BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1494
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          Date of Hearing:  June 28, 2010

                              Anthony Portantino, Chair

           SB 1494 (Committee on Revenue and Taxation) - As Amended:  June  
                                      21, 2010

          Majority vote.

           SENATE VOTE  :  33-0
          SUBJECT  :  Property taxation.

           SUMMARY  :  Makes several changes to the property tax law, repeals  
          duplicative provisions, and corrects erroneous cross-references.  
            Specifically,  this bill  :   

          1)Requires the State Board of Equalization (BOE) to accept a  
            registered warrant (RW) from a taxpayer, fee payer or  
            surcharge payer as a payment for any tax, surcharge, or fee  
            obligation owed to BOE, provided that the RW has been paid  
            directly to the taxpayer, surcharge or fee payer. 

          2)Corrects a drafting error inadvertently created by recent  
            amendments made by AB 3076, (Committee on Revenue and  
            Taxation), Chapter 634, Statutes of 2006 to Revenue and  
            Taxation Code (R&TC) Section 61, relating to change in  
            ownership provisions for certain leasehold interests. 

          3)Adds a trustee to the list of persons who can file claims for  
            the parent-child and grandparent-grandchild "change in  
            ownership" exclusion claims on behalf of eligible transferors  
            and transferees.

          4)Authorizes a trustee to inspect otherwise confidential claims  
            for the exclusion previously filed.  

          5)Provides that, for purposes of the "base year value" transfer,  
            the definition of "person" includes an individual who is the  
            present beneficiary of a trust.

          6)Establishes a general provision to preclude assessors from  
            revoking homeowners' exemptions for disaster-affected property  
            upon a declaration of disaster from the Governor, thereby  


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            avoiding the need for special purpose legislation for each  
            individual disaster. 

          7)Extends the use of the existing assessment valuation  
            methodology for inter-county pipeline rights-of-way that is  
            otherwise scheduled to sunset on January 1, 2011.  

          8)Clarifies that in the case of assessment appeals that have not  
            been decided yet, the two-year period before a property  
            owner's opinion of value becomes controlling applies to  
            supplemental and escape assessment appeals. 

          9)Repeals provisions of R&TC Sections 1624.3, 1636.2, and  
            1636.5, relating to assessment appeals board members and  
            hearing officers, that are duplicative of R&TC Sections 1612.5  
            and 1612.7. 

          10)Recasts R&TC Section 4831 to clarify provisions relating to  
            the statute of limitations on assessment roll corrections. 

          11)Corrects the cross-reference error in R&TC Section 5096,  
            relating to property tax refunds resulting from an assessment  

          12)Amends both the Public Resources Code (PRC) and the R&TC to  
            reflect recent changes in the state government's  
            organizational structure.  

           EXISTING LAW  :

          1)Prescribes procedures for the issuance of registered warrants  
            and provides that a registered warrant is acceptable and may  
            be used as security for the performance of any public or  
            private trust or obligation.
           2)Provides that all property is taxable unless explicitly  
            exempted by the California Constitution or federal law.   
            Limits ad valorem taxes on real property to 1% of the full  
            cash value of that property, as set forth in the California  
            Constitution.  "Full cash value" is defined as the assessor's  
            valuation of real property as shown on the 1975-76 tax bill  
            or, thereafter, the appraised value of that real property when  
            purchased, newly constructed, or when "a change in ownership"  
            has occurred.


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           3)Requires a reassessment of real property to current fair  
            market value upon a "change of ownership of that property,"  
            which means that the value of the property, for property tax  
            purposes, is redetermined based on current market value.  The  
            value of the property established for property tax purposes  
            initially, or redetermined where appropriate, is referred to  
            as "base year value", which is subject to annual increases for  
            inflation, not to exceed 2%.
           4)Defines the phrase "a change in ownership" as a transfer of a  
            present interest in real property, including the beneficial  
            use thereof, the value of which is substantially equal to the  
            value of the fee interest.  (R&TC Section 60).       

          5)Provides that the creation, termination, and transfer of  
            certain leasehold interests with a term of 35 years or more  
            can be a change in ownership resulting in assessment. [R&TC  
            Section 61(c)].          

          6)Provides that a transfer between parents and their children of  
            a principal residence or other real property with the full  
            cash value of $1 million or less is eligible for the "change  
            in ownership" exclusion.  (Proposition 58, 1986).  This  
            exclusion also applies to transfers of real property from  
            grandparents to grandchildren, if the parents of the  
            grandchildren are deceased as of the date of transfer.   
            (Proposition 193, 1996).  A property transferred under these  
            circumstances would retain its low Proposition 13 base year  
            value, subject to a maximum increase of only 2% a year.  The  
            Legislature's authority to create statutory exemptions from  
            property tax reassessment was affirmed by the courts.  [See,  
            e.g., Strong v. Board of Equalization (2007) 155 Cal.App.4th  

          7)Provides that a transfer of real property between parents and  
            children through the medium of a trust is eligible for the  
            exclusion from reassessment [R&TC Section 63.1(9)]; however,  
            it does not expressly list a trustee as the person who may  
            file and sign the claim for the exclusion.  

