BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 1690 - Chesbro
Introduced: January 27, 2010
Urgency
Hearing: June 23, 2010 Fiscal: Yes
SUMMARY: Adds to Disaster Provisions in the Personal Income
Tax Law, Corporation Tax Law, and Property Tax for
Humboldt County, and taxpayers in Humboldt County
affected by the 2010 Earthquake
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 45 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 Humboldt County as a result
of the earthquake that occurred in January, 2010.
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 Humboldt County as a
result of the earthquake that occurred in January, 2010.
THIS BILL requires Humboldt County certify to the
Director of Finance an estimate of the amount of reduced
2008-09 property tax revenues resulting from reassessment
by October 30, 2010. The Director of Finance then verifies
and certifies the revenue loss estimate to the Controller,
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who then sends the certified amount to Humboldt County.
Before October 30, 2011, the Humboldt County Auditor 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 in Humboldt County as a result
of the earthquake that occurred in January, 2010.
FISCAL EFFECT:
According to FTB, AB 1690 results in revenue losses of
$100,000 in 2009-10, and gains of $50,000 in 2010-11 and
2011-12. BOE estimates one-time property tax revenue
losses of $125,000.
COMMENTS:
A. Purpose of the Bill
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The author provides the following statement:
"AB 1690 would allow individuals who suffered a
disaster loss in the January Humboldt County earthquake,
which exceeds the amount that can be deducted in the
current year's tax return, to carry forward the loss to
future years. The bill also provides that a homeowner
cannot be denied a homeowners' exemption solely because the
dwelling was temporarily damaged or destroyed, or was being
reconstructed by the owner, or was temporarily uninhabited
as a result of restricted access due to the earthquake.
Lastly, it allows Humboldt County to be reimbursed for
decreased property tax revenue as a result of lower
property values. AB 1690 would ensure that Humboldt
residents and businesses are not further financially hurt
by the earthquake by providing them with much needed tax
relief.
Traditionally, when a disaster has occurred in
California, the state has enacted legislation to keep
counties whole with respect to any loss of property tax
revenue they experience from reduced property values
resulting from the disaster. This bill follows a
longstanding policy of backfilling county losses resulting
from reduced property values."
B. A Better Way
Through last year, the Legislature has amended Revenue
and Taxation Code 218 25 times for separate disasters to
ensure that Assessors may not deny homeowners' exemptions
for disaster-related reasons, added 45 code sections to
allow for excess disaster losses for both the Personal
Income Tax Law and the Corporation Tax Law, and enacted
more than 100 sections providing for the first year
backfill of local property tax losses and procedures
therein resulting from disaster reassessments. The
Legislature always litters the code with these provisions
when disaster strikes, so why not enact a statute which
triggers these tax benefits whenever the Governor declares
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a disaster?
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). However, SB 1494 (Committee on Revenue and
Taxation) would automatically enact the preclusion of
assessors revoking a homeowners' exemption for
disaster-affected property, hopefully bringing some sanity
to these annual rituals.
C. When Disaster Strikes
The Committee will also hear AB 1662 (Portantino), AB
1766 (Gaines), and AB 2136 (V.M. Perez) at its June 23,
2010 hearing, which enacts disaster tax relief provisions
for wildfires for other natural disasters.
Support and Opposition
Support:California State Legislature, Rural Caucus;
Regional Council of Rural Counties; California Professional
Firefighters; County of Humboldt, Board of Supervisors;
California Association of Counties.
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Oppose:None received.
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Consultant: Colin Grinnell