BILL ANALYSIS Ó
AB 2643
Page 1
Date of Hearing: May 7, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2643 (Ma) - As Amended: April 24, 2012
Majority Vote.
SUBJECT : Property taxation.
SUMMARY : Limits the statute of limitations for filing a claim
for refund for an overpayment of property taxes and makes
several other changes to the statutes related to property tax
collection. Specifically, this bill :
1)Authorizes the tax collector, when the amount of property
taxes paid exceeds the amount due, as of the date and time the
payment is received, by more than $10, to process the refund
without sending a required notice and without the taxpayer
filing a claim for refund, if the tax collector establishes
that a refund is due to the taxpayer.
2)Allows a tax collector to apply a replicated payment otherwise
due a taxpayer, or the taxpayer's agent, to any delinquent
taxes due for the same property for which the same taxpayer,
or his/her agent, is liable.
3)Limits penalty relief, for cases in which a taxpayer has
failed to pay taxes on an assessment that is the subject of a
pending informal review due to a decline in value as a result
of damage, destruction, depreciation, obsolescence, removal of
property, or other factors causing a decline in value, to the
difference between the county assessor's final determination
of value and the value on the assessment roll for the fiscal
year covered by the application.
4)Restricts the penalty relief to those properties upon which an
application for an informal review is pending before the
county assessor on the effective date of this bill's
implementation, or in situations where those applications for
an informal review are filed with the county board after the
date of this bill's implementation.
5)Extends from 60 to 90 days the time period within which the
county treasurer must advise the State Controller of the
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county pool apportioned rate and of computations made in
deriving that rate, for purposes of calculating the interest
on property tax refunds.
EXISTING LAW :
1)Authorizes property tax refunds if the taxpayer paid more than
once, or taxes were erroneously or illegally collected,
illegally assessed or levied, overpaid due to an assessor's
error, paid on an assessment of improvements that did not
exist, paid on an assessment in excess of an assessment
appeals board's determination, or paid on an assessment that
was later found by an audit to be excessive.
2)Provides that a taxpayer may file a property tax refund claim
within four years of the date of payment of the property taxes
sought to be refunded, or within one year after the mailing of
an overpayment notice, as prescribed by Revenue and Taxation
Code (R&TC) Section 2635, whichever is later. (R&TC Section
5097).
3)Requires a county to allow a taxpayer's refund claim within
one year following the mailing of the overpayment notice, as
prescribed by R&TC Section 2635, even if the overpayment
corresponds to an assessment year beyond four years. ÝSee,
e.g., Bunker v. County of Orange (2002) 103 Cal. App. 4th
542].
4)Allows the assessor, auditor or tax collector to correct
property tax valuations under certain circumstances.
5)Allows taxpayers to file a claim for a reduction in
assessment, which serves as a request for refund if the
taxpayer so declares. Provides a six-month statute of
limitations for filing a claim for refund in the case of a
taxpayer who filed a specified application for a reduction in,
or equalization of, an assessment, and was notified in writing
by the county assessment appeals board of the board's decision
and the taxpayer's right to file a claim for refund. ÝR&TC
Section 5097(a)(3)].
6)Requires the county auditor to process a refund or notify a
taxpayer in writing when a roll correction results in a
refund. The notice shall state that the taxpayer is entitled
to a refund and that a claim must be filed within 60 days of
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the date of the notice.
7)Allows the tax collector to apply any refund due a taxpayer,
or the taxpayer's agent to any delinquent taxes due for the
same property for which the same taxpayer, or his/her agent,
is liable, except as specified for the return of replicated
property tax payments.
8)Defines "replicated payment" as a payment, submitted by or on
behalf of a taxpayer, which is indicated for application to a
specific tax or tax installment which has already been paid,
whether or not the prior payment and the replicated payment
are in the same amount. Requires a tax collector to return a
replicated property tax payment within 60 days of becoming
final, if a taxpayer or agent for the taxpayer submits a
payment indicated for application to a specific tax or tax
installment and that tax or tax installment already has been
paid.
