BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 563 HEARING: 6/29/11 AUTHOR: Furutani FISCAL: Yes VERSION: 5/11/11 TAX LEVY: No CONSULTANT: Grinnell PROPERTY TAX APPRAISAL INFORMATION Assessors must disclose information to cities to collect the documentary transfer tax Background and Existing Law The California Constitution (Article XIIIA, Section 4) prohibits the state from levying transaction taxes or sales taxes on transfers of real property; however, the Documentary Transfer Tax (DTT), enacted in 1967, allows cities and counties to enact taxes on deeds of transfer of realty within that jurisdiction. Counties or cities may use proceeds of the tax for general or specific purposes, although all DTTs levied thus far are general taxes. County recorders administer the tax, and cannot record the property transfer until the purchaser pays the tax. Counties collect the tax but remit the city tax to the appropriate city. All of California's 58 counties and hundreds of cities levy the tax, ranging from the general law city rate of fifty-five cents per $1000 of value up to $15.00 per $1,000 in the City of Oakland. In counties, the rate is fifty-five cents ($0.55) for each five hundred dollars ($500) of value. The DTT is largely modeled after the repealed Federal Documentary Stamp Tax. Generally, any information and records in the Assessor's office are not public documents and are not open to public inspection, unless allowed by law. Exemptions include information for law enforcement agencies, county grand jury, or the Board of Supervisors. Two years ago, the Legislature required the Assessor to disclose information, furnish abstracts, and permit access to all records to the County Recorder when conducting an investigation to determine whether the documentary transfer tax is due (SB 816, Ducheny, 2008). The City of Los Angeles wants the Assessor to share this information with city financial AB 563 - 5/11/11 -- Page 2 officials to help assess the DTT. Proposed Law Assembly Bill 563 requires the Assessor to disclose information, furnish abstracts, or permit access to all records in his or her office to designated employees of a city's finance office when conducting an investigation to determine whether a documentary transaction tax should be imposed for an unrecorded change in control or ownership of property. Upon request, the Assessors shall provide the information to the designated employee, who must certify to the assessor that the information is necessary to assist with the preparation and enforcement of the DTT, and is not a public record that is open to public inspection. The measure states that any information provided cannot include social security numbers. State Revenue Impact No estimate. Comments 1. Purpose of the bill . According to the Author, "AB 563 would allow for information sharing between County Assessor's Offices' and cities to identity change of ownership legal entity transfers and other real property transfers that may not be currently captured. Enactment of the proposed legislation is estimated to result in improved and increased collection of the Documentary Transfer Tax at a time of fiscal crisis for local governments." 2. Give an inch, take a mile ? In 2001, the Legislature allowed local officials to obtain taxpayer information from the Franchise Tax Board (FTB) to enforce their local business license taxes, pursuant to a written agreement (AB 63, Cedillo). In 2006, the Legislature extended the program until 2011 (SB 1374, Cedillo). In 2008, the Legislature extended the program until 2014, and required local agencies to share its business license tax information with the FTB to help it administer the Personal Income and Corporation Tax Laws (SB 1146, Cedillo). Cities AB 563 - 5/11/11 -- Page 3 routinely cite these programs as effective revenue generators; however, the City of Los Angeles, the sponsor of this bill, has been particularly aggressive using the FTB information for local tax enforcement. The City of Los Angeles sends threatening letters to any person within the city who included any business income on a Schedule C with FTB, stating they faced significant penalties and interest unless they obtained a business license and remitted the appropriate tax. Collections agents followed up with phone calls. While information sharing helps tax enforcement agencies ensure that taxpayers are paying the correct amount, will the fiscally distressed City of Los Angeles use DTT information authorized by this bill in potentially aggressive ways, similar to the past? The Committee may wish to consider the manner in which cities plan on using the information, and whether the possible enhancements for tax enforcement and revenues will negatively affect taxpayers. 3. Do it yourself . Currently, the City of Los Angeles relies on Los Angeles County to collect the DTT on its behalf. However, because the County receives less of a share of the tax owed than the City does for real estate transactions in the City, the City wants to collect some of the money itself. However, they require the County Assessor's information to do so, giving rise to AB 563. Assembly Actions Assembly Revenue and Taxation 6-3 Assembly Appropriations 12-5 Assembly Floor 52-27 Support and Opposition (6/23/11) Support : Office of Mayor Antonio Villaraigosa, City of Los Angeles, City of Lakewood, California Assessors Association, California Nurses Association, California Tax Reform Association Opposition : Unknown. AB 563 - 5/11/11 -- Page 4