BILL ANALYSIS Ó AB 902 Page 1 ASSEMBLY THIRD READING AB 902 (Alejo) As Introduced February 17, 2011 Majority vote REVENUE & TAXATION 5-2 ----------------------------------------------------------------- |Ayes:|Perea, Beall, Charles | | | | |Calderon, Fuentes, Gordon | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Donnelly, Harkey | | | | | | | | ----------------------------------------------------------------- SUMMARY : Removes the statutory cap imposed on certain types of fees that a tax collector may charge in connection with a sale of tax-defaulted property, and instead, requires the local board of supervisors to establish those fees in the amounts that would allow the county to recover its actual and reasonable costs, as provided. Specifically, this bill : 1)Removes the $100 statutory limitation on the amount of the costs that a tax collector may recover for attempting to contact personally, and serve a written notice to, the owner-occupant of the tax-defaulted property that is scheduled to be offered for sale at a public auction. 2)Removes the $35 statutory limitation on the amount of the fee that a tax collector may collect for obtaining the names and last known mailing addresses of, and mailing specified notices to, parties of interest, when the tax-defaulted property subject to the notice is redeemed. 3)Clarifies that a tax collector, when the tax-defaulted property is redeemed prior to the proposed sale to a public agency or a qualified non-profit organization but after the county has incurred notice or publication costs, may collect a fee in an amount reasonably necessary to reimburse the tax collector for the publication costs. 4)Specifies that the fee that may be imposed in the above-mentioned cases shall be established by the county board of supervisors based on the amount of actual and reasonable costs incurred by the AB 902 Page 2 tax collector, in accordance with the requirements of Government Code (GC) Chapter 12.5 (commencing with Section 54985) of Part 1 of Division 2 of Title 5, and shall be distributed to the county General Fund (GF) or tax collector, whichever is applicable, once the property is sold or redeemed. 5)Makes technical non-substantive changes to the corresponding provisions of the Revenue and Taxation Code (R&TC). FISCAL EFFECT : Unknown, but the Revenue and Taxation Committee staff estimates that this bill will not impact state GF revenues. COMMENTS : Author's Statement . The author states that, "AB 902 gives counties the ability to charge the actual and reasonable costs of locating and serving a tax-defaulted property owner. Currently, counties are restricted to a maximum reimbursement of $100, regardless of the actual costs incurred." Arguments in Support . The proponents of this bill argue that, while tax collectors are required to provide a personal notice to property owners who have a tax-defaulted residential property at risk of being sold at public auction, they cannot recover more than $100 for the staff time and transportation costs incurred in complying with the requirement. The proponents also state that this bill is important to counties that are facing fiscal crisis since "the ability and authority to bring fee levels closer to full cost recovery would be of significant assistance." The $100 Statutory Cap . Once a county has decided to sell a tax-defaulted property, it is under an obligation to make a reasonable effort to contact the delinquent owner before proceeding with a sale. Under existing law, a tax collector is required to provide a personal notice to property owners whose principal residence is at risk of being sold at a tax sale. If the personal contact is not made after reasonable efforts by a tax collector, the tax collector is required to attempt to serve written notice, as specified. The law allows the tax collector to add actual and reasonable costs of this visit to the amount charged for redemption of the property. However, even though the tax collector can recover the costs of locating and serving a notice on the delinquent owner, the amount of those costs is capped at $100. AB 902 Page 3 According to the sponsor, in rare circumstances does this amount cover the transportation costs and/or staff time. For example, the County of Monterey estimates a loss of $200 in each case of personal contact attempted by the tax collector, whereas the County of Fresno approximates that it loses about $50 per case. This bill would remove the $100 statutory cap imposed on the amount of costs that may be recovered by a tax collector and would, instead, allow the county to recover the actual cost of locating and personally serving the owner of the tax-defaulted principal residence. The amount of actual and reasonable costs of making a personal contact would be determined by the county board of supervisors, in accordance with the rules prescribed by GC Chapter 12.5 of Part 1 of Division 2 of Title 5. This bill would also provide that, in order to reimburse the county for the costs of a personal contact, a sum equal to the total amount of the actual and reasonable costs, not subject to the $100 cap, shall be