BILL ANALYSIS SENATE REVENUE & TAXATION COMMITTEE Senator Lois Wolk, Chair AB 1766 - Gaines Amended: May 4, 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 Placer County, and taxpayers in Placer County affected by the 2009 wildfires 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 AB 1766 - Gaines Page 4 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 Placer County resulting from wildfires commencing on August 30, 2009. 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 Placer County resulting from wildfires commencing on August 30, 2009. THIS BILL requires that Placer County certify to the Director of Finance an estimate of the amount of reduced 2009-10 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 AB 1766 - Gaines Page 4 within 30 days, who then sends the certified amount to Placer County in 10 days. Before October 30, 2011, the Placer 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 to the Placer County wildfires commencing on August 30, 2009. FISCAL EFFECT: According to FTB, AB 1766 results in revenue losses of $8,000 in 2009-10, and gains of $4,000 in 2010-11 and 2011-12. BOE estimates one-time property tax revenue losses of $143,000. COMMENTS: A. Purpose of the Bill AB 1766 - Gaines Page 4 AB 1766 will add the wildfires that began in Placer County on August 30, 2009 (49 Fire) 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. AB 1766 - Gaines Page 4 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 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. AB 1766 - Gaines Page 4 C. Danger Ahead While the Committee has approved all Disaster Relief Bills in recent years, the Senate Appropriations Committee last year insisted on amendments to AB 50 (Nava), a disaster relief bill approved by the Committee, requiring counties to demonstrate that the county does the following to receive reimbursement for reassessing properties downward as a result of a disaster: Provides adequate structural fire protection in state responsibility areas in its jurisdiction Was in compliance with specified requirements to take preventative measures in very high fire hazards severity zone Has implemented a fire risk reduction public education program. While these amendments are not before the Committee today, the Author and the Committee should be aware that the Appropriations Committee may request similar amendments as a condition of receiving the state reimbursements to ensure that the state pocketbook won't have to be opened again to cover costs when local agencies don't take adequate steps to prevent fires. D. When Disaster Strikes The Committee will also hear AB 1662 (Portantino), AB 1690 (Chesbro), 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 AB 1766 - Gaines Page 4 Support:Placer County Board of Supervisors (sponsor); California Special Districts Association; California Professional Firefighters; California State Association of Counties; Regional Council of Rural Counties Oppose:None received. --------------------------------- Consultant: Colin Grinnell