BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 79 - Duvall
Amended: May 21, 2009
Urgency
Hearing: June 24, 2009 Fiscal: Yes
SUMMARY: Adds to Disaster Provisions in the Personal Income
Tax Law, Corporation Tax Law, and Property Tax for
Orange, Riverside, and San Bernardino Counties, and
taxpayers in those counties, affected by the 2008
Southern California wildfires.
INCOME AND CORPORATION TAXES :
EXISTING STATE AND FEDERAL LAW allows taxpayers to
deduct disaster losses in the year the loss occurs or in
the preceding year by filing an amended return. Disaster
losses result from fires, storms, floods or other natural
events proclaimed a disaster by the President or the
Governor. Disaster losses are the amounts not compensated
for by insurance or other means.
EXISTING FEDERAL LAW, which California conforms to,
only allows loss deductions for personal income taxes that
exceed $100 per taxpayer and 10% of their adjusted gross
income for the year.
EXISTING STATE LAW limits disaster losses for
corporate taxpayers to the amounts set by state law for net
operating losses - 55% for 2000 and 2001, 60% for 2002 and
2003, and 100% for 2004 and thereafter - and the
carry-forward to five years. State law allows a limited
percentage to be carried forward up to 10 years
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Starting with the forest fires in 1985, and
approximately 30 times thereafter for various disasters,
the Legislature enacted measures that allow a 100%
carry-forward of excess disaster losses for up to five
years and a carry-forward of the excess disaster losses
under the above percentages for up to an additional 10
years.
THIS BILL enacts identical allowances for taxpayers
with excess disaster losses in Orange, Riverside, and San
Bernardino resulting from wildfires in those counties
occurring in 2008.
PROPERTY TAXES :
EXISTING LAW allows counties to adopt ordinances
allowing taxpayers to apply for a reassessment of property
destroyed or damaged by "a major misfortune or calamity" if
the Governor proclaims a disaster. Taxes that had
previously been paid are deemed "excess" as a result of a
downward reassessment and are refunded to the taxpayer.
County Assessors must defer the payment of property taxes
when they receive a timely filed application from an
affected taxpayer.
Beginning in 1990, the Legislature provided state
reimbursement of property tax revenue losses to local
governments resulting from the downward-reassessment of
damaged or destroyed properties for most disasters for one
year.
THIS BILL enacts identical provisions that require the
state to backfill first-year local revenue losses resulting
from the reassessment of property in Orange, Riverside, and
San Bernardino resulting from wildfires in those counties
occurring in 2008
THIS BILL requires that each affected county certify
to the Director of Finance an estimate of the amount of
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reduced 2008-09 property tax revenues resulting from
reassessment by October 30, 2009. The Director of Finance
then verifies and certifies the revenue loss estimate to
the Controller, who then sends the certified amount to the
affected county. Before June 30, 2010, each affected
county must remit to the Controller any overestimated
balance. If the loss was underestimated, the Controller
must return the difference to the affected county.
PROPERTY TAXES (HOMEOWNERS' EXEMPTION) :
EXISTING LAW provides a homeowners' exemption from
property taxes equal to $7,000 in assessed value (at a one
percent property tax rate, the exemption reduces property
taxes by roughly $70) for owner-occupied homes. Once
granted, homeowners' exemptions are generally permanent.
However, an Assessor may deny a homeowner's exemption if
the property becomes vacant or is under construction as of
the January 1st lien date.
THIS BILL provides that Assessors may not disqualify
an otherwise qualified residence for a homeowners'
exemption solely on the basis that the dwelling was
temporarily damaged, destroyed, under reconstruction by the
owner, or temporarily uninhabited as a result of restricted
access to the property due to the Orange, Riverside, and
San Bernardino resulting from wildfires in those counties
occurring in 2008
FISCAL EFFECT:
Franchise Tax Board estimates income tax revenue
losses of $3,000 in 2008-09, and gains of $2,000 in 2009-10
and $1,000 2010-11, due to accelerated claims on amended
returns, as result of disaster loss treatment.
Board of Equalization estimates a state revenue loss
of approximately $7,351 annually due to homeowners'
exemption provisions, and a $635,592 subvention in 2009-10
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for first-year backfill of downwardly-reassessed property.
COMMENTS:
A. Purpose of the Bill
According to the Author, "AB 79 will allow state
allocations from this fund to be made available to the
County of Orange with respect to property tax revenue
reductions resulting from a reassessment for damages as a
result of the fires. It would also allow a property tax
exemption in the amount of $7,000 of the full value of the
'dwelling', and would apply to any dwelling that qualified
for the exemption prior to the declaration of emergency
regardless of damage as a result of the fire. Lastly, the
bill will authorize a taxpayer to make an election to claim
a deduction for those losses on the tax return for the
preceding year. This bill will provide much needed
financial assistance to counties that were devastated by
these fires.
B. A Better Way
Through last year, the Legislature has amended Revenue
and Taxation Code 218 fourteen times for separate
disasters to ensure that Assessors may not deny homeowners'
exemptions for disaster-related reasons, added 33 code
sections to allow for excess disaster losses for both the
Personal Income Tax Law and the Corporation Tax Law, and
enacted 90 sections providing for the first year backfill
of local property tax losses resulting from disaster
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reassessments. The Legislature always enacts these
provisions when disaster strikes, so why not enact a
statute which triggers these tax benefits whenever the
Governor declares a disaster?
However, efforts to mandate consistency have stalled.
In 2005-06, AB 3039 (Houston) and SB 1607 (Machado)
attempted to change this statute to provide statewide
protection, thereby ensuring that future disaster-specific
measures were not necessary. The Assembly Revenue and
Taxation Committee held AB 3039, and deleted the relevant
provision from SB 1607, which was subsequently enacted.
Additionally, the Governor directed the Office of Emergency
Services and the Office of Planning and Research to work
with the Legislature to enact standard purpose legislation
when he signed a disaster-specific bill (AB 18, La Malfa,
2005). The Legislature has previously enacted statewide
legislation in response to a flurry of local
jurisdiction-specific bills, notably in the areas of
transaction and use taxes (SB 566, Scott, 2003), and
disputes over property tax allocation errors (AB 169,
Wiggins, 2001).
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C. When Disaster Strikes
The Committee will also hear AB 15 (Fuentes) at its
June 24, 2009 hearing, which enacts identical provisions
for Orange, Riverside, and San Bernardino Counties.
Support and Opposition
Support: None received.
Oppose:None received.
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Consultant: Colin Grinnell