9)Limits, in the case in which a taxpayer has failed to pay
taxes on an assessment that is the subject of a pending
assessment appeal, as provided, the amount of penalty relief
to the difference between the final determination of value by
the county board, as defined, and the value on the assessment
roll for the fiscal year covered by the application.
10)Requires the county board to provide a specified notice to
taxpayers impacted by the penalty provisions.
11)Establishes the interest rate that must be paid to property
taxpayers who successfully seek refunds of overpaid property
taxes.
12)Provides that interest must be paid on specified refund
amounts, including property tax refunds, at the greater of 3%
per annum or the county pool apportioned rate.
13)Requires the county treasurer to advise the State Controller
of the county pool apportioned rate and of computations made
in deriving that rate, no later than 60 days after the end of
that fiscal year.
FISCAL EFFECT : None
COMMENTS :
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1)The Stated Purpose of This Bill . AB 2643 is sponsored by the
California Association of County Treasurers and Tax Collectors
and makes several changes to the laws related to property tax
collection. According to the sponsor, this bill will "clarify
that Treasurer Tax Collectors can simply issue a refund when
one is due, rather than send a notice to a taxpayer to file a
claim to receive it" in order to improve "the experience of
taxpayers and expedite the return of monies owed." Secondly,
this bill will make it clear that "taxpayers must pay their
taxes when due, not make partial payments pending a
reassessment," since most tax collectors do not have the
capability to accept partial payments. AB 2643 will also
authorize the tax collector "to apply refunds on an
overpayment for one type of tax bill on a property to be used
against an underpayment on a different bill for the same
property." Lastly, this measure will extend the time for
county treasurers to calculate the pool rate and report it to
the State Controller from 60 days to 90 days after the end of
the fiscal year.
2)Arguments in Support . Supporters argue that this bill
clarifies the statutes related to property tax collection and
overpayment, penalty relief, and gives county treasurers a
longer period of time to calculate the pool rate and report it
to the State Controller.
3)Arguments in Opposition . Opponents argue that this bill would
delete the alternate deadline for filing a claim for refund,
and thus, "would deprive innocent taxpayers of their
constitutional right to due process notice, ultimately
stripping them of the right to recover money to which they are
entitled." According to the opponents, the phrase proposed to
be added to Section 2635 - "as of the date and time the Ýtax]
payment is received - will eviscerate the crucial due process
protection that Section 2635 now affords to all who overpay a
property tax, without regard to the tax payment date." The
opponents assert that it "regularly takes more than four
years, Ýwhich is] the ordinary refund claim time limit, to
prove that the tax was overpaid in the first instance." For
example, when the Riverside County enacted "a constitutionally
void special assessment district in 2006, it levied and
collected from some 6,500 property owners within the district
from 2006 through 2009." The tax was found to be illegal by
the court in 2010 ÝBeutz v. County of Riverside (2010) 184
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Cal.App.4th 1516]. As pointed out by the opponents, the
taxpayers in the Beutz case would not have been able to
recover their money absent the county's prerequisite full
compliance with R&TC Section 2635 that compels the tax
collector to send a notice of overpayment to taxpayers, thus
extending the regular statute of limitations. The opponents
conclude that, if the proposed changes to Section 2635, as
presently drafted, were enacted, they would have "the
profoundly detrimental and Draconian effect" on taxpayers and
their constitutional rights.
4)Statute of Limitations: Filing a Claim for Overpayment of
Property Tax . The existing language in R&TC Section 2635 is
unambiguous in that it mandates issuance of a notice of
overpayment by the tax collector. R&TC Section 5097, in turn,
allows a taxpayer to file a claim to obtain a refund of the
overpayment. It specifies that the claim must be filed no
later than four years after making the payment sought to be
refunded or within one year after the mailing of notice as
prescribed in Section 2635, or the period agreed to, as
provided in Section 352.1, whichever is later. The one-year
statute of limitations on the right to obtain a refund of
taxes, as allowed in R&TC Section 5097, does not begin to run
until the tax collector mails a statutory notice of
overpayment of tax, even if the overpayment corresponds to an
assessment year beyond four years.
