Can an unfinished but ‘usable’ basement space be taxed? Berkeley says ‘yes’ and the courts have agreed

The Spindlers’ Stuart Street fourplex. They have argued in court and to community groups that the city is over-taxing them. Photo: Google Street View

A group of Berkeley property owners has taken to emails, phone calls, social media and even the courts to challenge the way the city calculates special, voter-approved taxes.

The property owners — it’s hard to know how many, but at least several — question the accuracy and legality of the city finance department’s way of measuring square footage, which is the basis of the city’ special taxes, used for such services as the library, parks, and emergency medical serves, and the schools.

They claim they’re being overtaxed to the tune of thousands of dollars a year.

There is “potential for the city to be forced to issue a large amount of refunds (perhaps in the millions) and have reduced tax collections going forward,” said David Kellogg, a tax-questioning property owner who is asking the city to reimburse him for back taxes.


The city, in response, says its special taxes are calculated fairly and legally and were all approved by voters as required.

“The city’s voter-approved special taxes such as for landscaping/parks and library services use taxable square footage as presented to voters in ballot measures and codified in the city tax codes,” said Matthai Chakko, a city spokesman.

Chakko pointed out that an Orinda resident recently challenged how Berkeley calculated taxes and the claim “was rejected by Alameda County Superior Court, which re-affirmed the city’s interpretations.”

Municipal legalese

The tax issue is complicated and steeped in the legalese of municipal definitions. The city finance department, which oversees taxes, counts square footage space differently than the city’s zoning department, which oversees building matters.

Basements play center role in the current tax-questioning.

The finance department’s definition of taxable space includes: “The total gross horizontal area of all floors, including usable basement and cellars.”

Zoning, however, defines usable space as designed to be or can be habitable.

“Any portion of a building or structure which is designed to be or can be used as habitable space, which has finished walls (sheetrock or plaster) and/or is heated with any fixed furnace or central heating system, including bathrooms, halls, garages and laundry rooms. Storage areas with over six (6) feet of vertical space shall also be considered usable space.”

So, the property owners ask, why are they taxed for unfinished, low basements that don’t fit the zoning department’s definition of usable? It’s a city definition against city definition.

It’s not this simple, the city says.

Zoning department language is intended for land use and building matters and not for taxation, Chakko said. The city’s special taxes, as approved by Berkeley voters, specify a particular method of calculation. You can’t conveniently choose which city definition you want to apply for which reason, he said.

The lawsuit

The tax issue came into focus earlier this year when Doug and Lilana Spindler, who live in Orinda and own a four-unit rental house on Stuart Street, sued the city in small claims court in February, saying they were over-taxed to the tune of about $2,000 a year.

They asked for $8,127 in tax overpayment, claiming their unfinished basement was wrongfully included in their tax bill because, under the city zoning department’s definition, it isn’t usable space. They bought their house in 2008, but there is a four year statute of limitations on back taxes.

The difference between the two definitions is significant: about 1,346 square feet. The finance department calculated their home as  5,078-square-feet while zoning considers it to be 3,732-square-feet.

“What the city is doing is they’re cheating homeowners,” Doug Spindler told Pat Thurston, a radio show host on KGO.

The Spindlers initially lost in small claims court, appealed and won in May. The city appealed to Alameda County Superior Court and won in September.

“There does not appear to be a legal basis for importing the definition of “usable space,” as developed for and applicable to zoning purposes, into a separate ordinance and regulatory scheme that refers instead to “usable” basement and that governs the imposition of taxes,” Judge Karin Schwartz wrote in her Sept. 4 decision.

Lilana Spindler said this week she doesn’t know what legal recourse she now has.

Of the judge’s ruling, Kellogg said on social media: “I’m aware of that ruling. I consider it wrong.”

Citizen info gathering

Along the way, the Spindlers have been speaking out about the issue. They’ve gone to school board and community meetings.

“There is an ethical and economic problem with taxing space that can’t be used for dwelling. Why would space that can’t house humans be taxed for a library, paramedics, parks, fire department, etc.?  The end result is, unfortunately, a further decline in affordability,” Lilana Spinder said.

Their initial lawsuit was covered by the Daily Californian in August and on KGO.

Additionally, Lilana Spindler, a self-described “number cruncher,” has created a database of tax information she’s collecting. She’s been going to Berkeley open houses, and comparing real estate listing square footage with eyeball estimates and property tax bills, available online.

She said she’s found numerous discrepancies reflecting over- or under-billing by the city.

She and others in the effort say they’ve also discovered other tax issues, such as areas included in taxable space that doesn’t exist on the ground, or areas that do exist but aren’t reflected in taxes. Also, contradictions in taxable space.

“I recently visited two open houses (1344 McGee and 1623 Tyler) which have crawlspaces/reduced height basements larger than mine and with enough height for me to walk around in and those areas are not taxed like mine,” Lilana Spindler said.

Chakko said the city hasn’t documented widespread errors. However, if property owners believe there are mistakes in their city tax bills they should contact the city finance department, he said.

Not apples and apples

It’s hard to gauge how accurate or extensive the grass-roots tax checking is.

For one thing, it’s not easy to learn what square footage the city is using for a property’s special taxes. There isn’t a public database or list of this information, and it’s not on tax bills.

For another thing, square footage data differs depending on who is doing the measuring, and why.

“The definition of square footage varies dramatically depending on who’s talking,” said Brian Hitomi, Alameda County’s chief deputy assessor. “It’s not apples and apples.”

