BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                  AB 2046
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          Date of Hearing:  May 7, 2012

                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                                Henry T. Perea, Chair
           AB 2046 (Allen and Huffman) - As Introduced:  February 23, 2012
          
           Majority vote.  Tax levy.  Fiscal committee.
           
          SUBJECT  :  Property tax:  change in ownership:  exclusion:  
          floating homes. 

           SUMMARY  :  Revises the definition of a "change in ownership" to 
          create an exclusion from property reassessment for specified 
          transfers of a floating home marina.  Specifically,  this bill  :  

          1)Provides that a purchase of a floating home marina, as 
            defined, by an eligible entity formed by the marina's tenants, 
            does not trigger a reassessment of the marina's real property 
            to current fair market value for property tax purposes.

          2)Provides that both of the following requirements must be met 
            in order for the transfer to qualify for the exclusion from 
            reassessment:

             a)   A transfer of a floating home marina is made to a 
               non-profit corporation, stock cooperative corporation, 
               limited equity stock cooperative, or other entity formed by 
               the tenants of a floating home marina for the purpose of 
               purchasing the marina. 

             b)   The individual tenants who were renting at least 51% of 
               the berths in the floating home marina prior to the 
               transfer participate in the transaction through the 
               ownership of at least 51% of the voting stock of, or other 
               ownership or membership interest in, the entity that 
               acquires the floating home marina.

          3)Defines "floating home marina," by reference to Civil Code 
            Section 800.4, as an area where five or more floating home 
            berths are rented, or held out for rent, to accommodate 
            floating homes.  Excludes from this definition:

             a)   A marina where 10% or fewer of the berths are leased or 
               held out to lease to floating homes;










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             b)   A marina or harbor (i) which is managed by a nonprofit 
               organization; (ii) the rules and regulations of which are 
               set by majority vote of the berth holders thereof; and, 
               (iii) which contains berths for fewer than 25 floating 
               homes.

          4)Specifies that the state will not reimburse any local agency 
            for any property tax revenues lost by it pursuant to this 
            bill.  

          5)Provides that reimbursement to local agencies and school 
            districts shall be made for the costs, if the Commission on 
            Mandates determines that this bill contains costs mandated by 
            the state. 

          6)Takes effect immediately as a tax levy. 

           EXISTING 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, subject to an annual 
            increase of the lesser of 2% or the inflation rate.  "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 a change in ownership has occurred. 

          2)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 re-determined based on current market 
            value.  The value of the property established for property tax 
            purposes initially, or re-determined where appropriate, is 
            referred to as "base year value."

          3)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.  ÝRevenue & Taxation Code (R&TC) 
            Section 60]. 

          4)A transfer of a mobilehome park, on or after January 1, 1985, 
            is excluded from a "change in ownership" reassessment, 









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            provided that it is purchased by an entity formed by the 
            tenants renting at least 51% of the spaces prior to the 
            transfer.  A property transferred under these circumstances 
            would retain its low Proposition 13 base year value.  The 
            Legislature's authority to create statutory exemptions from 
            property tax reassessment was affirmed by the courts ÝSee, 
            e.g., Strong v. Board of Equalization (2007) 155 Cal. App.4th 
            1182].

          5)Provides that any transfer in the shares of stock or ownership 
            interests in the entity that acquired a mobilehome park would 
            result in a pro-rata reassessment of the park's real property 
            equal to the portion of ownership interests that have been 
            transferred.  Excludes from pro-rata reassessment transfers 
            that are undertaken for the purpose of converting the park to 
            condominium or cooperative ownership. 

          6)Excludes from reassessment transfers of rental spaces in a 
            mobilehome part to individual tenants if (a) at least 51% of 
            the spaces are purchased by individual tenants renting their 
            spaces prior to purchase, and (b) the individual tenants form, 
            within one year after the first purchase of a rental space by 
            a tenant, a resident organization, as defined in Health and 
            Safety Code Section 50781.

          7)Provides that a floating home is not a vessel but is real 
            property for property tax assessment purposes.  (R&TC Section 
            229).  

           FISCAL EFFECT  :   The Board of Equalization (BOE) staff estimates 
          that this bill would result in an annual loss of $212,000.  

           COMMENTS  :   

           1)The Purpose of this Bill.   According to the author, "the 
            reassessment of floating home properties upon transfer is much 
            more similar to that of mobile homes than it is to fixed 
            structures and should be reflected this way in the law. The 
            ultimate goal Ýof this bill] is to give floating homes marinas 
            the ability to be purchased by a neighborhood association," by 
            excluding the transfer of a floating home marina from the 
            definition of a "change of ownership." 

