BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                  AB 188
                                                                  Page A
          Date of Hearing:  April 15, 2013

                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                                Raul Bocanegra, Chair

                 AB 188 (Ammiano) - As Introduced:  January 28, 2013
           
           2/3 vote.  Tax levy.  Fiscal committee.
           
          SUBJECT  :  Property taxation:  change in ownership.

           SUMMARY  :  Revises the circumstances under which a "change in  
          ownership" of real property owned by a legal entity is deemed to  
          have occurred.  Specifically,  this bill  :  

          1)Provides that, when 100% of ownership interests in a legal  
            entity are sold or transferred in a single transaction, the  
            purchase or transfer of those interests is considered to be a  
            "change of ownership" of the real property owned by the  
            entity, thus, triggering a reassessment of the property for  
            tax purposes.

          2)Specifies that a "purchase or transfer" of ownership interests  
            in a legal entity means a merger, acquisition, private equity  
            buyout, transfer of partnership shares, or any other means by  
            which a legal entity acquires the ownership interest of  
            another legal entity, including the subsidiaries or affiliates  
            of the legal entity and the property owned by those  
            subsidiaries and affiliates.

          3)States that a purchase or transfer of 100% of ownership  
            interests in a legal entity is considered to be a "change of  
            ownership" of the real property owned by that entity, whether  
            or not any one legal entity that is a party to the transaction  
            acquires more than 50% of the ownership interests.

          4)Requires the State Board of Equalization (BOE) to notify  
            assessors when such a change in ownership has occurred.

          5)Defines the phrase "single transaction" as a transaction in  
            which 100%  of the ownership interests are sold or transferred  
            in either one calendar year or within a three-year period  
            beginning on the date of the original transaction when any  
            percentage of ownership interests are sold or transferred.










                                                                  AB 188
                                                                  Page B
          6)Defines the term "legal entity" as a corporation, a  
            partnership, a limited liability company, or other legal  
            entity.

          7)Defines the phrase "ownership interests" as corporate voting  
            stock, partnership capital and profits interests, limited  
            liability company membership interests, and other ownership  
            interests in legal entities.

          8)Requires legal entities to record deeds with the county  
            recorder when their ownership interests change and report the  
            changes to the BOE.

          9)Requires legal entities to report original co-owners interest  
            changes to the assessor.

          10)Requires the BOE to prescribe regulations that may be  
            necessary to carry out the purposes of this bill.

          11)Increases the penalty for failure to file a change in  
            ownership statement with the BOE from 10% to 20%.

          12)Takes effect immediately as a tax levy.

           EXISTING LAW  :

          1)Provides that all property is taxable, unless otherwise  
            provided by the California Constitution or federal laws,  
            [Section 1(a), Article XIII, California Constitution].  Limits  
            ad valorem taxes on real property to 1% of the full cash value  
            of that property (Proposition 13).

          2)Requires real property to be reassessed to its current fair  
            market value whenever a "change in ownership" occurs.   
            [California Constitution, Article XIII A, Section 2; Revenue  
            and Taxation Code (R&TC) Sections 60 - 69.5].  

          3)Provides that "change in ownership" includes a transfer of any  
            interest in real property between a corporation, partnership,  
            or other legal entity and a shareholder, partner or any other  
            person.  [R&TC Section 61(j)].   

          4)Specifies in RT&C Sections 60 through 69.5 what constitutes "a  
            change in ownership."  Sets forth the general rule that, when  
            real property is owned by a legal entity, the purchase or  









                                                                  AB 188
                                                                  Page C
            transfer of ownership interests in that entity does not  
            trigger a change in ownership of the property, unless a) there  
            is a "change in control" of the legal entity, or b) a  
            cumulative transfer of more than 50% by the "original  
            co-owners."  (R&TC Section 64).  Thus, when any person or  
            entity obtains control, through direct or indirect ownership  
            or control, of more than 50% of the voting stock of a  
            corporation, or a majority ownership interest in any other  
            type of legal entity, a reassessment of real property owned by  
            the acquired legal entity (or any of its subsidiaries) is  
            triggered.  [R&TC Section 64(c)(1)(A)].  Furthermore, when  
            voting stock or other ownership interests representing  
            cumulatively more than 50% of the total interest in a legal  
            entity is transferred by any of the "original co-owners" in  
            one or more transactions, the real property that was  
            previously excluded from reappraisal will be reassessed.   
            [R&TC Section 64(d)]. 

          5)Requires legal entities to file a change in ownership  
            statement with the BOE within 90 days of a change in control  
            or change in ownership.

          6)Imposes a 10% tax penalty, applicable to the new base year  
            value reflecting a change in ownership, on legal entities that  
            fail to file a change in ownership statement with the BOE. 

