BILL NUMBER: SB 1607	CHAPTERED  09/07/06

	CHAPTER  224
	FILED WITH SECRETARY OF STATE  SEPTEMBER 7, 2006
	APPROVED BY GOVERNOR  SEPTEMBER 7, 2006
	PASSED THE SENATE  AUGUST 16, 2006
	PASSED THE ASSEMBLY  AUGUST 10, 2006
	AMENDED IN ASSEMBLY  JUNE 14, 2006
	AMENDED IN SENATE  APRIL 6, 2006

INTRODUCED BY   Senator Machado

                        FEBRUARY 24, 2006

   An act to amend Sections 214, 214.8, 254.5, 254.6, and 1840 of the
Revenue and Taxation Code, and to amend Section 2 of Chapter 48 of
the Statutes of 1987, relating to taxation.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1607, Machado  Property taxation.
   (1) The California Constitution generally limits ad valorem taxes
on real property to 1% of the full cash value of that property. For
purposes of this limitation, "full cash value" is defined as the
assessor's valuation of real property as shown on the 1975-76 tax
bill under "full cash value" or, thereafter, the appraised value of
that real property when purchased, newly constructed, or a change in
ownership has occurred. The California Constitution and existing
property tax law exclude from a "change in ownership" specified
property transfers between parents and their children and
grandparents and their grandchildren. Existing law states the intent
of the Legislature that the statute excluding from a "change in
ownership" property transfers between parents and their children be
liberally construed, as specified.
   This bill would state the intent of the Legislature that the
statute excluding from a "change in ownership" property transfers
between grandparents and their grandchildren also be liberally
construed, as specified.
   (2) Existing property tax law, in accordance with the California
Constitution, provides for a "welfare exemption" for property that is
used exclusively for religious, hospital, or charitable purposes if
certain conditions are met. Existing law specifies that exempt
property does not lose that status under the welfare exemption
because another organization also uses the property, if the other
organization meets certain conditions, including a condition that the
other organization's owner submit an organizational clearance
certificate with the county assessor, as specified.
   This bill would instead require either the owner of the exempt
property or the other organization that uses the exempt property to
submit to the assessor a letter or ruling from the Franchise Tax
Board or the Internal Revenue Service regarding the tax-exempt status
of the organization under state or federal income tax laws, as
provided.
   (3) Existing law specifies that the property of a limited
liability company may qualify for the welfare exemption if that
company and its property meet all of the requirements set forth for
that exemption.
   This bill would clarify that a limited liability company that has
a governmental entity or a nonprofit organization as a member may
qualify as an exempt entity. This bill would also specify that each
nonprofit tax-exempt member of a limited liability company is to
submit to the State Board of Equalization a letter or ruling from the
Franchise Tax Board or the Internal Revenue Service regarding the
tax-exempt status of the member under state or federal income tax
laws, as provided. This bill would also make technical changes
regarding limited liability companies and the welfare exemption.
   (4) Existing law establishes a veterans' organization property tax
exemption. Existing law prohibits the county assessor from approving
a claim for the veterans' organization exemption or welfare
exemption until the claimant has received an organizational clearance
certificate, as specified, from the State Board of Equalization.
Existing law requires board staff to issue an organizational
clearance certificate to an entity that qualifies for the property
tax welfare exemption, but does not expressly require the board staff
to issue an organizational clearance certificate to an organization
that seeks the veterans' organization exemption.
   This bill would similarly require board staff to issue an
organizational clearance certificate to an entity that qualifies for
the veterans' organization exemption. This bill also would make
conforming changes to related provisions.
   (5) The California Constitution generally exempts property that is
owned by a local government from property taxation, except in
certain instances. Existing law authorizes a county, city and county,
or municipal corporation that owns taxable property to apply to the
State Board of Equalization for a review, equalization, or adjustment
of a property tax assessment relating to this property. Existing law
requires that this application be submitted to the board on or
before the later of either the 3rd Monday in July or within 2 weeks
of the date upon which a county assessor delivers that assessment to
the county auditor.