          8)Allows any person over the age of 55 years and any disabled  
            person to transfer the "base year value" of that person's  
            primary residence to a newly acquired or constructed  
            replacement residence.  The definition of "person" means an  
            individual and expressly excludes any type of legal entity. 


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          9)Exempts from property tax the first $7,000 of the full value  
            of a dwelling when occupied by an owner as his/her principal  
            residence (so-called a 'homeowners' exemption').  [California  
            Constitution, Article XIII, Section 3(k); R&TC Section 218].  

          10)Requires county assessors to value inter-county pipeline  
            rights-of-way according to a codified assessment valuation  
            methodology, which applies to each tax year from the 1984-85  
            tax year to the 2010-11 tax year and is set to expire on  
            January 1, 2011.  (R&TC Section 401.10).  

          11)Provides that the assessment appeals board must hear and  
            decide appeal applications within two years of the filing of  
            the application.  

          12)Bars certain county officials and employees from  
            representing, for compensation, property owners in assessment  
            appeal hearings in the county where they work. 

          13)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. 

          14)Requires that property taxes be refunded if the assessment  
            appeals board reduces an assessed value after an appeal. 

          15)Transfers, pursuant to the Governor's Reorganization Plan No.  
            1 of 2009, duties of the Division of Telecommunications in the  
            Department of General Services (DGS) to the Office of the  
            State Chief Information Officer (CIO), including duties  
            relating to implementing revenue generating procedures for the  
            911 emergency telephone system. 

          16)Abolishes the California Integrated Waste Management Board  
            and transfers specified duties of the board to the Department  
            of Resources Recycling and Recovery, including duties related  
            to electronic waste.  

           FISCAL EFFECT  :  The State Board of Equalization's staff  
          estimates that this bill will have no direct impact on state  

           COMMENTS  :   


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           1)The purpose of this bill  .  This bill, sponsored by the BOE, is  
            intended to improve the administration of property tax laws to  
            help both taxpayers and tax administration agencies and to  
            codify BOE's existing administrative practice and procedures  
            related to the transfer of real property from parents to  
            children and to the base year value transfers.  According to  
            the author, this measure contains only items with universal  
            agreement; items that are controversial or problematic will be  
            removed from the bill. 

           2)RWs  .  Under state law, the State Controller is responsible for  
            issuing warrants drawn from the General Fund (GF) for payment  
            of obligations of the state.  In instances where the amount  
            payable out of the GF is in excess of the balance remaining in  
            the GF after deducting amounts earmarked or reserved for  
            payment by law, the Controller can issue a "RW."  A RW is a  
            warrant that carries a promise to pay the bearer the amount  
            shown on the warrant plus interest, by a date prescribed on  
            the warrant, usually within one year of the date of issuance.   
            Interest accumulates at the rate determined by the Pooled  
            Money Investment Account (PMIA).

          Under current law, the Franchise Tax Board is required to accept  
            state-issued RWs in satisfaction of taxpayer obligations to  
            the state.  However, BOE is not required, but only authorized,  
            to accept RWs at its own discretion.  In July, 2009, the BOE  
            voted to accept RWs in satisfaction of obligations associated  
            with tax programs it administers.  The BOE states that having  
            specific authority to accept RWs would eliminate any future  
            ambiguity and would allow its staff to implement plans to  
            accept and process any RWs immediately, if necessary.  This  
            bill would also delete somewhat confusing language in  
            Government Code (GC) Section 17280(c) relating to interest  
            payable on a RW.

           3)Leasehold Interests  .  Under existing law, the creation,  
            termination, and transfer of certain leasehold interests with  
            a term of 35 years or more may be a change in ownership  
            resulting in reassessment.  AB 3076 (Committee on Revenue and  
            Taxation), Chapter 364, Statutes of 2006, amended R&TC Section  
            61(c) to codify the county assessor practice of reassessing  
            only the floating home, and not the berth, when a floating  
            home undergoes a change of ownership.  However, the amendments  
            also mistakenly deleted the "(1)" at the beginning of the  


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            first sentence of subdivision (c).  This bill corrects that  
            drafting error by adding paragraph and subparagraph  
            designations to the previously undesignated text to make  
            complete sentences for each provision. 

           4)Parent-child exclusion  .  Existing law provides that a transfer  
            of real property between parents and children through the  
            medium of a trust is eligible for the exclusion from  
            reassessment [R&TC Section 63.1(9)]; however, it does not  
            expressly list a trustee as the person who may file and sign  
            the claim for the exclusion.  In its Letter to Assessors  
            2008/018, BOE has advised assessors that a trustee can sign a  
            claim form requesting a parent-child exclusion from  
            reassessment.  The BOE reasoned that, since the trustee has  
            the fiduciary responsibility to carry out the terms of the  
            trust and can sign legal documents on behalf of the trust, it  
            follows that he/she/it is authorized to sign the parent-child  
            exclusion claim.  Nonetheless, many practitioners and some  
            property owners are concerned that R&TC Section 63.1(d), which  
            lists persons who may sign the claim, does not expressly  
            include trustees.  

