BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 404 HEARING: 7/3/12
AUTHOR: Gatto FISCAL: Yes
VERSION: 6/21/12 TAX LEVY: No
CONSULTANT: Grinnell
ASSESSMENT APPEALS AND TAX AGENTS
Requires tax agents to register as lobbyists in counties
with lobbyist ordinances.
Background and Existing Law
Section One of Article XIII of the California Constitution
provides that all property is taxable unless explicitly
exempted by the Constitution or federal law. The
Constitution limits the maximum amount of any ad valorem
tax on real property at 1% of full cash value, usually the
purchase price, plus any locally-authorized bonded
indebtedness. Assessors reappraise property whenever it is
purchased, newly constructed, or when ownership changes.
In recent years, the market value of property has declined
or stagnated in almost every market in California. As a
result, property tax appeals are on the rise, as Section
2(b) of Article XIIIA of the California Constitution allows
a temporary reduction in property tax when a property's
fair market value declines below its assessed value
(Proposition 8, 1978). LAO states that tax appeals have
risen from 44,000 in 2006-07 to 173,000 in 2010-11.
When a taxpayer wants to appeal an assessor's valuation of
a property, Section 16 of Article XIII the California
Constitution provides that each county board of
supervisors, or an assessment appeals board of its own
creation, shall constitute the county board of equalization
to consider the appeal. Currently, 19 county boards of
supervisors perform this duty directly. Remaining counties
can create up to five assessment appeals boards to hear and
adjudicate appeals, constituted of members selected by the
presiding judge of the superior court and nominated by the
County Board of Supervisors, or selected directly by the
Board. Taxpayers and assessors may appeal decisions of
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these boards to Superior Court.
The term "tax agents" refers to individuals who represent
taxpayers in property tax appeals. The conduct of tax
agents before assessors and assessment appeals boards is
largely unregulated unless the individual is an attorney
licensed by the State Bar, or an accountant regulated by
the California Board of Accountancy. In In 1999, the
Legislature did enact a statute regulating representations
made by firms that mail solicitations offering to file
assessment appeals on behalf of taxpayers.
Currently, the Counties of Los Angeles, Orange, San
Francisco, Santa Clara, San Diego, and San Mateo have
ordinance regulating lobbying. Some ordinances apply only
to lobbying boards of supervisors, while others include
lobbying specified county positions or define the decision
that the lobbyists seeks to influence. Some of the
ordinances restrict campaign contributions, gifts, and
employing county officials, and prohibit intentionally
deceiving elected officials or misrepresenting themselves
or their clients. All of them require lobbyist
registration and reporting requirements for gifts and
campaign contributions. Violations in Santa Mateo County
are punishable as a misdemeanor, while other counties bar
violators from acting as lobbyists and impose monetary
penalties up with specified caps. San Francisco has an
Ethics Commission administer its ordinance.
According to news reports, the Los Angeles County District
Attorney investigation led to the arrest last month of a
property appraiser who formerly worked for Los Angeles
County Assessor John Noguez on charges of illegally
reducing assessments on properties totaling $172 million.
The news reports also indicate that the investigation is
ongoing, and focuses on whether the assessor reduced
valuations for properties owned by taxpayers represented by
tax agent Ramin Salari, who contributed to Noguez's
campaign. Both Noguez and Salari deny wrongdoing.
Proposed Law
Assembly Bill 404 provides that tax agents must register as
lobbyists in any county that regulates lobbying by
ordinance. The board shall amend its ordinance to apply
its provisions to those who lobby before the county
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assessor, county assessor's staff, or the county assessment
appeals board.
The measure specifically states that its provisions do not
apply to a property owner in connection with a property tax
matter. The bill also states that its provisions cannot be
construed to prohibit a tax agent from charging a
contingency fee in connection with a property tax matter.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author,
"Transparency in government is important to keeping those
who govern accountable to the citizens they represent.
Requiring those who lobby County Assessors to adhere to the
same lobbying rules as those who lobby County Boards of
Supervisors is a simple way to ensure that all are abiding
by the same rules. This simple requirement would result in
disclosure, to the media and public, of who is paying
so-called "tax agents" to obtain what are, in some cases,
multi-million-dollar windfalls for their clients through
favorable treatment by Assessors. It would also, in many
cases, prevent tax agents from making campaign
contributions to Assessors, who then hear the tax agents'
clients' cases. AB 404 would not affect property owners who
advocate on their own behalf, nor would it take away local
control for counties to amend the fine points of their
lobbying ordinances. It seeks to improve the assessment
process by ensuring that all citizens are given fair and
equal access."
