BILL ANALYSIS                                                                                                                                                                                                    




            SENATE REVENUE & TAXATION COMMITTEE

            Senator Lois Wolk, Chair

                                                       AB 79 - Duvall

                                                  Amended: May 21, 2009

                                                                Urgency

            Hearing: July 8, 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).



            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, and AB  
            50 (Nava), which enacts similar provisions for Santa  
            Barbara County wildfires in 2008 and 2009 plus state  
            reimbursement of disaster costs for 2007 wildfires.  

                 .  




            Support and Opposition

                 Support:                                     Board of  








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            Equalization; Regional Council of Rural Counties  



                 Oppose:None received.



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            Consultant: Colin Grinnell