1101; Next Century Associates, LLC v. County OO N of Los Angeles (2018) 29 Cal.App.5th 713.) Where a“ ‘ “taxpayer FP NNN challenges the application of a valid valuation method, the trial court must NY review the record presented to the Board to determine whether the Board’s KRW findings are supported by substantial evidence but may not independently NNNNN weigh the evidence. [Citations.] “’” (Charter Communications, supra, at Pp. DM 1101.) Other factual determinations by the Board also are reviewed under ON 2 Furtherstatutory references areto the Revenue and Taxation Code unless otherwise indicated. the substantial evidence standard. (Farr v. County of Nevada (2010) 187 Be Cal.App.4th 669, 679-680.) “In reviewing a property tax assessment, the DN court must presume the assessor properly performed his or her duty and KRW that the assessment was both regularly and correctly made. [Citation.] The burden is on the taxpayer to prove the property was improperly assessed.” MT (California Minerals, L.P. v. County of Kern (2007) 152 Cal.App.4th 1016, DO 1022.) ON The scope of a trialcourt's review of the administrative record of a board of assessment appeals isthat of reviewing the entire record to Oo determine ifthe findings are supported by substantial evidence. (Hunt- OC pt Wesson Foods, Inc. v. County of Alameda (1974) 41 Cal.App.3d 163; EHP FSF Re Glendale, LLC v. County of Los Angeles (2011) 193 Cal. App. 4th 262.) NY In applying the substantial evidence rule, the court willneither weigh the W evidence in the administrative record nor will itexercise its independent PB judgment. (Hunt-Wesson Foods, Inc. v. County of Alameda (1974) 41 OF Cal.App.3d 163, 169; Duea v. County of San Diego (2012) 204 Cal.App.4th ND BR 691, 699.) ‘With respectto itsfindings, Board findings are subject to the ~~ Ff ® requirements of Revenue & Taxation Code section 1611.5. That section OO BF provides in relevant part: “The written findings of fact shall fairly disclose the CO NY board's determination of all material points raised by the party in his or her FY NY petition and at the hearing, including a statement of the method or methods NHN NY of valuation used in appraising the property.” The active ingredients of NUN BW Section 1611.5 are itsrequirements that adequate findings be made that NY “fairly disclose” the basis of the Board’s determination about the material NN DM points raised by the party in its petition and that itstate the valuation NY method used. Section 1611.5 requires only that the board’s final NN On determinations be supported by the weight of the evidence and, as noted above, the trial court reviews the administrative record to determine DN whether substantial evidence supports the board’s final determinations. BPW Case law makes clear that the findings of fact must bridge the analytic gap between the raw evidence and ultimate decision. (Topanga Assn. for a UN Scenic Community v. County of Los Angeles (1974) 11 Cal.3d 506, 515.) WD They should include all legally relevant sub-conclusions supportive of its ON ultimate decision to facilitate orderly analysis and minimize the likelihood of randomly leaping from evidence to conclusions. (Id. at p. 516.) That way, a oO reviewing court isable to trace and adequately examine an Assessment OO Appeal Board’s mode of analysis. (Farr v. County of Nevada (2010) 187 FS Cal.App.4th 669, 686.) It isnot necessary for the findings to cover every NY evidentiary matter. However, an Assessment Appeal Board should W specifically address its reasoning for accepting or rejecting each material BP issue raised by the parties. (Ibid.) RA OF Board Findings DO Re With the above principles inmind, the court turns to the Board's N -|findings with respect to the material points raised by TSI in itspetition and DW HH at the administrative hearing to see whether the Board’s findings bridge the OO FF analytic gap between the raw evidence and its ultimate decision. A review CO NY of the administrative record discloses that the Board lefta visible trailof KFY§ NN analytical breadcrumbs between the evidence at the hearing and its ultimate WHY findings. Stated in the rubric of section 1611.5, the court concludes the NN Board’s findings fairly disclose itsdeterminations as to all material points BP raised by TSI, including a statement of the method or methods of valuation WM NN used in appraising the property. It isevident to the court that the Board OD clearly appreciated the unique challenge itfaced in determining whether the NN On Assessor correctly valued the subject property. As ultimately described in the Board’s