2. Square peg, round hole ? In response to alleged illegal
activity in the office of the Los Angeles County Assessor,
AB 404 requires counties to register tax agents as
lobbyists if they have a lobbying ordinance. As such, the
bill brings some measure of regulation to a largely
unregulated profession. The central question posed by AB
404 is whether regulating tax agents as lobbyists is the
best way to both protect taxpayers hiring these agents, and
that tax agents don't inappropriately influence assessors'
offices. Generally, when the Legislature wants to regulate
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a profession to help protect consumers, it creates a
commission within the Department of Consumer Affairs,
mostly comprised of a mix of public members and industry
participants, to administer professional licensing tests,
enforce industry standards and continuing education
requirements, sanction practitioners for noncompliance,
collect license fees to fund operations, and generally
promote consumer protection for their industry. The
Legislature directly oversees the performance of these
boards through its sunset review process. However, as the
property tax and the appeals process is administered by
assessors and other local officials according to the
California Constitution and state law, local agencies may
be the best place to tailor regulation that best fits the
needs of its jurisdiction.
AB 404 mixes state and local oversight by requiring local
agencies that have a regulation guiding lobbyists to
require tax agents to register too; AB 2183 (Smyth) also
provides legislative direction for local regulation, but
uses a different model (see Comment #4). Tax agents in
counties without ordinances are unaffected, but tax agents
in counties with them may find themselves subject to a
regulation that may not apply neatly to their industry.
Lobbyists represent clients on policy matters before
elected officials who make decisions on a wide array of
issues; tax agents represent property owners who argue over
value with professional appraisers in assessors' offices.
However, both can use sophisticated strategies to win
benefits for their clients by lobbying and making strategic
campaign contributions. The Committee may wish to consider
the difference between the activities of lobbyists and tax
agents, and whether AB 404's enforcement model is the best
way to promote consumer protection and protect public
integrity in the assessor's office.
3. If, then . Contingency fee arrangements in property tax
appeals happen when tax agents agree to pursue an appeal
for a taxpayer in exchange for a percentage of any refund
the taxpayer receives as a result of a lower assessed value
on their property. Contingency fee supporters contend that
these arrangements allow taxpayers who do not want to spend
money up-front to hire an agent to pursue an appeal, while
detractors argue that contingency fees provide economic
signals to tax agents to pursue claims that lack merit, or
take highly aggressive tax positions hoping the Assessor's
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office lacks the staff to adequately defend its valuation
and will simply approve the appellant's estimation of
value. Last year, the Committee approved SB 342 (Wolk),
which barred contingency fees in all tax cases, but the
measure didn't advance from the Senate Judiciary Committee.
Recently, Ryan, LLC, a global tax services firm, filed
suit in U.S. District Court against the Secretary of the
Treasury and the IRS Commissioner charging that the
contingency fee ban violates its First Amendment right to
petition the government for redress of grievances, its due
process rights to receive a tax refund, and violate its
CEO's right to practice as an accountant before the IRS.
The Political Reform Act of 1974 bars lobbyists from
charging contingency fee arrangements when lobbying before
the Legislature, and Los Angeles County's lobbying
ordinance does too. AB 404 specifically prevents a
contingency fee ban by explicitly stating that its
requirement shall not be construed to prohibit contingency
fees for tax agents in connection with any matter before a
county assessor, county assessor's staff, or the county
assessment appeals board.
4. Come and gone . At its June 28, 2012, hearing, the
Committee did not approve Assembly Bill 2183 (Smyth), which
requires counties to set up a tax agent registration
program, and requires tax agents to register with counties;
however, the measure will be reconsidered at the Committee
hearing on July 2. The measure also creates a code of
conduct, sets forth a list of acts prohibited of tax
agents, borrowing largely from IRS Circular 230. Lastly,
the bill allows counties to levy sanctions for failing to
register or engaging in a prohibited act. Should this
measure also advance, the measures will have to be
harmonized to prevent tax agents in counties with lobbying
ordinances from having to register as lobbyists and be
subject to AB 2183's provisions.
5. Making amends . Committee staff recommends the
following amendments:
Page 2 line 6, strike out "to those who lobby" and
insert "any person who represents a taxpayer for
compensation"
Page 2, line 7, and lines 9 and 10, insert "county
board of equalization, employees of the assessor, and
assessment hearing officers that make recommendations
to the county board of equalization or assessment
AB 404 - 6/21/12 -- Page 6
appeals board."
Assembly Actions
Not relevant to this version of the bill.
Support and Opposition (6/28/12)
Support : California Association of Professional Employees
Opposition : Ad Valorem Solutions, LLC; California Alliance
of Taxpayer Advocates; California Asian Chamber of
Commerce; California Association of Clerks and Election
Officials; CalCPA; California Retailers Association; Colony
Realty Partners, LLC; Easley, LaTerra Fina USA, Inc.;
McCaleb and Associates, Inc.; National Federation of
Independent Business; Paradigm Tax Group, LLC; Poer and
Company; Property Tax Assistance Co., Inc.; PROTAX, LLC;
Ryan, Inc.; Thoro Packaging; Woodstock Development.