The language in R&TC Section 5097 was added in 1967 by SB 869
(Beilenson) to clarify that a claim for property tax refund
may be filed within one year after the mailing of notice
prescribed by R&TC Section 2635. The reason for the
modification of the statute of limitations on filing a claim
for a refund of property taxes in 1967 was articulated in the
letter written by Senator Beilenson to Governor Reagan on July
14, 1967. Senator Beilenson stated that, "The injustice of
the present law is that an innocent taxpayer, who may have
made a duplicate payment or an improperly assessed payment,
where such mistakes are known to the tax collector, may never
get a refund unless he is notified within the three year
limit."
There have been several attempts to modify the statute of
limitations for filing property tax refunds by deleting the
R&TC Section 2635 notice requirement after the Court of Appeal
had issued its decision in Bunker v. County of Orange (2002)
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103 Cal.App.4th 542. In 2002, William Bunker, a homeowner in
San Juan Capistrano, filed applications for changed
assessment, on which the Orange County assessment appeals
board did not act within the required two-year period,
triggering the enrollment of the taxpayer's opinion value for
tax purposes which, in turn, required the tax collector to
send notices of refund. The Court of Appeal upheld the
application of R&TC Section 1604, which provided that if a
county fails to make a final determination on a Proposition 8
property tax assessment appeal within two years of the timely
filing of the application, the county is obliged to adopt the
taxpayer's proposed valuation. The Court also stated that the
relevant part of law - R&TC Section 2635 - required the tax
collector to send notices of refund for tax years long since
passed and that individuals who have never received the
"mailing of notice as prescribed in Section 3625" are not
precluded from making a claim for refund. The Court noted
that the statute "creates an elegant equipoise: "If the
county delays and never gets around to making a final
determination of an application for reassessment, and
therefore a section 2635 notice is never mailed, the statute
of limitations on making a refund claim never runs. The
county's delay becomes its own punishment." (Id., at p. 554).
In response to the Court's decision in Bunker, in 2008, the Los
Angeles County Auditor-Controller sponsored AB 2411
(Caballero), Chapter 329, Statutes of 2008, to modify Section
2635 to, among other provisions, expressly limit the statute
of limitations for filing a claim for property tax refund to
four years from the date the payment was made. The sponsor
stated that, "In a number of recent instances, where the
four-year statute of limitations for property tax requests for
refund/appeals has run, taxpayer appellants have taken to the
practice of bringing mandate actions in Superior Court,
requesting that a court direct a writ to the Tax Collector
declaring an overpayment and ordering that the Tax Collector
issue an overpayment notice to the aggrieved taxpayer pursuant
to R&TC Section 2635. Because R&TC Section 5097(a) defines a
timely claim as one filed within four years of the date of
payment, or within one year of an overpayment notice, as long
as the Tax Collector can be compelled to issue an overpayment
notice by the courts, it is possible to thwart the four year
statute of limitations." This Committee, however, declined to
amend Section 2635 to eliminate the notice requirement and
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instead suggested an alternative solution. Specifically, it
was recommended that a taxpayer be allowed to file a claim for
refund, in the case of an application filed by the taxpayer
for a reduction in an assessment, within a specified time
frame of either the date on which the county assessment
appeals board makes a final determination on the application
or the expiration date of the time period within which the
board is required to hear evidence and to make a final
determination. Thus, AB 2411 was amended to eliminate a
loophole where a taxpayer could use the open-ended statute of
limitations, instead of the established four-year statute of
limitations on property tax appeals, to compel tax refunds by
tying the statute of limitations to the actions of the county
assessment appeals board. However, in all other instances,
such as for example a case where a tax was found to be
erroneously or illegally collected, the statute of limitations
does not start running until a section 2635 notice is mailed.
The issue came to light again in early versions of SB 948
(Committee on Governance and Finance) of 2011 that attempted
to limit the statute of limitations for filing a claim for
refund to four years from the date of payment, similarly to AB
2643. That particular provision was removed when opposition
was voiced, raising the concern that, by deleting the tax
collector's ministerial duty to give notice to taxpayers of
the right to make a timely refund claim, the net effect would
be to deprive taxpayers of their constitutional right to due
process notice.
