BILL ANALYSIS SENATE REVENUE & TAXATION COMMITTEE Senator Lois Wolk, Chair SB 1494- Committee on Revenue and Taxation Introduced: March 15, 2010 Hearing: April 14, 2010 Fiscal: No SUMMARY: Makes Eight Changes to Property Tax Law I. Renumbering Error EXISTING LAW California Constitution) provides that all property is taxable unless explicitly exempted by the Constitution or federal law, and imposes property tax on all taxable real and personal property. The Constitution provides that taxation of "real" property (structures affixed to the ground, etc.) is limited to the 1975 valuation adjusted for new construction plus an annual inflation factor of no more than 2%. When a change in ownership takes place, or the property is newly constructed, assessors revalue real property at full market value as of the year the transaction or construction takes place. EXISTING LAW provides that the creation, termination, and transfer of certain leasehold interests with a term of more than 35 years can be a change in ownership resulting in reassessment. THIS BILL corrects a drafting error inadvertently created by recent amendments made by Ch. 364, Stats. 2006 (AB 3076, Committee on Revenue and Taxation) by adding SB 1494 - Committee on Revenue and Taxation Page 4 paragraph designations (R&T 61). II. Allowing Trustees to Apply for and Inspect Parent-Child Transfers and Base Year Value Transfers EXISTING LAW (California Constitution) provides an exception to "change of ownership" for property transfers between spouses under specified circumstances, for transfers between parents and children (Proposition 58, 1986), and for transfers between grandparents and grandchildren (Proposition 193, 1996), subject to certain limits. EXISTING LAW provides that a change of ownership has not occurred when parents transfer the principal residence and the first $1 million of full cash value of all other real property to their children when a claim is filed. Existing law defines "children" as: Any child born of the parent or parents except a child adopted by another person. Any stepchild of the parent or parents and the spouse of that stepchild while the relationship of stepparent and stepchild exists. Any son or daughter-in-law of the parents. Any child adopted by the parent or parents pursuant to statute. Claims for the parent-child change in ownership must be filed, signed, and may be inspected only by the persons specified above. Trustees are not expressly listed; however, the State Board of Equalization (BOE) has opined that trustees may file for parent-child transfers as part of their fiduciary duty. SB 1494 - Committee on Revenue and Taxation Page 4 THIS BILL adds a trustee of a trust to that list (R&T 63.1). EXISTING LAW allows homeowners over the age of 55 and disabled persons one opportunity to transfer their base year values to homes of equal or lesser value within the same county (Proposition 60, 1988), or to homes in counties that adopt ordinances allowing the transfer (Proposition 90, 1990), under specified conditions. Currently, Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura Counties allow these out-of-county transfers. Base year transfers allow taxpayers to continue to pay property taxes at the amount and rate of growth of their previous home and prevent reassessments to the cash value of their newly purchased home. Coowners who are joint tenants, a tenant in common, or a community property owner may claim a base year value transfer. BOE has opined that the present beneficial owner of the trust, not the trustee, may claim the base year value transfer. THIS BILL adds present beneficial trustees to the list of eligible base year value claimants. III. Relieving the Disaster of Disaster Relief 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. The homeowners' exemption is disallowed if, on the January 1 lien date, a home previously receiving the exemption has been totally destroyed and has not been rebuilt and reoccupied by its owners. However, when there is a Governor declared state of emergency for a natural disaster, legislation is usually enacted for each disaster to allow the exemption to remain SB 1494 - Committee on Revenue and Taxation Page 4 - the Code now contains 22 separate protections for taxpayers from the assessor revoking the homeowners' exemption in such a case, occasionally referred to as "the sadistic assessor provision." THIS BILL enacts general language precluding assessors from revoking homeowners' exemptions for disaster-affected property upon a declaration of disaster from the Governor, thereby avoiding the need for special purpose legislation for each individual disaster. IV. Extending Sunset on Intercounty Pipeline Valuation Methodology EXISTING LAW requires that assessors value intercounty pipeline rights-of-way according to a codified assessment valuation methodology (AB 1286, Takasugi, 1996), codifying an agreement between assessors and intercounty pipeline right-of-way owners after litigation transferred the assessment duty from BOE to assessors in 1993 (Southern Pacific Pipe Lines, Inc. v. State Board of Equalization, 14 Cal.App.4th 42). Essentially, assessors determine value based on the density classification of the pipeline on a per-mile basis, and that value is rebuttably presumed to be correct. The Legislature has once before extended the methodology (AB 2612, Brewer, 2000). THIS BILL extends this methodology for use to the 2015-16 fiscal year. V. Cleanup to Assessment Appeals Statutes EXISTING LAW provides that assessment appeals boards must hear and decide appeal applications within two years of the filing of the application. If the two-year time period is not met, then the taxpayer's opinion of value SB 1494 - Committee on Revenue and Taxation Page 4 will be enrolled for the tax year covered by the appeal and in some cases will remain in effect until the appeals board makes a final determination. THIS BILL makes clarifying nonsubstantive amendments identified by a working group of the Tax Section of the California State Bar. VI. Cleanup to AB 824, Assessment Appeals Board Conflict of Interest EXISTING LAW bars certain county officials and employees from representing, for compensation, property owners in assessment appeal hearings in the county where they work. Last year, the Legislature consolidated all affected individuals into one section of law (AB 824, Harkey, 2009). THIS BILL repeals provisions in R&T 1624.3, 1636.2, and 1636.5 rendered outdated and duplicative in AB 824. VII. Cleanup to Roll Correction Statutes EXISTING LAW states that incorrect entries on the assessment roll that has been completed by the county assessor and delivered to the county auditor may be corrected within certain time limits depending upon the nature of the error or omission. THIS BILL makes clarifying nonsubstantive amendments identified by a working group of the Tax Section of the California State Bar. VIII. Delete Erroneous Cross Reference SB 1494 - Committee on Revenue and Taxation Page 4 EXISTING LAW requires that property taxes paid must be refunded if the assessment appeals board reduces an assessed value after an appeal, under R&T 1613. However, R&T 1613 was repealed and its provisions imported into R&T1610.8 (SB 1063, Committee on Revenue and Taxation, 2003) THIS BILL corrects the cross reference error. FISCAL EFFECT: BOE estimates that SB 1494 has no revenue impact. COMMENTS: A. Purpose of the Bill SB 1494 consolidates eight items that make minor, technical changes to property tax law sponsored by BOE. The bill improves the administration of property tax laws to help both taxpayers and tax administration agencies. Consolidating the measures into a single bill negates the need for individual bills to enact each change. Additionally, the measure only contains items with universal agreement; items that are controversial or problematic will be removed from the bill Support and Opposition Support:State Board of Equalization (Sponsor) Oppose:None received SB 1494 - Committee on Revenue and Taxation Page 4 --------------------------------- Consultant: Colin Grinnell