BILL ANALYSIS Ó
AB 703
Page 1
Date of Hearing: April 4, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 703 (Gordon) - As Introduced: February 17, 2011
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Property taxation: welfare exemption: nature
resources and open-space lands.
SUMMARY : Repeals the sunset date of the property tax welfare
exemption that applies to certain specified nature resources and
open-space lands. Specifically, this bill :
1)Repeals the January 1, 2012 inoperative date and the January
1, 2013 repeal date of the property tax welfare exemption for
property that is used exclusively for the preservation of
specified nature resources and open-space lands, thereby
extending it indefinitely.
2)States that no appropriation is made by this bill and that the
State will not reimburse any local agency for any property tax
revenues lost by it pursuant to this bill's provisions.
3)Takes effect immediately as a tax levy.
EXISTING STATE LAW :
1)Provides that all property is taxable unless explicitly
exempted by the California Constitution or federal law and
limits the maximum amount of any ad valorem tax on real
property at 1% of full cash value.
2)Provides an exemption from taxation for property that is
irrevocably dedicated to religious, hospital, scientific, or
charitable purposes, if the property is used for the actual
operation of the exempt activity and is owned by a nonprofit
entity qualified as an exempt organization by the Internal
Revenue Service, the Franchise Tax Board, or both (the
so-called 'welfare exemption') ŬArticle XIII, Section 4, of
the California Constitution; Revenue and Taxation Code (RT&C)
Section 214]. The entity that owns the property is prohibited
from having any earnings that contribute to the benefit of any
AB 703
Page 2
private shareholder or individual. This welfare exemption has
been expanded over the years to add certain specific types of
property that do not otherwise qualify under the general
exemption.
3)Extends the application of the welfare exemption to property
that meets all of the applicable general requirements, as
provided above, and satisfies all of the following additional
conditions:
a) Is used exclusively for the preservation of native
plants or animals, biotic communities, geological or
geographical formations of scientific or educational
interest, or open-space lands used solely for recreation
and for the enjoyment of scenic beauty;
b) Open to the general public subject to reasonable
restrictions concerning the needs of the land; and
c) Is owned and operated by a scientific or charitable
fund, foundation, limited liability company, or
corporation, the primary interest of which is to preserve
those natural areas.
4)Provides that the exemption does not apply:
a) To property reserved for future development.
b) To a non-profit organization that owns more than 30,000
acres in a single county if it is not fully independent, as
specified, from the owner of adjacent taxable lands.
EXISTING FEDERAL LAW defines an organization as tax-exempt under
Internal Revenue Code (IRC) Section 501(c)(3) if the
organization is organized and operated exclusively for exempt
purposes set forth in IRC Section 501(c)(3). The organization
must not be organized or operated for the benefit of private
interests, and no part of an IRC Section 501(c)(3)
organization's net earnings may inure to the benefit of any
private shareholder or individual. In addition, it may not be
an action organization, i.e., it may not attempt to influence
legislation as a substantial part of its activities and it may
not participate in any campaign activity for or against
political candidates. Organizations described in IRC Section
501(c)(3) are commonly referred to as charitable organizations.
AB 703
Page 3
Organizations described in IRC Section 501(c)(3), generally, are
eligible to receive tax-deductible contributions in accordance
with IRC Section 170.
FISCAL EFFECT : The State Board of Equalization's (BOE) staff
estimates that hundreds of properties throughout the state are
currently exempt from property tax pursuant to R&TC Section
214.02. It is tentatively estimated that this bill will result
in the annual property tax loss of $10 million or less.
COMMENTS :
1)Author's Statement . The author states that, "As is true in my
district, open-spaces and parklands are vitally important to
the quality of life in communities across California. Each of
us benefits from these preserved green spaces, whether they
are for the protection of wildlife, for the outdoor education
of our urban youth, or for recreation by all who enjoy
California's open spaces.
"Many of these green spaces are owned and operated by charitable
organizations for the public benefits they provide. Existing
property tax law has acknowledged the value of this charitable
service since 1971, affording these lands with an exemption
from property taxes. This exemption has allowed non-profit
organizations to focus their limited funds on the long-term
stewardship of these important lands, and in many cases on
providing the public with educational programs not offered
anywhere else. Without extending the current 2012 sunset
provision associated with the exemption, these charitable
services will be threatened. AB 703 would eliminate this
sunset. By doing so, AB 703 would provide the same long-term
property tax assurances to these important green spaces that
are currently afforded to non-profit schools, hospitals, and
churches.
"AB 703 is vitally important not only to the dozens of
charitable conservation organizations that are dedicated to
protecting our open-spaces. It is vitally important to the
quality of life in each of our local communities."
2)Arguments in Support . The proponents of this bill argue that
AB 703 is essential for non-profit organizations to be able to
hold and manage lands for recreation, open space and habitat
purposes. It would "provide the same long-term property tax
AB 703
Page 4
assurances to important open-space lands that are currently
afforded to schools, hospitals, and churches operated by
non-profit organizations." They state that wildlife
sanctuaries, nature preserves, and other open-space lands
provide "high quality outdoor experiences for California
families and children at no cost to the state or local
jurisdictions." Finally, they contend that, without the
benefits of AB 703, many of those programs that service local
communities will be reduced, further expansion of land-based
conservation investment will be deferred, and "nonprofits will
be forced to consider alternative ownership, including
possible abandonment and ? reversion to state ownership."