5)The Proposed Modification of R&TC Section 2635 . AB 2643
authorizes treasurers and tax collectors to issue a refund
when one is due to a taxpayer because the amount of taxes paid
exceeds the amount due as of the date and time that the
payment is received. This bill also deletes the provisions in
current law that requires tax collectors to notify taxpayers
of overpayment. As such, it would prohibit a taxpayer from
filing a property tax refund claim after the four years
following the date on which the payment of the property taxes
sought to be refunded was made. Thus, in its quest to
"improve the experience of taxpayers and expedite the return
of monies owed," this bill inadvertently undermines the
taxpayers' due process right to file a claim for refund when
he/she becomes aware of the overpayment. By limiting the
amount of overpayment as of the date and time the payment is
received, this bill would essentially render useless the
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issuance of a statutory notice of overpayment beyond the four
years from the date of payment. As such, it would potentially
nullify the taxpayer's right to recover if, after the
four-year statute of limitations has run, the tax paid is
established to be in excess of the amount due, either because
the tax itself was found illegal or for some other reason. It
is not unreasonable to assume that it takes more than four
years to prove that the tax was overpaid. If a taxpayer, who
is unaware of the overpayment, receives a notice of
overpayment of his/her property taxes after the four-year
statute of limitations for filing a claim for refund has run,
under AB 2643, he/she will lose the statutory right to file
that claim and to recover the amount of overpaid property
taxes.
6)Limited Relief from Penalties for Nonpayment of Property Tax .
Current law limits penalty relief when a taxpayer has failed
to pay taxes on an assessment that is the subject of a pending
assessment appeal. Specifically, the relief is provided only
from penalties, which would otherwise apply, based on the
difference between the county board of supervisor's final
determination of value and the value on the assessment roll
for that fiscal year. (R&TC Section 4895.3). According to
the legislative history, Section 4895.3 was designed to
discourage taxpayers from intentionally understating the value
of their property when filing an assessment appeal and paying
only the tax due on this unreasonably low amount by imposing
a penalty equal to 10% of the tax due on the difference
between the amount of tax paid for the period covered by an
assessment appeal and the amount of tax owed on the value
contained in the final determination issued by an assessment
appeals board or court of competent jurisdiction.
Existing law allows a taxpayer to avoid imposition of penalties
and interest by paying the amount of tax attributable to at
least 80% of the value of the property, as finally determined
by an assessment appeals board (the 80% safe harbor rule).
R&TC Section 4895.3 only applies where a taxpayer with a
pending appeal has not paid the full amount of tax owed with
respect to the value of the property as it appears on the
roll.
AB 2643 proposes to apply a similar penalty relief in cases
where a taxpayer has failed to pay taxes on an assessment that
is the subject of a pending informal review due to a decline
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in property value as a result of the damage, destruction,
depreciation, obsolescence, removal of property, or other
causes. The penalty relief will apply only to the difference
between the county assessor's final determination of value and
the value on the assessment roll for that fiscal year. This
bill would apply that penalty relief only to those properties
for which an application for an informal review is pending
before the county assessor on or after the effective date of
this bill's implementation.
The sponsor argues that, under current law, the penalty
calculations are different depending upon whether the assessor
or the assessment appeals board lowers the assessment value.
This bill is intended to create consistency in the penalty
calculations by making it the same for both types of valuation
reductions and, thus, removing the incentive for taxpayers to
pay tax bills late when an appeal is filed with the assessor
for informal review. The proposed provision, however, does
not include the 80% safe harbor rule nor does it require the
county assessor to notify taxpayers of the limited penalty
relief upon filing an application for an informal review. To
ensure consistency, the Committee may wish to consider adding
those additional requirements to the proposed penalty relief
provisions in the case of informal reviews by county
assessors. The Committee may also wish to consider including
a definition of "informal review" in this bill.
7)This bill is double-referred to the Assembly Committee on
Local Government and this Committee. AB 2643 passed out of
the Committee on Local Government on a 8-0 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of County Treasurers and Tax Collectors
(CACTTC)
Opposition
California Taxpayers Association
Law Offices of Robert A. Pool, Attorney at Law
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
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