   This bill would instead require that this application be submitted
to the board on or before the later of either July 20 or within 2
weeks of the date upon which a county assessor delivers the
assessment to the county auditor.
   (6) By changing the manner in which county officials process
claims for the veterans' organization exemption, this bill would
impose a state-mandated local program.
  The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that, if the Commission on State Mandates
determines that the bill contains costs mandated by the state,
reimbursement for those costs shall be made pursuant to these
statutory provisions.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 214 of the Revenue and Taxation Code is amended
to read:
   214.  (a) Property used exclusively for religious, hospital,
scientific, or charitable purposes owned and operated by community
chests, funds, foundations, limited liability companies, or
corporations organized and operated for religious, hospital,
scientific, or charitable purposes is exempt from taxation, including
ad valorem taxes to pay the interest and redemption charges on any
indebtedness approved by the voters prior to July 1, 1978, or any
bonded indebtedness for the acquisition or improvement of real
property approved on or after July 1, 1978, by two-thirds of the
votes cast by the voters voting on the proposition, if:
   (1) The owner is not organized or operated for profit. However, in
the case of hospitals, the organization shall not be deemed to be
organized or operated for profit if, during the immediately preceding
fiscal year, operating revenues, exclusive of gifts, endowments and
grants-in-aid, did not exceed operating expenses by an amount
equivalent to 10 percent of those operating expenses. As used herein,
operating expenses include depreciation based on cost of replacement
and amortization of, and interest on, indebtedness.
   (2) No part of the net earnings of the owner inures to the benefit
of any private shareholder or individual.
   (3) The property is used for the actual operation of the exempt
activity, and does not exceed an amount of property reasonably
necessary to the accomplishment of the exempt purpose.
   (A) For the purposes of determining whether the property is used
for the actual operation of the exempt activity, consideration shall
not be given to use of the property for either or both of the
following described activities if that use is occasional:
   (i) The owner conducts fundraising activities on the property and
the proceeds derived from those activities are not unrelated business
taxable income, as defined in Section 512 of the Internal Revenue
Code, of the owner and are used to further the exempt activity of the
owner.
   (ii) The owner permits any other organization that meets all of
the requirements of this subdivision, other than ownership of the
property, to conduct fundraising activities on the property and the
proceeds derived from those activities are not unrelated business
taxable income, as defined in Section 512 of the Internal Revenue
Code, of the organization, are not subject to the tax on unrelated
business taxable income that is imposed by Section 511 of the
Internal Revenue Code, and are used to further the exempt activity of
the organization.
   (B) For purposes of subparagraph (A):
   (i) "Occasional use" means use of the property on an irregular or
intermittent basis by the qualifying owner or any other qualifying
organization described in clause (ii) of subparagraph (A) that is
incidental to the primary activities of the owner or the other
organization.
   (ii) "Fundraising activities" means both activities involving the
direct solicitation of money or other property and the anticipated
exchange of goods or services for money between the soliciting
organization and the organization or person solicited.
   (C) Subparagraph (A) shall have no application in determining
whether paragraph (3) has been satisfied unless the owner of the
property and any other organization using the property as provided in
subparagraph (A) have filed with the assessor a valid organizational
clearance certificate issued pursuant to Section 254.6.
   (D) For the purposes of determining whether the property is used
for the actual operation of the exempt activity, consideration shall
not be given to the use of the property for meetings conducted by any
other organization if the meetings are incidental to the other
organization's primary activities, are not fundraising meetings or
activities as defined in subparagraph (B), are held no more than once
per week, and the other organization and its use of the property
meet all other requirements of paragraphs (1) to (5), inclusive, of
this subdivision. The owner or the other organization also shall file
with the assessor a copy of a valid, unrevoked letter or ruling from
the Internal Revenue Service or the Franchise Tax Board stating that
the other organization, or the national organization of which it is
a local chapter or affiliate, qualifies as an exempt organization
under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code or
Section 23701d, 23701f, or 23701w.
   (E) Nothing in subparagraph (A), (B), (C), or (D) shall be
construed to either enlarge or restrict the exemption provided for in
subdivision (b) of Section 4 and Section 5 of Article XIII of the
California Constitution and this section.