Initially, the Spindlers were directing people to use the Alameda County assessor’s square footage, calling this the “correct” number. Assessor square footage is based on finished, or habitable space, similar to the city zoning department.

“The City of Berkeley should not use their own dubious building area calculation standards for the assessment of dwelling units, they must use the standards and expertise provided by the County of Alameda Assessor who has stringent and rigorous appraising guidelines and protocols,” Lilana Spindler wrote in an email.

But Phong La, Alameda County Assessor, gave a big “whoa”.

“Our records are designed for our purposes and not to be used for other purposes. They’re designed for comparable value, not for taxation. There are differences in how people look at garages or basements or what have you,” La said. “If they want to include attic or crawl space that’s up to them.”

Property taxes are ad valorum, or calculated based on the value of a house, not its size. Value is determined in a number of ways, La said, including comparable selling prices of like properties, and supply and demand. Square footage is one of several tools the county uses to assess the value of homes. It primarily gets its square footage data from city building departments, with regular updates.

The city contracts with the county to audit its tax information and do the collection or billing.

The county assessor doesn’t play any role in how local jurisdictions calculate square footage for their purposes, he said. “The Assessor’s Office is not involved in how the cities or school districts chose to calculate square footage for their special assessments.”

Basic math

The Spindlers and property owners sharing their concerns are now encouraging people to dust off their calculators and do some math.

One of the only ways a property owner can learn what total square footage the city is using for his or her special taxes is to:

  • Check his or her annual property tax bill’s list of special taxes and assessments
  • Look at the amount you are charged for any given special tax
  • Then, go to the city’s property tax webpage, and look up the rate of the tax, or charge per square foot
  • Divide the amount you are being charged for a tax by the rate of that tax and you’ll get the square footage the city is using.

Even the city suggests property owners go through this arithmetic to learn their taxable square footage on file, Chakko said.

But he also said that people can call the city’s assistance line, 311, and ask for help getting the data.

History of audits

This isn’t the first time the city’s special taxes have been under the spotlight. Dating back to the 1990s, the city has conducted several audits on special taxes and assessments, standard procedure, with an eye toward improving accuracy and efficiency.

Special taxes (after the passage of Proposition 13, local governments need a 2/3 vote for a new tax for a special purpose) are usually assessed per parcel or per square footage. According to city documents, Berkeley adopted square footage as the most equitable way of taxing.

In 2005, a city audit of “special taxes, assessments and fees” concluded Berkeley had, in general, improved its management of taxes and assessments.  It found “scattered immaterial errors” and came up with recommendations.

These included better matching of city tax rolls with the county, improvements in managing internal controls, further identification of under-assessed property, and consideration of taxing some exempt properties such as hospitals.

The audit was tracked for several years with progress reports presented to the city council, as is practice.

According to the city, all of the recommendations except one were completed.  The city opted not to hold an election on extending special taxes to non-public exempt entities such as hospitals.

In 2009, a new city audit piggybacked on this one, looking specifically at whether improved workflow systems would help ensure that property tax data was adjusted to reflect new construction, such as additions.

This audit concluded, among other things that: “Finance and Planning have not effectively communicated and coordinated work to properly capture taxable building square footage changes.”

The audit made several recommendations intended to “reduce the risk of lost revenue and reduce the risk of overcharging taxpayers.” Most of these have been implemented, according to the city.

These included information technology (IT) updates and reviewing the usefulness of a planning department worksheet used to record square footage changes.

Another recommendation was for the city manager to consider holding an election on “simplifying” definitions of square footage in the city municipal code and “aligning” those used by zoning and finance. “The City’s practice of using square footage for more equitable distribution of the special tax wouldn’t change,” it said.

The city opted not to take this step, with then-city manager Christine Daniel citing concerns about the cost and value of a special election and the potential of decreased tax revenues.

The value of a tape measure  

Taxes go up when buildings get larger, but transferring this construction data reliably to the county for property taxes, or to the city’s finance department for special taxes can be a rough spot. Illegally added space, built without permits, escapes taxes unless or until it’s discovered and recorded.

According to Ben Trobaugh, a product manager at California Tax Data, which produces property tax disclosure reports, errors in recorded square footage are common, regardless of who’s tracking the information.

“We do disclosures when homes are sold, we get the data from the county and we find errors all the time,” said Trobaugh, who is based in Orange County. Realtors and homebuyers buy reports from his company.

Trobaugh figures it’s usually a human error in data entry. When he discovers errors, he notifies the county. Some of the worst mistakes he’s seen, he said, are homes being taxed by a city that is different from where they’re located.

If there’s any agreement in this flurry of tax questioning, it may be that property tax bills are confusing, with various taxes and assessments calculated in different ways, and that the only way to really know how big your house is today is by getting out the tape measure and measuring it yourself.

But even if you do this, what space to count or not count depends on who is asking for the information, and why.

City spokesperson Chakko said the recent attention on taxes is leading Berkeley to take a closer look at how it presents this information to the public.

“If we can improve this system we’re going to see if we can do it,” Chakko said. “We want to try to figure out a way to make it easier.”

Update 11/30 – Court document links

Superior Court Ruling 9/4/19

Small Claims judgment vacating first small claims ruling 6/6/19

City of Berkeley brief appeal of small claims 6/6 ruling

Sample special tax ballot with tax calculation language 

Measure GG, Fire Protection and Emergency Response, Approved by voters 11/4/08 

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