I agree with you, but not because the Xerox decision is internally inconsistent. I don't think it is. However, your situation is inconsistent with this decision, which holds:
[Sorry about the bolding, I wasn't able to turn it off.]
However, the following is in the State of California's Board of Equalization Assessor's Handbook Sections 504 and 576:
In Xerox Corporation v. County of Orange, (1977) 66 Cal.App.3d 746,139 the Court indicated that under the market value concept, where price is the basis of value, the sales tax and freight charges are elements of value (page 74).
Page 93 states, "Additional elements of value seldom reflected in sales comparison
value guides are sales tax, freight, discounts, and other costs unique to specific equipment. These costs must be added to (or subtracted from) the sales price of equipment where appropriate to arrive at full cash value for property tax purposes."
I am also using Assessor's Handbook 576, http://www.boe.ca.gov/proptaxes/pdf/ah576.pdf "Sales tax, an element of value, is not included in the values shown in any of the value guide books and the appropriate tax should be added to the listed value to arrive at full cash value for property tax purposes." (page 13)
So, although I think you are right on this issue, the Assessor's Handbooks give different guidelines - which means that it is going to be hard to convince them they are wrong.