BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1766
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          Date of Hearing:   May 19, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                     AB 1766 (Gaines) - As Amended:  May 4, 2010 

          Policy Committee:                              Local  
          GovernmentVote:6-3
                        Revenue and Taxation                  9-0

          Urgency:     Yes                  State Mandated Local Program:  
          Yes    Reimbursable:              Yes

           SUMMARY  

          This bill adds the fire occurring in Placer County beginning on  
          August 30, 2009 to the list of disasters eligible for special  
          tax treatment. Specifically, this bill:

          1)Provides that the state will reimburse the local governments  
            for property tax losses resulting from downward assessments of  
            property damaged by the fire.

          2)Allows owners of homes destroyed by the fire to receive the  
            homeowners' property tax exemption while the homes are being  
            reconstructed.

          3)Permits victims of the fire to carry back casualty losses and  
            use them as income tax deductions in the year preceding the  
            disaster (in this case 2007) and then carry forward any  
            remaining losses for up to 15 years. These provisions apply to  
            uninsured losses in excess of 10 % of the taxpayers' income.

           FISCAL EFFECT  
                               
          1)The Board of Equalization estimates that GF expenditures for  
            reimbursing Placer County for property tax losses and  
            extending the homeowners exemption would be less than $143,000  
            in 2010-11 and declining amounts in subsequent years.

          2)Income tax provisions will result in minor revenue losses,  
            likely less than $5,000 per year for the next several years.

           COMMENTS








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           1)Rationale  .  The wildfire that started near the City of Auburn  
            in Placer County on August 30, 2009 destroyed 41 homes and  
            resulted in property damage of over $10 million to residences  
            and commercial structures. This measure extends to the victims  
            of that wildfire the tax relief that has traditionally been  
            provided to victims of natural disasters in California.
                     
           2)Background  - property tax assessments  . State law authorizes  
            local governments to reduce property taxes following a  
            disaster. Under these provisions, assessors may reduce the  
            assessed property value in proportion to the loss in market  
            value. The property retains its lower assessed value until it  
            is reconstructed or otherwise restored. Historically,  
            legislation has been passed in which the state reimburses  
            counties for the revenue reductions associated with the  
            downward assessments. This bill provides the reimbursements to  
            Placer County for the reduction in assessments resulting from  
            the fire. 

           3)Background - homeowners' exemption  . The California  
            Constitution exempts from property taxes the first $7,000 of  
            the value of a dwelling when occupied by an owner as his or  
            her principal residence. The state reimburses local  
            governments for the property taxes they cannot collect because  
            of this homeowners' exemption.  Under the Revenue and Taxation  
            Code, property which becomes vacant, is destroyed, or is no  
            longer owner-occupied on the lien date (January 1) is  
            generally not eligible for the exemption in the upcoming year.  
            (The Board of Equalization staff has opined that a temporary  
            absence from a dwelling damaged in a natural disaster will not  
            result in the loss of the exemption. Thus, only owners of  
            homes destroyed by the fires will lose the exemption under  
            existing law.) This bill allows the exemption for homes that  
            have been destroyed while they are being reconstructed.
                     
           4)Background - casualty losses .  Under federal and state income  
            tax law, individuals filing income taxes can deduct casualty  
            losses in excess of 10 % of their adjusted gross income plus  
            $100 in the year in which the loss occurs. Any losses not  
            deducted in the year in which they occur can then be carried  
            forward and deducted against income for up to five years into  
            the future. For federally declared disasters, the taxpayer may  
            either take the deduction on the current year return or may  
            file an amended return for the prior year. Any unused losses  








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            may then be carried forward for up to 15 years. The prior-year  
            and up-to 15 year carry forward provisions are not available  
            for a governor-only declared disaster on either federal or  
            state returns. However, the special tax treatment is available  
            on California's state income tax return if enabling state  
            legislation is enacted.
                       
           5)Related legislation  . AB 1662 (Portantino), AB 2665 (Chesbro),  
            and AB 2136 (V. Manuel Perez), also before this Committee,  
            provides similar disaster relief in connection with a variety  
            of state-declared disasters in 2009 and 2010. 
           
          Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081