BILL ANALYSIS AB 1766 Page 1 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 AB 1766 Page 2 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 AB 1766 Page 3 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