BILL ANALYSIS AB 1690 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1690 (Chesbro) As Amended August 19, 2010 2/3 vote. Urgency ----------------------------------------------------------------- |ASSEMBLY: |42-28|(January 28, |SENATE: |33-0 |(August 23, | | | |2010) | | |2010) | ----------------------------------------------------------------- Original Committee Reference: REV. & TAX. SUMMARY : Adds the earthquake that occurred in Humboldt County on January 9, 2010 (2010 Earthquake) to the list of disasters eligible for full state reimbursement of local property tax losses, beneficial homeowners' property tax exemption treatment, and special "carry forward" treatment of excess disaster losses. The Senate amendments are technical in nature and prevent chaptering out issues given the large number of disaster-related bills pending in the current legislative session. EXISTING LAW : 1)Property Tax Reassessment: Allows each county, by ordinance, to provide for the reassessment of properties damaged by a calamity, disaster, or misfortune. Taxpayers owning damaged property must apply for a reassessment within the time period specified in the applicable county's ordinance or within 12 months of the misfortune or calamity, whichever is later. The application for reassessment must show the condition and value of the property after the damage and the dollar value of the damage. Once the property is reassessed, the taxpayer is entitled to a refund of any excess property tax paid on the property. If the affected property is subsequently repaired, its value is subject to an upward reassessment by the county. 2)Homeowners' Exemption: a) Exempts the first $7,000 of the full value of a dwelling from property tax, when the dwelling is occupied by an owner as his/her principal residence. However, if a property is no longer owner-occupied or is vacant on the AB 1690 Page 2 lien date (January 1), the property is not eligible for the exemption for the succeeding tax year. b) Provides certain disaster-related exceptions to the general rule that a property must be owner-occupied on the lien date to receive the homeowners' exemption. Under these exceptions, properties that were eligible for the homeowners' exemption immediately before the disaster, do not change ownership after the disaster, and are vacant solely because of damage incurred during the disaster, continue to be eligible for the homeowners' exemption. 3)Income Tax Losses: a) Allows non-business taxpayers with casualty losses that are not reimbursed by insurance and that exceed $100 plus 10% of the taxpayer's adjusted gross income (AGI) to claim these losses as itemized deductions on their tax return. Taxpayers may carry forward 100% of any remaining losses for up to 10 years. Corporate taxpayers with casualty losses that are not reimbursed by insurance are not subject to the $100 plus 10% of AGI threshold, but are subject to the same carry forward rules that apply to individual taxpayers. b) Allows both individual and corporate taxpayers who experience losses as a result of certain named disasters to claim these losses either in the year in which the loss occurred or in the preceding year. AS PASSED BY THE ASSEMBLY , this bill: 1)Provided a mechanism for reimbursing Humboldt County for property tax losses resulting from the reassessment of properties damaged by the 2010 Earthquake. 2)Provided that any dwelling that qualified for a homeowners' property tax exemption before January 9, 2010, that was damaged or destroyed by the 2010 Earthquake, and that has not changed ownership since January 9, 2010, shall not be denied a homeowners' exemption solely because that dwelling was temporarily damaged or destroyed, or was being reconstructed by the owner, or was temporarily uninhabited as a result of restricted access. AB 1690 Page 3 3)Provided that any taxpayer's excess disaster loss resulting from the 2010 Earthquake shall be carried forward to each of the five taxable years following the taxable year for which the loss is claimed. However, if there is any excess disaster loss remaining after this five-year period, then the applicable percentage of that excess disaster loss shall be carried forward to each of the next 10 taxable years. 4)Specified that, if the Commission on State Mandates determines that this bill contains costs mandated by the state, local agencies and school districts will be reimbursed for those costs. 5)Took immediate effect as an urgency measure. FISCAL EFFECT : 1)The State Board of Equalization estimates that General Fund expenditures for reimbursing Humboldt County for its property tax losses and extending the homeowners' exemption would be about $125,000 in fiscal year 2010-11, with declining amounts in subsequent years. 2)This bill's income tax provisions will result in minor revenue losses of likely less than $5,000 per year for the next several years. COMMENTS : The author states: AB 1690 would allow special tax treatment, called disaster loss treatment, for losses sustained as a result of the January 9, 2010 earthquake in Humboldt County. The purpose of this bill is to provide immediate tax relief to individuals and businesses affected by the earthquake. 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. AB 1690 Page 4 Committee Staff Comments: The 2010 Earthquake: On Saturday, January 9, 2010, a 6.5 magnitude earthquake struck the northern coast of California, disrupting utilities and damaging at least 175 structures. On January 12, 2010, Governor Schwarzenegger proclaimed a state of emergency in Humboldt County due to the earthquake. Analysis Prepared by : M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0006558