findings, the Board considered this case to be a rather complex case which “requires this Board to determine the value of semiconductor WN manufacturing equipment and fixtures used to service the.equipment as well as other personal property when the technology is changing on a daily basis” KR and “unfortunately, valuing personal property largely void of an active DH market-place with buyers and sellers based upon depreciation of the asset is more imprecise, particularly when the property involves equipment used to DAN produce a rapidly evolving product.” (AR 1802.) In meeting the challenge, itis clear that the Board carefully considered the testimony and exhibits Oo received at the appeal hearing and then drew from the evidence in reaching FGOAUAAUHURKRWANEO itsfindings. The Board’s findings are supported by substantial evidence, ee including the Board’s determination to apply an additional 10% reduction for economic obsolescence and superadequacies. es TSI’s Contention That Values Should Be Based On Allocations Under ee Purchase Agreement TSI firstalleges the Assessor should have valued the subject property Be _|according .to.the allocations. of value contained in its purchase agreement BB with Renesas. Underlying TSI’s allegation isits contention that the purchase agreement with Renesas was the result of a fair, arms-length transaction BP and, therefore, is the best indicator of value for assessment purposes. The NNN Board rejected this approach to value (Finding #1), and the Board found KF that the Assessor met her burden in establishing that the purchase AARON agreement did not reflect the actual value of the assets (Finding #2). The NY Board found that the depreciation tables from the BOE used by the NN Assessor more accurately reflected the value of the subject property, although the Board also found additional adjustments of 10% were NNN appropriate under the circumstances (Finding #5), as discussed further ON below. - 10 As part of her audit, the Assessor reviewed historical records, including costs reported by Renesas as part of the January 1, 2011 appeal, and noted WYN a large change in value from the January 1, 2011 assessment and the value of assets stated by TSI for 2012-2015 assessments. This review showed HR that TSI restated the value of the assets to 5% of the historical cost when DUH TSI acquired the assets in May 2011. As a result, the Assessor issued escape assessments using the historical cost with depreciation factors ON instead of the 5% cost arbitrarily selected by TSI. The escape assessments also accounted for clean room fixtures that TSI had not reported on its Oo business property statement. The historical cost of semiconductor OO et equipment acquired from 1978 - 2007 ($165,123,237) and from 2008 - fF OR 2011 ($160,371,731) totals $325,494,968. The historical cost of NY semiconductor fixtures acquired from 1984 to 2011 is $141,462,685, with W the bulk of the fixtures being installed in 1992. The Assessor applied HR depreciation factors recommended by the BOE and California Assessors’ oO RAR Association. The Assessor considered using the income, sales or cost DOD approaches to value the subject property and determined the cost approach, bt N utilizing known historical costs, was the preferred methodology. - Be © The record shows that after certain adjustments, TSI arrived at a value RB WO of $37,932,502 for the subject property based upon the allocation of assets CO NY under the purchase agreement as of the 2012 lien date. On the other hand, F& NN the Assessor arrived at a 2012 value for the subject property of WN $112,272,788. Substantial evidence supports the Board’s rejection of TSI’s NN contention that the subject property should have been valued based on the BP NN self-determined allocations agreed to by TSI and Renesas under their DT purchase agreement. The Board found that while the allocation of values NN between the buyer and seller may have been logical to the buyer and seller On for business purposes, the allocations appear arbitrary inthe context of an NU - il assessment appeal. The Board noted that TSI acquired $325,000,000 worth FE of equipment from 1978 -2011 and that almost half, or slightly over DY $160,000,000, was acquired from 2008 - 2011. The 200mm wafer was the BW predominant technology until approximately 2010 when 300mm wafer manufacturing consumed greater market share. The Board noted, however, DO that despite this manufacturing shift, “there was no evidence to suggest that the 200mm wafer was obsolete or that its market share had fallen to a level DAN that would justify a decrease