   (4) The property is not used or operated by the owner or by any
other person so as to benefit any officer, trustee, director,
shareholder, member, employee, contributor, or bondholder of the
owner or operator, or any other person, through the distribution of
profits, payment of excessive charges or compensations, or the more
advantageous pursuit of their business or profession.
   (5) The property is not used by the owner or members thereof for
fraternal or lodge purposes, or for social club purposes except where
that use is clearly incidental to a primary religious, hospital,
scientific, or charitable purpose.
   (6) The property is irrevocably dedicated to religious,
charitable, scientific, or hospital purposes and upon the
liquidation, dissolution, or abandonment of the owner will not inure
to the benefit of any private person except a fund, foundation, or
corporation organized and operated for religious, hospital,
scientific, or charitable purposes.
   (7) The property, if used exclusively for scientific purposes, is
used by a foundation or institution that, in addition to complying
with the foregoing requirements for the exemption of charitable
organizations in general, has been chartered by the Congress of the
United States (except that this requirement shall not apply when the
scientific purposes are medical research), and whose objects are the
encouragement or conduct of scientific investigation, research, and
discovery for the benefit of the community at large.
   The exemption provided for herein shall be known as the "welfare
exemption." This exemption shall be in addition to any other
exemption now provided by law, and the existence of the exemption
provision in paragraph (2) of subdivision (a) of Section 202 shall
not preclude the exemption under this section for museum or library
property.  Except as provided in subdivision (e), this section shall
not be construed to enlarge the college exemption.
   (b) Property used exclusively for school purposes of less than
collegiate grade and owned and operated by religious, hospital, or
charitable funds, foundations, limited liability companies, or
corporations, which property and funds, foundations, limited
liability companies, or corporations meet all of the requirements of
subdivision (a), shall be deemed to be within the exemption provided
for in subdivision (b) of Section 4 and Section 5 of Article XIII of
the California Constitution and this section.
   (c) Property used exclusively for nursery school purposes and
owned and operated by religious, hospital, or charitable funds,
foundations, limited liability companies, or corporations, which
property and funds, foundations, limited liability companies, or
corporations meet all the requirements of subdivision (a), shall be
deemed to be within the exemption provided for in subdivision (b) of
Section 4 and Section 5 of Article XIII of the California
Constitution and this section.
   (d) Property used exclusively for a noncommercial educational FM
broadcast station or an educational television station, and owned and
operated by religious, hospital, scientific, or charitable funds,
foundations, limited liability companies, or corporations meeting all
of the requirements of subdivision (a), shall be deemed to be within
the exemption provided for in subdivision (b) of Section 4 and
Section 5 of Article XIII of the California Constitution and this
section.
   (e) Property used exclusively for religious, charitable,
scientific, or hospital purposes and owned and operated by religious,
hospital, scientific, or charitable funds, foundations, limited
liability companies, or corporations or educational institutions of
collegiate grade, as defined in Section 203, which property and
funds, foundations, limited liability companies, corporations, or
educational institutions meet all of the requirements of subdivision
(a), shall be deemed to be within the exemption provided for in
subdivision (b) of Section 4 and Section 5 of Article XIII of the
California Constitution and this section. As to educational
institutions of collegiate grade, as defined in Section 203, the
requirements of paragraph (6) of subdivision (a) shall be deemed to
be met if both of the following are met:
   (1) The property of the educational institution is irrevocably
dedicated in its articles of incorporation to charitable and
educational purposes, to religious and educational purposes, or to
educational purposes.
   (2) The articles of incorporation of the educational institution
provide for distribution of its property upon its liquidation,
dissolution, or abandonment to a fund, foundation, or corporation
organized and operated for religious, hospital, scientific,
charitable, or educational purposes meeting the requirements for
exemption provided by Section 203 or this section.