3)History of the Welfare Exemption for Nature Resources and
Open-Space Lands . In 1970, this Committee held an interim
hearing and conducted several studies regarding alternative
tax policies intended to encourage natural lands preservation
in the state. The staff report submitted to the Committee
indicated that local governments were reluctant to preserve
open space areas, recreational areas, and ecologically
valuable areas because they heavily rely on property tax
revenues. ŬThe Fiscal Implications of Environmental Control:
an Appendix to Final Report of the Assembly Committee on
Revenue and Taxation, Interim Activities (1970), pp. 90-92].
Moreover, the assessment practices used by local county
assessors to value open space areas lacked uniformity and
varied widely among counties.
Subsequently, in 1971, R&TC Section 214.02 was enacted to extend
the application of the welfare property tax exemption to land
in its natural state. The application of the exemption was
limited to property acquired by nonprofit organizations that
is used exclusively for the preservation of native plants and
animals or of geographical formations of scientific or
educational interest or open space lands used solely for
recreation and for the enjoyment of scenic beauty. According
to the staff at the BOE, "ŬT]he intent of the original
legislation enacting R&TC Section 214.01 was to assist
nonprofit organizations that purchased open-space and similar
lands, held the lands temporarily, and then sold or donated
the lands to public agencies for permanent use as park
facilities. A sunset date was included in the original
legislation as a result of a Senate Revenue and Taxation
Committee hearing to ensure that the charitable organizations
sold or donated the lands rather than hold then indefinitely.
AB 703
Page 5
Since that time, it appears that many charitable organizations
may be the permanent owners of lands due, in part, to the
limited ability of public agencies to acquire additional
parklands." When the original exemption expired after the
lien date in 1982, it has continuously been extended, first,
until 1992, then, to 2002, and, most recently, to January 1,
2012.
4)The Repeal of the Sunset Date . Under existing law, the
open-space property tax exemption referenced above is
scheduled to be repealed on January 1, 2013. The exemption is
currently claimed for hundreds of properties located in
California. Examples of exempted properties include those
held by the Nature Conservancy, Monterey Bay Aquarium
Foundation, Yosemite Foundation, Richardson Bay Audubon Center
& Sanctuary, Peninsula Open Space, East Bay Zoological
Foundation, Sacramento Garden and Arts Center, Save the
Redwoods League, Sierra Club foundation, and many others. If
the exemption is not renewed, those properties will be subject
to tax. Potentially, without the tax exemption, some
non-profit groups would not be able to afford to keep the land
and continue the conservation projects. The author believes
that the loss of the welfare exemption for open-space lands
will be highly disruptive to state and local conservation
efforts and will potentially result in degradation of our
natural resources. Currently, the non-profit organizations
that hold exempt open-space land pay maintenance costs on the
land. While some of the property currently owned by nonprofit
organizations may be transferred to the State, if the State
were willing to accept ownership and maintenance, it will
place an additional burden on the State's General Fund.
The exemption that is the subject of this bill has been
continuously available since 1972. However, this bill is not
consistent with past measures since all of those measures
simply extended the sunset date of the open-space property tax
welfare exemption. AB 703, on the other hand, seeks to
completely eliminate the sunset date, thereby making the
welfare property tax exemption for nature resources and
open-space lands permanent. The permanent extension would
undoubtedly benefit nonprofit organizations, since it will
provide certainty in their financial planning for property
tax. However, as discussed earlier, the original legislation
for the exemption was enacted as the result of this
Committee's studies, which were done more than 40 years ago.
AB 703
Page 6
The Committee may wish to consider conducting another study on
tax policies intended to encourage natural lands preservation
in California and the effectiveness of this exemption. The
Committee may also wish to amend this bill to temporarily
extend the sunset date, instead of completely eliminating it,
until the study is completed.
5)Related Legislation.
SB 198 (Chesbro), Chapter 533, Statutes of 2001, extended the
property tax exemption for nature resources and open-space
lands from January 1, 2002 to January 1, 2012.
REGISTERED SUPPORT / OPPOSITION :
Support
Audubon California
Big Sur Land Trust
Diana Donovan, Board Member, Richardson Bay Audubon Center &
Sanctuary
of Marin County
Land Trust of Santa Cruz County
Los Angeles Neighborhood Land Trust
Marin Agricultural Land Trust
Peninsula Open Space Trust
Planning and Conservation League
Pomona Valley Audubon Society, Claremont, California
Sally Van Ingen, Member, Richardson Bay Audubon Center &
Sanctuary of Marin County
San Joaquin River Parkway and Conservation Trust, Inc.
The Friends of the Desert Mountains
The Nature Conservancy
The Trust for Public Land
The Wildlands Conservancy
Tulare Basin Wildlife Partners
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
AB 703
Page 7