           5)Base Year Value Transfer  .  A person over the age of 55, or a  
            disabled person of any age, may sell his/her principal  
            residence and transfer its base year value to a replacement  
            principal residence within the same county or another county  
            that accepts inter-county transfers.  In its Letter to  
            Assessors 2006/010, BOE has advised that the individual who  
            has the present beneficial interest in a trust is considered a  
            claimant for purposes of the base year value transfer, if all  
            of otherwise applicable requirements are met.  However,  
            existing law - R&TC Section 69.5 - does not expressly address  
            trusts and, therefore, causes uncertainty and confusion among  
            property owners and practitioners.  Hence, this bill is  
            necessary to clarify existing law and to eliminate that  
            uncertainty and confusion. 

           6)Disaster Relief - Homeowners' Exemption  .  Existing law  
            provides a homeowners' exemption from property taxes equal to  
            $7,000 in assessed value for owner-occupied homes.  An  
            assessor may deny this exemption if the property becomes  
            vacant or is under construction as of the January 1st lien  
            date.  For example, a home destroyed on or before January 1,  
            2010 is not eligible for the exemption for the 2010-11 year.   
            When a Governor has declared a state of emergency for a  


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            natural disaster, legislation is usually enacted to allow the  
            exemption to apply to homes that are damaged or destroyed in  
            the disaster.  This bill would establish a general rule  
            precluding assessors from revoking the homeowner's exemption  
            for disaster-affected property upon a Governor's declaration  
            of disaster, thus avoiding the need for special purpose  
            legislation for each individual disaster.  Specifically, this  
            bill addresses eligibility for the exemption under three  
            different scenarios.  A dwelling that has been  partially   
            destroyed or damaged in a disaster would continue to be  
            eligible for the exemption if the owner's absence is temporary  
            and the owner intends to return to the home.  Similarly, a  
            dwelling that has suffered total destruction in a  
            Governor-declared disaster would continue to be eligible for  
            the exemption.  However, a dwelling that was previously  
            eligible for the exemption but no longer exists on the lien  
            date because it was  totally  destroyed in a disaster that was  
             not  a Governor-declared disaster would not be eligible for the  
            exemption until the structure is replaced and occupied. 

          According to the sponsor, this provision codifies current BOE  
            guidance and administrative practices and is consistent with  
            legislation enacted in 2008 for the disabled veterans'  
            exemption.  Furthermore, this bill improves efficiency and  
            saves on legislative bill printing costs by avoiding the need  
            for double- and triple-joining language in years with multiple  

           7)Inter-county Pipeline Rights-of-Way  .  The valuation  
            methodology for inter-county pipeline rights-of-way was first  
            established in 1996 by AB 1286 (Takasugi), Chapter 801,  
            Statutes of 1996.  It codified an agreement reached between  
            county assessors and inter-county pipeline rights-of-way  
            owners after litigation had transferred the assessment duty  
            from the BOE to local county assessors.  (Southern Pacific  
            Pipe Lines, Inc. v. State Board of Equalization, 14  
            Cal.App.4th 42).  The use of the methodology was extended by  
            AB 2612 (Brewer), Chapter 607, Statutes of 2000, until January  
            1, 2011, and this bill is intended to do the same through the  
            2015-16 fiscal years.   The BOE sponsored the extension of the  
            existing methodology at the request of both the California  
            Assessors' Association and taxpayer representatives.  

           8)State Government's Organizational Structure  .  This bill would  
            correct responsible state agency references in the Emergency  


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            Telephone Users Surcharge Act (R&TC Section 41001 et seq.) to  
            conform to the Governor's Reorganization Plan No. 1 of 2009,  
            which transferred duties of the Division of Telecommunications  
            in the DGS to the Office of the State CIO.  It would also  
            correct responsible state agency references in the Integrated  
            Waste Management Fee Law (R&TC Section 45001 et seq.) to  
            conform to SB 63 (Strickland), Chapter 21, Statutes of 2009,  
            which abolished the California Integrated Waste Management  
            Board and transferred its duties to the Department of  
            Resources Recycling and Recovery within the California Natural  
            Resources Agency.  Finally, SB 1494 would delete the obsolete  
            definition of "board" contained in the Electronic Waste  
            Recycling Act of 2003 (PRC Section 42460 et seq.).  

           9)Related Legislation  . 

          AB 230 (Charles Calderon), introduced in the 2009-10 legislative  
            session, would authorize a trustee to sign a claim for the  
            parent-child "change in ownership" exclusion and would provide  
            that principal residences held in trust are eligible for base  
            year value transfers.  AB 230 is currently pending with the  
            Senate Committee on Revenue and Taxation.  


          State Board of Equalization (sponsor)
          None on file

           Analysis Prepared by  :  Oksana Jaffe / REV. & TAX. / (916)