   (f) Property used exclusively for housing and related facilities
for elderly or handicapped families and financed by, including, but
not limited to, the federal government pursuant to Section 202 of
Public Law 86-372 (12 U.S.C. Sec.  1701q), as amended, Section 231 of
Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law
90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625
(42 U.S.C. Sec. 8013), and owned and operated by religious, hospital,
scientific, or charitable funds, foundations, limited liability
companies, or corporations meeting all of the requirements of this
section shall be deemed to be within the exemption provided for in
subdivision (b) of Section 4 and Section 5 of Article XIII of the
California Constitution and this section.
   The amendment of this paragraph made by Chapter 1102 of the
Statutes of 1984 does not constitute a change in, but is declaratory
of, existing law. However, no refund of property taxes shall be
required as a result of this amendment for any fiscal year prior to
the fiscal year in which the amendment takes effect.
   Property used exclusively for housing and related facilities for
elderly or handicapped families at which supplemental care or
services designed to meet the special needs of elderly or handicapped
residents are not provided, or that is not financed by the federal
government pursuant to Section 202 of Public Law 86-372 (12 U.S.C.
Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C.
Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec.
1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013),
shall not be entitled to exemption pursuant to this subdivision
unless the property is used for housing and related facilities for
low- and moderate-income elderly or handicapped families. Property
that would otherwise be exempt pursuant to this subdivision, except
that it includes some housing and related facilities for other than
low- or moderate-income elderly or handicapped families, shall be
entitled to a partial exemption. The partial exemption shall be equal
to that percentage of the value of the property that is equal to the
percentage that the number of low- and moderate-income elderly and
handicapped families occupying the property represents of the total
number of families occupying the property.
   As used in this subdivision, "low and moderate income" has the
same meaning as the term "persons and families of low or moderate
income" as defined by Section 50093 of the Health and Safety Code.
   (g) (1) Property used exclusively for rental housing and related
facilities and owned and operated by religious, hospital, scientific,
or charitable funds, foundations, limited liability companies, or
corporations, including limited partnerships in which the managing
general partner is an eligible nonprofit corporation or eligible
limited liability company, meeting all of the requirements of this
section, or by veterans' organizations, as described in Section
215.1, meeting all the requirements of paragraphs (1) to (7),
inclusive, of subdivision (a), shall be deemed to be within the
exemption provided for in subdivision (b) of Section 4 and Section 5
of Article XIII of the California Constitution and this section and
shall be entitled to a partial exemption equal to that percentage of
the value of the property that the portion of the property serving
lower income households represents of the total property in any year
in which either of the following criteria applies:
   (A) The acquisition, rehabilitation, development, or operation of
the property, or any combination of these factors, is financed with
tax-exempt mortgage revenue bonds or general obligation bonds, or is
financed by local, state, or federal loans or grants and the rents of
the occupants who are lower income households do not exceed those
prescribed by deed restrictions or regulatory agreements pursuant to
the terms of the financing or financial assistance.
   (B) The owner of the property is eligible for and receives
low-income housing tax credits pursuant to Section 42 of the Internal
Revenue Code of 1986, as added by Public Law 99-514.
   (C) In the case of a claim, other than a claim with respect to
property owned by a limited partnership in which the managing general
partner is an eligible nonprofit corporation, that is filed for the
2000-01 fiscal year or any fiscal year thereafter, 90 percent or more
of the occupants of the property are lower income households whose
rent does not exceed the rent prescribed by Section 50053 of the
Health and Safety Code. The total exemption amount allowed under this
subdivision to a taxpayer, with respect to a single property or
multiple properties for any fiscal year on the sole basis of the
application of this subparagraph, may not exceed twenty thousand
dollars ($20,000) of tax.
   (2) In order to be eligible for the exemption provided by this
subdivision, the owner of the property shall do both of the
following:
   (A) (i) For any claim filed for the 2000-01 fiscal year or any
fiscal year thereafter, certify and ensure, subject to the limitation
in clause (ii), that there is an enforceable and verifiable
agreement with a public agency, a recorded deed restriction, or other
legal document that restricts the project's usage and that provides
that the units designated for use by lower income households are
continuously available to or occupied by lower income households at
rents that do not exceed those prescribed by Section 50053 of the
Health and Safety Code, or, to the extent that the terms of federal,
state, or local financing or financial assistance conflicts with
Section 50053, rents that do not exceed those prescribed by the terms
of the financing or financial assistance.