distributed to the tax collector from the sale price amount, as specified. The $35 Statutory Cap . Under existing law, tax-defaulted property subject to a recorded notice may be redeemed by the former owner by payment of all delinquencies and statutory penalties prior to disposition of the property or until the redemption right is terminated, as specified. When a tax-defaulted property is redeemed, the tax collector is required to collect specified fees, including a $35 fee for the costs incurred by the county in obtaining the names and last known mailing addresses of, and for mailing certain notices to, parties of interest (a so-called 'notice fee'). The minimum redemption price must also include the cost of publishing and advertising the property sale, in addition to other associated penalties and costs. This bill would repeal the $35 notice fee and, instead, would require the tax collector to collect a fee equal to an amount of actual and reasonable costs incurred by the county in notifying the parties of interest, as defined, for each separately valued parcel of real property and would authorize the full amount of the fee to be distributed to the county GF. This bill would also clarify that the new notice fee amount and a publication fee would apply in the case of a sale of tax-defaulted property to a public agency or a qualified non-profit organization. The amount of the notice fee will be established by the county board of supervisors, in accordance with the rules prescribed by GC Chapter 12.5 of Part 1 of Division 2 of Title 5. AB 902 Page 4 "Actual and Reasonable" Costs . Under existing law, the majority of all fees and charges imposed by a treasurer-tax collector in connection with the administration of property taxes are established and approved by the board of supervisors under GC Section 54985, which allows the treasurer-tax collector to recover actual costs. Specifically, a county board of supervisors has the authority to set the amount of a fee or charge that is authorized to be levied by another provision of law. GC Section 54986 prescribes the rules that the board of supervisors must follow before approving any new fee or increasing an existing fee. Thus, the board must hold at least one public meeting, and at least 14 days prior to the meeting, a written notice is required to be mailed to interested parties who have filed for written notifications. Finally, at least 10 days prior to the meeting, the data indicating the amount of the cost, or estimated cost, must be made available to the public. The amount of the fee or charge must be the amount reasonably necessary to recover the cost of providing any product or service or the cost of enforcing any regulation. The fee or charge may be the average cost and can include direct and indirect costs. The board of supervisors may request the county auditor to conduct a study to determine whether the fee or charge is reasonable. A study typically involves a review of the methodology used in calculating the estimated costs. Many counties ask the auditor to conduct a study prior to presenting the amount of a new fee or an increase of an existing fee to the board of supervisors for approval. Although existing law allows a tax collector to collect the amount of the actual and reasonable costs incurred in an attempt to establish a personal contact, it limits that amount to $100 and, consequently, in many cases, does not allow the tax collector to recover the actual costs incurred. Proposition 26 . On November 2, 2010, the voters approved Proposition 26, an initiative constitutional amendment, that expanded the definition of a "tax" to include many state and local government assessments previously classified as "fees." Among other provisions, Proposition 26 amended Article XIII C, Section 1 of the California Constitution to define the term "tax" as any levy, charge, or exaction of any kind imposed by a local government, except certain enumerated fees. One type of those enumerated exactions is "a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the AB 902 Page 5 local government of providing the service or product." The personal contact fee and the notice fee are charged for the costs of services provided by a local government. As such, both fees must comply with the requirements of Proposition 26. The actual and reasonable costs of providing the service may vary from county to county and may very well be more than $100 or $35. By authorizing a local board of supervisors to set these fees, within the confines of both GC Section 54986 and Proposition 26, this bill would allow local governments the flexibility needed to recover the actual costs incurred by them in complying with the requirements applicable to tax sales. Related Legislation . AB 820 (Gordon), introduced in the current legislative session, would allow a tax collector to recover the actual and reasonable costs incurred in preparing a certificate-of-payment showing taxes paid. AB 820 was heard by the Revenue and Taxation Committee and passed out on a five to one vote on April 25, 2011. Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN: 0000319