           2)Property Taxes:  Background.   The property tax is one of the 
            major general revenue sources for local governments in 









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            California.  It applies to all classes of property, is imposed 
            on property owners and is based on the value of the property.  
            Much of the law pertaining to property taxation is prescribed 
            by Articles XIII and XIII A (commonly known as Proposition 13) 
            of the California Constitution.  Proposition 13 was added to 
            the California Constitution in June 1978 and was most recently 
            amended by Proposition 26 in 2010.  It was designed to provide 
            real property tax relief by imposing a set of interlocking 
            limitations upon the assessment and taxing powers of state and 
            local governments.<1>  

            Section 1 of Article XIII A of the California Constitute 
            states that, as a general rule, the maximum amount of any ad 
            valorem tax on real property may not exceed 1% of the 
            property's full cash value, as adjusted for the lesser of 
            inflation or 2% per year.  The term "full cash value" means 
            the "county assessor's valuation of real property as shown on 
            the 1975-1976 tax bill" or, thereafter, "the appraised value 
            of real property when purchased, newly constructed, or a 
            change in ownership has occurred after the 1975 assessment" 
            (emphasis added) ÝCalifornia Constitution, Article XIII A, 
            Sections 1 and 2].  In other words, the California 
            Constitution requires that real property be reassessed to its 
            current fair market value whenever a "change in ownership" has 
            occurred. 

           3)What is a "Change in Ownership"?   The definition of a "change 
            in ownership" was not included in Proposition 13, but rather, 
            was left to implementing legislation.  Shortly after the 
            passage of Proposition 13, the Assembly Committee on Revenue 
            and Taxation appointed a special Task Force - a broad-based 
            35-member panel that included legislative and State BOE staff, 
            county assessors, attorneys in the public and private sectors, 
            and trade associations - to suggest a statutory scheme for 
            implementing Proposition 13, including applicable "change in 
            ownership" provisions.  Following the Task Force's 
            recommendations, the Legislature defined the term as a 
            transfer of a present interest in real property, including the 
          ---------------------------
          <1> Since any tax savings resulting from the real property tax 
          limitations provided in Sections 1 and 2 of Article XIII A could 
          be effectively eliminated through the imposition of additional 
          state and local taxes, Sections 3 and 4 place additional 
          restrictions upon the imposition of any such taxes.  See  Amador 
          Valley Joint Union High Sch. Dist. v. State Bd. of Equalization  , 
          (1978) 22 Cal.3d 208.  








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            beneficial use thereof, the value of which is substantially 
            equal to the value of the fee interest.  (R&TC Section 60).   
            For policy reasons, the Legislature has, over the years, 
            exempted various transfers from the "change in ownership" 
            definition.  The exempted transfers, such as, for example, a 
            transfer of real property between spouses or a purchase of a 
            mobilehome park by its residents, among others, do not trigger 
            a reassessment of property to current fair market value. 
            Instead, the property retains its prior base year value. 

           4)The Mobilehome Park Resident Occupancy Program (MPROP).   In 
            1984, the Legislature enacted MPROP in order "to facilitate 
            conversions of mobilehome parks to tenant ownership, thereby 
            maintaining affordable housing for the tenants."  ÝStrong v. 
            Board of Equalization (2007) 155 Cal. App.4th 1194].   The 
            program allows mobilehome park residents to apply for 
            low-interest loans to finance the conversion of mobilehome 
            parks to resident ownership.  It is funded through a $5 fee 
            that certain mobilehome owners pay along with their annual 
            registration fee, as well as through loan repayment.  The 
            Department of Housing and Community Development (HCD) states 
            on its website that, currently, approximately $8 million is 
            available under MPROP. 

          As part of the MPROP, the Legislature excluded a direct or 
            indirect transfer of a mobilehome park to an entity formed by 
            the tenants from the definition of a "change of ownership," 
            provided that 51% of the entity is owned by the tenants 
            renting at least 51% of the spaces in the park prior to the 
            transfer.  As a result, the tenants retain the prior base-year 
            value in the mobilehome park, since the transfer does not 
            trigger a reassessment of the property.  Once the park has 
            been purchased by the residents and the purchase was not 
            subject to reassessment, any subsequent pro-rata change of 
            ownership in resident-owned mobilehome parks issubject to 
            reassessment.  In other words, when a resident who 
            participated in the original purchase of the park sells or 
            otherwise transfers his/her ownership interest in the park, a 
            pro-rata share of the park's real property would be reassessed 
            to its current fair market value. 
             
             According to the Senate Select Committee on Mobile and 
            Manufactured Homes (Select Committee), there are approximately 
            4,822 mobilehome parks and manufactured communities in the 
            California, with an estimated 700,000 residents living in 









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            them.  In the vast majority of parks, mobilehome residents own 
            their homes but rent the spaces on which their homes are 
            installed from the park on a month-to-month or long-term lease 
            agreement.  According to the Select Committee, of the 4,822 
            parks, most are privately owned by investor groups or 
            owner/operators and an estimated 150 are owned by resident 
            organizations or non-profit organizations.  Contrary to their 
            name, mobilehomes generally are not mobile.  Once installed in 
            a park, they are rarely ever moved.  Between 1985 and 2001, 
            MPROP provided loans to assist with conversion in 66 
            mobilehome parks around the state.  Since 2002, new loan 
            activity under the program has slowed and activity continues 
            to decline. The program had no successful applications in 2010 
            and only two in 2011.  The HCD indicates that the increasing 
            cost and complexity of park conversions are two of the primary 
            reasons for the reduction in the number of loan applications. 

