BILL ANALYSIS                                                                                                                                                                                                    




            SENATE REVENUE & TAXATION COMMITTEE

            Senator Lois Wolk, Chair

                                                     AB 1178 - Torres

                                                 Amended: June 16, 2010

                                                                       

            Hearing: June 23, 2010                           Fiscal: No




            SUMMARY:  States that Possessory Interest Taxes Do Not  
                      Apply to Residents of Publicly-Owned Low Income  
                      Housing.


                      

                 EXISTING LAW (California Constitution) provides that  
            all property is taxable unless explicitly exempted by the  
            Constitution or federal law.  The possessory interest tax  
            is imposed on real property interests located on public  
            land.  A taxable possessory interest must be independent,  
            durable, and exclusive, all terms of which are defined by  
            statute and case law.  Private interests on federal land  
            (e.g., a vacation cabin on Forest Service land) are subject  
            to the possessory interest tax.

                 EXISTING LAW defines "independence" as "the ability to  
            exercise authority and exert control over the management or  
            operation of the property or improvements, separate and  
            apart from the policies, statutes, ordinances, rules, and  
            regulations of the public owner of the property or  
            improvements.  A possession or use is independent if the  
            possession or operation of the property is sufficiently  
            autonomous to constitute more than mere agency."  Case law  
            and Property Tax Rule 20 add that the possessor must derive  
            some "private benefit" to be considered independent,  
            meaning the use must provide some private economic benefit  
            to the possessor not shared by the general public.








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                 EXISTING LAW grants the power to County Assessors to  
            determine whether a taxable possessory interest exists.

                 THIS BILL states that for purposes of the independence  
            test, a lease of publicly owned low-income housing, the  
            possession of, claim to, or right to the possession of,  
            land or improvements is not independent if the lessee is a  
            low-income tenant.  The measure defines a low-income tenant  
            as a low-income household as defined by the Health and  
            Safety Code.  The measure states that its provisions are  
            declaratory of existing law, and makes legislative findings  
            and declarations to effectuate its provisions.


            FISCAL EFFECT: 

                 BOE estimates that AB 1178 has minimal revenue impact  
            because only one county levies possessory interests on  
            occupants of low-income housing.






























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            COMMENTS:

            A.   Purpose of the Bill

                 The author provides the following statement:

                 AB 1178 makes clear that low-income tenants living in  
                 publicly owned affordable housing are not subject to  
                 the possessory interest tax.



            B.   Being Possessive

                 Possessory Interest Tax law is a vibrant, yet slightly  
            esoteric corner of the tax world.  Possessory interest  
            taxes backstop the property tax when taxpayers enjoy use of  
            public property for his or her economic benefit, ensuring  
            that these taxpayers are not unfairly advantaged relative  
            to taxpayers who own their own property.  The tax applies  
            to the interest, not the land.  Possessory interest  
            taxpayers may end up paying less that their property tax  
            paying counterparts because the base of the possessory  
            interest tax is the limited rights the private user enjoys  
            on public land, and are often considered less valuable than  
            the exclusive rights property taxpayers enjoy on their own  
            land.  Assessors value interest based on income derived,  
            comparable sales, or by subtracting accrued depreciation  
            from replacement cost.  Examples of possessory include  
            docks and slips in public waterways, ski resorts on public  
            lands, and the classic example of the cabin in a National  
            Forest.



            C.   The Wrong Way

                 The Assembly Housing and Community Development  
            Committee learned that the Los Angeles County Assessor was  
            asserting a possessory interest tax on tenants of  
            low-income housing, despite direction from the BOE that no  








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            possessory interest exists on publicly-owned tax-exempt  
            property because taxpayers do not enjoy an independent use  
            of the land; instead, low-income housing is a public use.    
             The Committee found that the Los Angeles County Assessor  
            did not bill possessory interest taxes in a uniform manner.  
             According to the California Assessors' Association, Los  
            Angeles County was the only county asserting a possessory  
            interest in these housing projects, so AB 1178 would  
            presumably only apply to one county.  



            D.   Is AB 1178 necessary?

                 The Los Angeles County Assessor states that because  
            the welfare exemption does not apply to individuals and  
            that absent state law to the contrary, the interests could  
            be considered assessable.  The Assessor states that he only  
            assessed five single family homes in Pomona and another  
            five in Pico Rivera, and will no longer do so.  Now that  
            the Assessor has seen the error of his ways and agreed not  
            to assess these properties, as well as cancel and refund  
            the taxes, and that no counties are assessing similar  
            properties, then what's the point of a bill?  The Committee  
            may wish to consider the efficacy of moving the bill  
            forward when the problem has worked itself out.

            

            E.   I Hear You Knocking 
                 County assessors determine whether possessory  
            interests exist based on the California Constitution,  
            statute, case law, and direction from the BOE.  The  
            Legislature has enacted definitions for each of the three  
            tests that assessors use when determining whether an  
            assessable possessory interest exists: independence,  
            durability, and exclusivity.  However, assessors have the  
            exclusive power to make determinations, and the only  
            recourse for taxpayers is to the Courts, where assessors  
            have previously argued that only constitutional amendments,  
            not statutes, can limit the assessor's discretion.   









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            F.   I Do Declare

                 AB 1178's provisions are declaratory of existing law.   
            As such, assessors will have to cancel future taxes, and  
            rebate amounts previously paid.  BOE suggests clarifying  
            this application and amending the measure to provide  
            specific authority for tax cancellation and refunds.


            Support and Opposition

                 Support:None received.



                 Oppose:California Assessors' Association (unless  
            amended)



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            Consultant: Colin Grinnell