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









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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 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  








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            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








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                 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.











































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            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.











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            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









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                 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.



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            Consultant: Colin Grinnell