   (ii) In the case of a limited partnership in which the managing
general partner is an eligible nonprofit corporation, the restriction
and provision specified in clause (i) shall be contained in an
enforceable and verifiable agreement with a public agency, or in a
recorded deed restriction to which the limited partnership certifies.

   (B) Certify that the funds that would have been necessary to pay
property taxes are used to maintain the affordability of, or reduce
rents otherwise necessary for, the units occupied by lower income
households.
   (3) As used in this subdivision, "lower income households" has the
same meaning as the term "lower income households" as defined by
Section 50079.5 of the Health and Safety Code.
   (h) Property used exclusively for an emergency or temporary
shelter and related facilities for homeless persons and families and
owned and operated by religious, hospital, scientific, or charitable
funds, foundations, limited liability companies, or corporations
meeting all of the requirements of this section shall be deemed to be
within the exemption provided for in subdivision (b) of Section 4
and Section 5 of Article XIII of the California Constitution and this
section. Property that otherwise would be exempt pursuant to this
subdivision, except that it includes housing and related facilities
for other than an emergency or temporary shelter, shall be entitled
to a partial exemption.
   As used in this subdivision, "emergency or temporary shelter"
means a facility that would be eligible for funding pursuant to
Chapter 11 (commencing with Section 50800) of Part 2 of Division 31
of the Health and Safety Code.
   (i) Property used exclusively for housing and related facilities
for employees of religious, charitable, scientific, or hospital
organizations that meet all the requirements of subdivision (a) and
owned and operated by funds, foundations, limited liability
companies, or corporations that meet all the requirements of
subdivision (a) shall be deemed to be within the exemption provided
for in subdivision (b) of Section 4 and Section 5 of Article XIII of
the California Constitution and this section to the extent the
residential use of the property is institutionally necessary for the
operation of the organization.
   (j) For purposes of this section, charitable purposes include
educational purposes. For purposes of this subdivision, "educational
purposes" means those educational purposes and activities for the
benefit of the community as a whole or an unascertainable and
indefinite portion thereof, and do not include those educational
purposes and activities that are primarily for the benefit of an
organization's shareholders. Educational activities include the study
of relevant information, the dissemination of that information to
interested members of the general public, and the participation of
interested members of the general public.
   (k) In the case of property used exclusively for the exempt
purposes specified in this section, owned and operated by limited
liability companies that are organized and operated for those
purposes, the State Board of Equalization shall adopt regulations to
specify the ownership, organizational, and operational requirements
for those companies to qualify for the exemption provided by this
section.
   (l) The amendments made by Chapter 354 of the Statutes of 2004
shall apply with respect to lien dates occurring on and after January
1, 2005.
  SEC. 2.  Section 214.8 of the Revenue and Taxation Code is amended
to read:
   214.8.  (a) Except as provided in Sections 213.7 and 231, and as
provided in subdivision (g) of Section 214 with respect to veterans'
organizations, the "welfare exemption" shall not be granted to any
organization unless it is qualified as an exempt organization under
either Section 23701d of this code or Section 501(c)(3) of the
Internal Revenue Code. This section shall not be construed to enlarge
the "welfare exemption" to apply to organizations qualified under
Section 501(c)(3) of the Internal Revenue Code of 1954 but not
otherwise qualified for the "welfare exemption" under other
provisions of this code.
   The exemption for veterans' organizations shall not be granted to
any organization unless it is qualified as an exempt organization
under either Section 23701f or 23701w of this code or under Section
501(c)(4) or 501(c)(19) of the Internal Revenue Code. This section
shall not be construed to enlarge the "veterans' organization
exemption" to apply to organizations qualified under Section 501(c)
(4) or 501(c)(19) of the Internal Revenue Code but not otherwise
qualified for the "veterans' organization exemption" under other
provisions of this code.
   (b) For purposes of subdivision (a), an organization shall not be
deemed to be qualified as an exempt organization unless the
organization files with the assessor a valid organizational clearance
certificate issued pursuant to Section 254.6.