           5)What Does This Bill Do?   AB 2046 allows tenants of a floating 
            home marina to purchase the marina without triggering a 
            potential reassessment of the marina for property tax 
            purposes.  Similarly to the exclusion for purchases of 
            mobilehome parks, the marina's tenants must form a non-profit 
            corporation, stock cooperative corporation, limited equity 
            stock cooperative, or other entity to purchase the marina.  
            This bill further limits the availability of the proposed 
            exclusion by requiring individual tenants who were renting at 
            least 51% of the berths in the floating home marina prior to 
            the transfer to participate in the transaction and own at 
            least 51% of the voting stock or membership interests of the 
            entity that acquires the floating home marina.  

           6)Should a Transfer of a Floating Home Marina Be Treated the 
            Same as a Transfer of a  
             MobileHome Park for Property Tax Purposes  ?  Generally, the 
            residents of a mobilehome park, like the tenants of a floating 
            home marina, do not own the land underneath their homes where 
            they reside.  Instead, they rent a space in a mobilehome park 
            from the owner or operator of the park, or, in the case of a 
            floating home, a berth from the marina's owner or operator.  
            Functionally, the ownership structure of a mobile home is 
            comparable to that of a floating home.  But the tax benefit - 
            an exclusion from reassessment for property tax purposes - is 
            only available for purchases of mobilehome parks, and not 
            floating home marinas, by the tenants.  Should this benefit be 
            extended to the tenants of a floating home marina?









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            A floating home is considered to be real property, not a 
            vessel.  It stays in a permanent location, just like a regular 
            home, except the location is on the water.  A floating home is 
            subject to property tax and usually is connected to utilities 
            and other services, such as cable or satellite TV, and 
            Internet.  Many people use floating homes as their principal 
            residences, just like owners of mobile homes.  Proposition 13 
            provides protection from a reassessment of property until a 
            "change in ownership" has occurred.  Arguably, it is unfair, 
            or excessively burdensome, to treat a purchase of a floating 
            home marina by the tenants as a "change in ownership," since 
            the tenants presently use and occupy the marina as renters.  
            Furthermore, the "underlying purpose and chief aim of 
            Proposition 13 was real property tax relief" ÝBoard of 
            Supervisors v. Lonergan (1980) 27 Cal.3d 855, 863], ensuring 
            that people are protected from being "taxed" out of their 
            homes because of increasing property taxes.  Finally, owners 
            of mobile homes - who are similarly situated - are allowed to 
            purchase the mobilehome park in which they reside without 
            triggering an increase in the amount of property tax 
            associated with the park.  

            It is important, however, to look at the legislative intent 
            underlying the creation of the exclusion for conversions of a 
            mobilehome park into resident-owned, in order to determine if 
            the same rationale would apply in the case of floating home 
            marina conversions.  In the mid-1980s, as a result of 
            increasing park rents for low- and moderate-income residents 
            and the closure of some parks and displacement of residents, 
            the concept of resident-owned parks, where residents form a 
            homeowners association to purchase a park and convert it to a 
            mobilehome subdivision, condominium, stock co-operative, or 
            non-profit ownership, gained popularity.  In response, the 
            Legislature enacted a number of laws, including the MPROP, to 
            assist mobilehome residents with the conversion costs in order 
            to provide the residents with an opportunity to obtain 
            management and financial control over the park.  A price of a 
            mobilehome park is not cheap, and, for the most part, 
            residents of those parks tend to be low- or moderate-income 
            people.  The low-interest loan program and the exemption from 
            reassessment for property tax purposes were envisioned as a 
            subsidy, part of financing for conversions of mobilehome parks 
            into resident-owned parks.  In fact, most of those conversions 
            would not have taken place in the absence of these subsidies, 









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            including the tax benefit, provided by the state.  

            On average, a price of a manufactured home tends to be lower 
            than that of a floating home.  An average price of a 
            mobilehome park is also lower than the price of a floating 
            home marina.  It may be argued that an average owner of a 
            floating home is better off financially than an average owner 
            of a mobile home.  The Committee may wish to consider whether 
            the rationale for creating a tax benefit for mobilehome park 
            purchases by its residents, i.e. a need to provide financial 
            assistance to residents in order to effectuate those 
            conversions, would apply in the case of floating home marinas. 


           7)Subsequent Reassessment of Pro Rata Transfers  .  The exclusion 
            for qualifying  mobilehome park transfers does not apply to 
            subsequent sales or transfers of pro-rata share in 
            resident-owned mobilehome parks.  AB 2046 does not contain a 
            similar provision with respect to the treatment of a pro rata 
            change in ownership after the conversion of a floating home 
            marina into tenant-owned, thus potentially creating a 
            permanent exclusion from reassessment for any subsequent 
            transfers of ownership in the marina.  The Committee may wish 
            to consider including a similar provision to require a 
            reassessment of subsequent pro rata changes in ownership of 
            the floating home marina.  

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          None on file

           Opposition 
           
          None on file
           
          Analysis Prepared by  :  Oksana Jaffe / REV. & TAX. / (916) 
          319-2098