in manufacturing equipment to a level roughly approximate to salvage value.” Or, as the Assessor correctly argued, “It is Oo unreasonable to expect that a business owner would believe that equipment O&O of this type purchased within the previous four years would only have a FF value of approximately 9% of the original cost as [TSI] is claiming.” RO WN In further support of itsfindings, the Board noted that only 6 pages of the 56-page purchase agreement was in evidence at the appeal hearing and BP that none of the agreement’s exhibits were submitted. Thus, the Board was Om not able to conclude from the missing evidence that the overall $53,000,000 DOD Re purchase price included the “wafer supply agreement” that was an exhibit to N the purchase agreement. ‘The Board could-not-verify from the evidence - Ow FB whether the wafer supply agreement provided for the sale of the wafers at OO F market price or not. The Board cited to testimony of Mr. Gray that CO NN expiration of the wafer supply agreement could impact the profitability of the FP NY operation and, therefore, the ongoing business relationship between the NY WN parties and the various side agreements were quite possibly valuable assets NY not reflected inthe total $53,000,000 purchase price. As the Board PB NY concluded from the evidence — or lack thereof - “It isdifficult to accept the UI NY allocation of values for the $53M purchase price when the [purchase] DOD NNN Agreement and itsvarious side agreements are not included as part of On the evidence in this proceeding.” (AR 1804.) - 12 Finally, putting it mildly, the Board had clear reason to be skeptical of & the allocation values urged by TSI. In a separate proceeding, the Board had DY already determined the value of the real property for TSI’s manufacturing BW facilitieswas $62,000,000 - almost three times the value TSI and Renesas had allocated for real property under the purchase agreement. The Board DH noted that while the previous decision did not address the value of the property subject to this subsequent proceeding, “itcertainly establishes the ON fact that the allocation of value for a major asset class under the Agreement did not correspond to fair market value.” Oo All told, the record contains substantial evidence supporting the OC Board’s rejection of TSI’s contention that the subject property should have HF been valued by the Assessor according to allocations inthe purchase WH eR agreement with Renesas. Supported by substantial evidence, the Board found (Finding #2) that utilizingthe historical cost for the subject property HR ee and applying accepted depreciation tables, with adjustments based upon the MN RR particular facts of the case, was a more reliable method to determine value HD for assessment purposes. BE WAN Valuation By Cost Approach BR As an alternative analysis to its allocation approach, by using a BH HO reproduction cost analysis to determine the value of the subject property, OO KR TSI asserted at the appeal hearing that the total 2012 value of the subject FPF KN property was $42,600,341. This estimate of value iscomprised of KN WNYN $27,884,658 for personal property and $14,715,683 for fixtures. In NN contrast, using the cost approach to value, the Assessor arrived at a 2012 BP N value for the subject property of $112,272,788. OT NN There isno dispute that the cost approach is an appropriate WD methodology. This method of valuation isexpressly permitted by regulation. NN ON Thus, in this case, the method of valuation used by the Assessor isnot - 13 challenged as arbitrary so much as TSI challenges the application of this valid method, especially the Board’s findings with respect to depreciation for WN forms of obsolescence. According to TSI’s trial brief,TSI does not disagree with the Board’s finding that additional reductions for functional and BR economic obsolescence should be made - rather it disagrees with the HO Board’s determination that 10% is the correct amount. Stripped to its BD essence, TSI’s challenge isto the application of a valid methodology and On does not present a question of law but, instead, the question for the court is whether substantial evidence in the record supports the Board’s findings. oO At the heart of this dispute iswhether the additional 10% adjustment OO determined by the Board was sufficient or appropriate in light of the pe WHE evidence at the appeal hearing, or whether the adjustment was arbitrary ee and unsupported. The Board spelled out at some length its specific concerns regarding the Assessor's strict reliance on BOE tables which the Board felt