   (c) (1) For purposes of subdivision (a), a limited liability
company wholly owned by one or more qualifying organizations, which
may include governmental entities and nonprofit organizations, that
are exempt under Section 23701d or under Section 501(c)(3) of the
Internal Revenue Code shall qualify as an exempt organization.
   (2) In the case of a limited liability company that does not have
a valid unrevoked letter from the Franchise Tax Board or the Internal
Revenue Service, the limited liability company may not be deemed to
be qualified as an exempt organization unless each nonprofit
tax-exempt member of the limited liability company files with the
board a copy of a valid, unrevoked letter or ruling from either the
Franchise Tax Board or the Internal Revenue Service that states that
the organization qualifies as an exempt organization under the
appropriate provisions of the Revenue and Taxation Code or the
Internal Revenue Code.
   (d) The amendments made by the act adding this subdivision shall
apply with respect to lien dates occurring on and after January 1,
2005.
  SEC. 3.  Section 254.5 of the Revenue and Taxation Code is amended
to read:
   254.5.  (a) Claims for the welfare exemption and the veterans'
organization exemption shall be filed on or before February 15 of
each year with the assessor.
   The assessor may not approve a property tax exemption claim until
the claimant has been issued a valid organizational clearance
certificate pursuant to Section 254.6. Financial statements shall be
submitted only if requested in writing by the assessor.
   (b) (1) The assessor shall review all claims for the welfare
exemption to ascertain whether the property on which the exemption is
claimed meets the requirements of Section 214. The assessor shall
also review all claims for the veterans' organization exemption to
ascertain whether the property on which the exemption is claimed
meets the requirements of Section 215.1. In this connection, the
assessor shall consider, among other matters, whether:
   (A) Any capital investment of the owner or operator for expansion
of a physical plant is justified by the contemplated return thereon,
and required to serve the interests of the community.
   (B) The property on which the exemption is claimed is used for the
actual operation of an exempt activity and does not exceed an amount
of property reasonably necessary to the accomplishment of the exempt
purpose.
   (2) The assessor may institute an audit or verification of the
operations of the owner or operator of the applicant's property to
ascertain whether both the owner and operator meet the requirements
of Section 214.
   (c) (1) The assessor may deny a claim for the welfare exemption on
a property, notwithstanding that the claimant has been granted an
organizational clearance certificate by the board.
   (2) If the assessor finds that the claimant's property is
ineligible for the welfare exemption or the veterans' organization
exemption, the assessor shall notify the claimant in writing of all
of the following:
   (A) That the property is ineligible for the exemption.
   (B) That the claimant may seek a refund of property taxes paid by
filing a refund claim with the county.
   (C) That if the claimant's refund claim with the county is denied,
the claimant may file a refund action in superior court.
   (d) Notwithstanding subdivision (a), an applicant, granted a
welfare exemption and owning any property exempted pursuant to
Section 214.15 or Section 231, shall not be required to reapply for
the welfare exemption in any subsequent year in which there has been
no transfer of, or other change in title to, the exempted property
and the property is used exclusively by a governmental entity or by a
nonprofit corporation described in Section 214.15 for its interest
and benefit. The applicant shall notify the assessor on or before
February 15 if, on or before the preceding lien date, the applicant
became ineligible for the welfare exemption or if, on or before that
lien date, the property was no longer owned by the applicant or
otherwise failed to meet all requirements for the welfare exemption.

   Prior to the lien date, the assessor shall annually mail a notice
to every applicant relieved of the requirement of filing an annual
application by this subdivision.
   The notice shall be in a form and contain that information that
the board may prescribe, and shall set forth the circumstances under
which the property may no longer be eligible for exemption, and
advise the applicant of the duty to inform the assessor if the
property is no longer eligible for exemption.
