BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 2046 HEARING: 7/3/12 AUTHOR: Allen FISCAL: Yes VERSION: 5/21/12 TAX LEVY: Yes CONSULTANT: Grinnell FLOATING HOMES AND PROPERTY TAXES Tenant purchases of floating home marinas are the same as mobile home parks. 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. However, a change of ownership generally does not include any situation where one person continues to own or reside in the home, such as placing property in a trust, creating a life estate, or purchasing the land under a mobile home. Assessing mobile homes for property tax purposes generally differs from typical assessment: one taxpayer (the mobile homeowner) is assessed for the value his or her structure, while another (the mobile home park owner) pays tax on the park under the structure, unless the owner both owns the home and the park, in which case he or she is assessed for both. When tenants who rent the individual spaces in the park want to buy it, state law provides that the transfer does not constitute a change-in-ownership subject to reassessment, subject to specified conditions. However, once excluded, any subsequent change of ownership of the shares of stock or other equity ownership in the park purchased by the former renters results in a pro rata change in ownership, that particular share in the park would be reassessed to current market value. AB 2046 - 5/21/12-- Page 2 As fixed structures with no means of self-propulsion that rest in permanent berths in marinas, floating homes are subject to property taxes. Floating homes are connected to utilities and services. Floating home marinas are privately owned and charge homeowners monthly berthage fees. Five marinas of 400 floating homes can be found in Richardson Bay in Sausalito, California. Proposed Law Assembly Bill 2046 extends provisions applicable to mobile home parks to transfers of floating home marinas to current tenants of berths at the marina. The measure excludes these transfers from the definitions of change of ownership, thereby precluding reassessment of the marina to fair market value upon transfer, so long as: The transfer is to a nonprofit corporation, stock cooperative corporation, limited equity stock cooperative, or other entity formed buy tenants to purchase the marina. The currently renting tenants seeking to purchase the marina total at least 51% of its berths through the ownership of an aggregate of at least 51% of the voting stock of the entity described above. Should any of the tenants that are excluded from the reassessment under this bill subsequently sell or transfer their share, that pro rata share shall be reassessed to fair market value, unless the marina has been converted to a condominium, stock cooperative ownership, or limited equity cooperative ownership, or is otherwise precluded. The measure further requires a floating home marina that does not utilize recorded deeds to file a report on or before February 1st of each year with: The full names and mailing addresses of each owner, The situs address including berth and dock number of each unit, The date ownership was acquired, and The Department of Housing and Community Development decal number. New resident owners, purchasers, or transferees of a AB 2046 - 5/21/12-- Page 3 floating home in a park must file a preliminary change in ownership report or a change in ownership statement. The measure imports a definition of "floating home marina" from the Civil Code and "pro rata portion of the real property" from the mobile home park exclusion. State Revenue Impact BOE estimates property tax revenue losses of $212,000 resulting from AB 2046. Comments 1. Purpose of the bill . According to the author, "Many people use floating homes as their principal residences, just like owners of mobile homes. Proposition 13 provides protection from unfair or excessively burdensome property taxes, and given that floating home marina tenants presently use and occupy marinas, it is excessively burdensome to require a property tax reassessment when marina tenants wish to purchase the marina as a group. Just as in mobile home parks, the tenants of a floating home marina do not own the land underneath their homes where they reside. Instead, they rent a berth in a marina from the owner or operator of the park, or, in the case of a mobile homes, a site from the mobile home park's owner or operator. The ownership structure of a mobile home is the same as that of a floating home, but the tax benefits are only available for purchases of mobile home parks, and not floating home marinas. AB 2046 would protect floating home marina tenants from excessively burdensome property taxes by allowing the marina tenants to purchase their respective floating home marina without triggering a reassessment of property taxes. The purchase of a floating home marina by current tenants should not trigger a property tax reassessment due to "change in ownership" because tenants have lived and paid taxes on that property and are not entirely "new" owners. Additionally, floating homes are already categorized with mobile homes for many other legal purposes, so it makes sense to bring them into alignment for property tax assessment. Passing this bill will help bring financial stability to floating home owners by allowing the marina tenants to form neighborhood associations in an effort to purchase marinas without triggering a reassessment of property taxes." AB 2046 - 5/21/12-- Page 4 2. Hope floats . AB 2046 applies laws that allow tenants of mobile homes to purchase the park to owners of floating homes that want to acquire the marina. As mobile homes and floating homes have important characteristics for property tax purposes in common - tenants own the structure and the park or marina owner owns the surrounding property - differential tax treatment shouldn't exist. While no specific set of tenants is seeking to buy a marina at the moment according to the Floating Homes Association, a significant financial barrier will be removed should the Legislature enact AB 2046. 3. Yes we can. The Legislature has clear power to enact change in ownership exclusions according to case law, despite the objections of critics. In 2005, three County Assessors sued BOE asserting that Rule 462.240(k) which provides an exclusion from the definition of change of owner-ship for property transfers between registered domestic partners is unauthorized by the California Constitution in Strong v. Board of Equalization (Case CO52818/Sup Ct. 05AS01701). The Assessors argued that neither BOE nor the Legislature has the authority to create exclusions beyond those listed in the Constitution. BOE responded that because the Constitution is silent on this issue, the definition is left to the BOE and the Legislature. Sacramento Superior Court denied the claim in 2003, siding with BOE, and the California Court of Appeal affirmed the decision. While the flash point in the lawsuit was BOE's rule that was later enacted into state law, the case appears ended up as a fight between defining the relevant powers delegated by the people through the Constitution to the Legislature and administrative agencies. Had the Court found the Assessors to be correct, all statutory exclusions from change of ownership would have been rendered invalid. Assembly Actions Assembly Revenue and Taxation Committee: 6-2 Assembly Appropriations Committee: 12-5 Assembly Floor: 48-25 AB 2046 - 5/21/12-- Page 5 Support and Opposition (6/28/12) Support : Floating Homes Association Opposition : Unknown.