es CHOANOAaAUAA did not fully account for depreciation. The Board explained the limitations it Be saw in a straight application of the BOE table relied upon by the Assessor Be _((AR_1790): BBB “While the Board understands the Assessor’s reluctance to vary from the BOE tables, the Board finds that further adjustments are necessary to adequately address the changing technology and the super adequacy of the fixtures. The Assessor relies upon the semiconductor study first published in Assessor’s Handbook 581 for liendate 2009. NNN The Assessor explained the semiconductor valuation tables published AAKRWNHH by the BOE are the result of a study performed by the BOB, California Assessor's Association (“CAA”), Intel, and PricewaterhouseCoopers in which the team reviewed accounting records to develop a lifeanalysis of the equipment and to develop semiconductor tables and retirement NNN estimates (the “Study”). (Vol.1, page 100, lines 12-25), The Assessor notes that the study group involved in developing the final evaluation factors was formed in 2006 and concluded the Study in 2008 and that the factors were firstpublished in 2009. (Vol 2, page 234, lines 13- NNN 23). COUN Although the Study ishelpful in developing valuation factors, the testimony also indicated that the Study has not been updated since its - 14 completion; the core industry participant Intel no longer has a200mm fabrication facility in Santa Clara County as itdid at the time of the Study; and that itwas unclear whether the Study contemplated the WY technology shift from 200mm to 300mm. (Vol.2, page 234, line 22 to page 236, line 4.) While it isreasonable to assume that a lifingstudy BR of semiconductor equipment would include acomponent for changing technology, itwas less than clear whether the Study was intended to address a situation where, as here, the technology shift was already DH well under way. Without a clear understanding of whether the Study considered the technology shift from 200mm to 300mm wafers and without any further update of the Study, we question whether the ON Study truly captures allforms of depreciation and obsolescence during the relevant time frames for the Subject Property, especially since a wow technology shift was occurring during this time and continues today.” Wwrnoeo In light of the Board’s concern above, the Board received additional ee briefing on the issue of whether deductions beyond that provided for in the ep BOE tables for depreciation and regular obsolescence should be included in OR the valuation of the subject property. The Board asked the parties to Uonoubk address the following: Re “1. Assuming that the Board accepts the initialapproach submitted by BR the Assessor, what additional factor should be applied to the semiconductor equipment if the Board believes that an additional RE adjustment is necessary to further address the functional obsolescence of the equipment? The Board is questioning the appropriateness of Fe OOO using the Board of Equalization valuation factors that are based upon the 2006 study due to the age of the study and some of the unique KN facts of this case. Ifan additional adjustment is made, please provide us with your thoughts on what the adjustment should be and the basis KN KRWNHH for the adjustment.” NR NR In response, the Assessor asserted the BOE tables adequately NO accounted for all forms of obsolescence and, therefore, did not recommend a UM NN reduction in value. On the other hand, TSI responded by submitting further NN briefing and evidence to support deductions of 54% due to superadequacy of DNA NUN the fixtures serving the semiconductor equipment and 43% for economic MB obsolescence of both the fixtures and the personal property (i.e.,the - 15 semiconductor manufacturing equipment). The Assessor argued to the Board that no reduction in the escape assessments should be granted. DY Ultimately, the Board adopted neither position, as detailed in its findings. BW In its final findings, the Board rejected TSI’s opinions of value that were based upon allocations of value included in the purchase agreement ON with Renesas. The Board found that the Assessor met her burden in HD establishing that allocations in the purchase agreement did not reflect actual DOAN value of the subject property for purposes of assessment. The Board also expressly rejected the methodology used by TSI to arrive at further oO deductions of 54% due to superadequacy of the fixtures and 43% for CHOMANAUKRANEO economic obsolescence of both the fixtures and the personal property. The ee Board disagreed with TSI’s suggested level of