   The notice shall include a card that is to be returned to the
assessor by any applicant desiring to maintain eligibility for the
welfare exemption under Section 214.15 or Section 231. The card shall
be in the following form:
   To all persons who have received a welfare exemption under Section
214.15 or Section 231 of the Revenue and Taxation Code for the ____
fiscal year.  Question:  Will the property to which the exemption
applies in the ____ fiscal year continue to be used exclusively by
government or by an organization as described in Section 214.15 for
its interest and benefit in the ____ fiscal year

      YES ___   NO ___
    Signature: ____________ Title: ______________ Failure to return
this card does not of itself constitute a waiver of exemption as
called for by the California Constitution, but may result in onsite
inspection to verify exempt activity.

   (e) Upon any indication that a welfare exemption or veterans'
organization exemption on the property has been incorrectly granted,
the assessor shall redetermine eligibility for the exemption. If the
assessor determines that the property, or any portion thereof, is no
longer eligible for the exemption, he or she shall immediately cancel
the exemption on so much of the property as is no longer eligible
for the exemption.
   (f) If a welfare exemption or veterans' organization exemption on
the property has been incorrectly allowed, an escape assessment as
provided by Article 4 (commencing with Section 531) of Chapter 3 in
the amount of the exemption, with interest as provided in Section
506, shall be made, and a penalty shall be assessed for any failure
to notify the assessor as required by this section in an amount
equaling 10 percent of the escape assessment, but may not exceed two
hundred fifty dollars ($250).
        (g) Pursuant to Section 15640 of the Government Code, the
board shall review the assessor's administration of the welfare
exemption and the veterans' organization exemption as part of the
board's survey of the county assessment roll to ensure the proper
administration of the exemption.
  SEC. 4.  Section 254.6 of the Revenue and Taxation Code is amended
to read:
   254.6.  (a) An organization that intends to claim the welfare
exemption or veterans' organization exemption shall file with the
State Board of Equalization a claim for an organizational clearance
certificate.
   (b) The board staff shall review each claim for an organizational
clearance certificate for the welfare exemption to ascertain whether
the organization meets the requirements of Section 214 and shall
issue a certificate to a claimant that meets these requirements. The
board staff shall also review each claim for an organizational
clearance certificate for the veterans' organization exemption to
ascertain whether the organization meets the requirements of Section
215.1 and shall issue a certificate to a claimant that meets these
requirements. In this connection, the board staff shall consider,
among other matters, whether:
   (1) The services and expenses of the owner or operator (including
salaries) are excessive, based upon like services and salaries in
comparable public or private institutions.
   (2) The operations of the owner or operator, either directly or
indirectly, materially enhance the private gain of any individual or
individuals.
   (c) Any claim of any organization that files for an organizational
clearance certificate for the first time shall be accompanied by the
claimant's corporate identification number, mailing address, and all
of the following documents:
   (1) A certified copy of the financial statements of the
organization.
   (2) A certified copy of the articles of incorporation and any
amendments thereto, or in the case of any noncorporate fund or
foundation, its bylaws, articles of association, constitution, or
regulations and any amendments thereto.
   (3) A copy of a valid, unrevoked letter or ruling from either the
Franchise Tax Board or, in the alternative, the Internal Revenue
Service, that states that the organization qualifies as an exempt
organization under the appropriate provisions of the Bank and
Corporation Tax Law or the Internal Revenue Code.
   (d) (1) If the board staff determines that a claimant is not
eligible for an organizational clearance certificate, the board shall
notify the claimant of the ineligibility.
   (2) The claimant may file an appeal of the board staff's finding
of ineligibility with the board within 60 days of the date of mailing
of the notice of ineligibility. The appeal of the board staff's
finding shall be in writing and shall state the specific grounds upon
which the appeal is founded.
   (3) The board shall conduct a hearing on the appeal in accordance
with any rules of notice, procedure, and briefing as the board shall
prescribe. The parties to the hearing or proceeding shall be the
board staff and the claimant appealing the finding of ineligibility.
The board staff and the claimant may agree in writing to submit the
matter to the board for a decision without a hearing. The board shall
provide written findings and conclusions or a written decision to
support its decision.
   (e) (1) Once granted, an organizational clearance certificate for
the welfare exemption remains valid until the board staff determines
that the organization no longer meets the requirements of Section
214. Once granted, an organizational clearance certificate for the
veterans' organization exemption remains valid until the board staff
determines that the organization no longer meets the requirements of
Section 215.1.
   (2) If the board staff determines that the organization no longer
meets the requirements for an organizational clearance certificate,
the board staff shall revoke the certificate and notify the claimant
and each county assessor of the revocation.
   (3) The organization may file an appeal of the board staff's
revocation with the board within 60 days of the date of mailing of
the notice revocation. The appeal of the revocation shall be in
writing and shall state the specific grounds upon which the appeal is
founded.
   (4) The board shall conduct a hearing on the appeal in accordance
with any rules of notice, procedure, and briefing as the board shall
prescribe. The parties to the hearing or proceeding shall be the
board staff and the claimant appealing the finding of ineligibility.
The board staff and the claimant may agree in writing to submit the
matter to the board for decision without hearing. The board shall
provide written findings and conclusions or a written decision to
support its decision.
   (f) Pursuant to Section 15618 of the Government Code, the board
may institute an audit or verification of an organization to
ascertain whether the organization meets the requirements of Section
214.
  SEC. 5.  Section 1840 of the Revenue and Taxation Code is amended
to read:
   1840.  If any county, city and county, or municipal corporation
desires to secure a review, equalization, or adjustment of the
assessment of its property by the board pursuant to subdivision (g)
of Section 11 of Article XIII of the California Constitution, it
shall apply to the board therefor in writing on or before July 20, or
within two weeks after the completion and delivery by the assessor
of the local roll containing the assessment to the auditor as
provided in Section 617, whichever is the later. If the assessment
objected to is one made outside the regular period for such
assessments, the application for review shall be filed with the board
within 60 days from the date the tax bill is mailed to the assessee.

   Every application shall show the facts claimed to require action
of the board, and a copy thereof shall be filed with the assessor
whose assessment is questioned. Upon receipt of a timely application,
the board shall afford the applicant notice and a hearing in
accordance with such rules and regulations as the board may
prescribe. The failure to file a timely application shall bar the
applicant from relief under subdivision (g) of Section 11 of Article
XIII or this section.
  SEC. 6.  Section 2 of Chapter 48 of the Statutes of 1987 is amended
to read:
  Sec. 2.  (a) It is the intent of the Legislature that the
provisions of Section 63.1 of the Revenue and Taxation Code shall be
liberally construed in order to carry out the intent of both of the
following:
   (1) Proposition 58 on the November 4, 1986, general election
ballot to exclude from change in ownership purchases or transfers
between parents and their children described therein.
   (2) Proposition 193 on the March 26, 1996, primary election ballot
to exclude from change in ownership purchases or transfers between
grandparents and their grandchildren described therein.
   (b) Specifically, transfers of real property from a corporation,
partnership, trust, or other legal entity to an eligible transferor
or transferors, where the latter are the sole owner or owners of the
entity or are the sole beneficial owner or owners of the property,
shall be fully recognized and shall not be ignored or given less than
full recognition under a substance-over-form or step-transaction
doctrine, where the sole purpose of the transfer is to permit an
immediate retransfer from an eligible transferor or transferors to an
eligible transferee or transferees which qualifies for the exclusion
from change in ownership provided by Section 63.1. Further,
transfers of real property between eligible transferors and eligible
transferees shall also be fully recognized when the transfers are
immediately followed by a transfer from the eligible transferee or
eligible transferees to a corporation, partnership, trust, or other
legal entity where the transferee or transferees are the sole owner
or owners of the entity or are the sole beneficial owner or owners of
the property, if the transfer between eligible transferors and
eligible transferees satisfies the requirements of Section 63.1.
   (c) Except as provided herein, this section shall not be construed
as an expression of intent on the part of the Legislature
disapproving in principle the appropriate application of the
substance-over-form or step-transaction doctrine.
  SEC. 7.  If the Commission on State Mandates determines that this
act contains costs mandated by the state, reimbursement to local
agencies and school districts for those costs shall be made pursuant
to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of
the Government Code.