          7)States that, generally, when real property is owned by a  
            homeowner, the purchase or transfer or ownership interests in  
            that entity triggers a change in ownership of the property.   
            However, specific exemptions from reassessment are provided  
            for intra-family transfers, replacement residences of senior  
            citizens and disabled persons, and specific types of home  
            improvements.

          8)Requires business personal property to be reassessed annually  
            at its current market value.  Personal property owned by a  
            homeowner is not generally subject to property taxation.

           FISCAL EFFECT  :  The BOE estimates that the annual property tax  
          revenue increase associated with the new "change of ownership"  
          rule is $77 million per year.  However, BOE acknowledged that  
          estimating the revenue increase with any degree of certainty is  
          difficult.  Additionally, it does not know the number of such  
          transactions that would be covered under this new definition in  
          California. 









                                                                  AB 188
                                                                  Page D

           COMMENTS  :   

          1)The author has provided the following statement:

               California's current system for assessing and taxing  
               property, as established under Proposition 13, was designed  
               to provide real property tax relief by imposing a set of  
               limitations upon assessment and taxing powers.  Property  
               tax is based on the assessed value of land and  
               improvements, and as a general rule, it is imposed on all  
               property owners and applies to all classes of real  
               property.  California property taxes are imposed without  
               distinguishing property used as a principal residence, or  
               an apartment building rented to tenants, or property used  
               for commercial or industrial purposes.  Limited Liability  
               Corporations, Real Estate Investment Trusts, and Limited  
               Partnerships, were once held as legal entity tools to  
               promote business growth but have now become complex  
               ownership structures muddling property transactions and  
               obscuring property tax reassessment. 

               The abuse of the system leaves the tax burden to  
               residential property owners.  This undermines our state tax  
               system and hinders the business climate of California by  
               discouraging the formation of new businesses which fear  
               that they could not compete with established companies that  
               are permanently locked into low property taxes by buying in  
               groups.

               Opponents of this bill claim this will undo the work of  
               Proposition 13, which saved millions of Californians from  
               losing their homes.  However, this bill will not undo that.  
               Instead it will strengthen the law by clarifying when a  
               "change of ownership" occurs so that county tax assessors  
               and state tax officials can properly reassess and tax  
               business property.  The goal of this bill is to ensure all  
               property owners in California pay their fair share,  
               creating one small measure to reduce the shift of property  
               taxes from corporate to residential property holders that  
               has occurred over time.

          2)Proponents state:

               The current law with regard to change of ownership for  









                                                                  AB 188
                                                                  Page E
               properties that are owned in a complex manner is entirely  
               loophole-ridden, allowing properties to change hands  
               without reassessment despite current law which would  
               require reassessment upon change in ownership.  This bill  
               addresses [one] such circumstance - where an entire  
               property has changed ownership but would otherwise avoid  
               reassessment because its ownership is divided among several  
               partners.  This bill would pick up private equity buyouts  
               and circumstances with multiple partners, the most  
               egregious of current loopholes.

          3)Opponents state:

               Currently, under Proposition 13, commercial property is  
               reassessed only when there is an actual change of ownership  
               in the entity that owns the property.  That is, another  
               entity or person has acquired at least 50% of the ownership  
               interest of the entity that owns that property and  
               therefore has a controlling interest in the property.  This  
               is the most common-sense interpretation of Proposition 13's  
               requirements.  It creates a bright line to determine when  
               property ownership has changed, and it is consistent with  
               the underlying purpose of Proposition 13, which intended to  
               provide property owners certainty and stability about the  
               amount of property taxes due - on sale and thereafter.

               AB 188 would drastically alter the definition of "change of  
               ownership" under Proposition 13 by dictating that a "change  
               of ownership" occurs whenever 100% of the ownership  
               interests in the legal entity that owns the commercial  
               property are sold within a three-year period, regardless of  
               whether any person or entity actually obtains control  
               through direct or indirect ownership of at least 50% of the  
               voting stock or ownership interest in the entity owning the  
               property.  

               This new definition, which merely focuses on ownership  
               rather than control, will subject commercial property,  
               especially property held by publicly traded corporations,  
               to continuing reassessment that will at some point result  
               in higher property taxes - the obvious intent of this  
               legislation.  However, given that a reassessment could be  
               triggered under this definition on a daily, weekly, or even  
               monthly basis, the anticipated revenue gain by AB 188 is  
               vastly overstated, as the market value of commercial  









                                                                  AB 188
                                                                  Page F
               property does not change within such a short time frame.   
               AB 188 will provide a tool for harassing owners of  
               commercial property with constant reassessments, and an  
               overwhelming workload for county assessors.

               Ultimately, increasing property taxes for commercial  
               property will have detrimental impacts on the general  
               public, including small businesses, apartment residents,  
               employees, and consumers.  Any higher taxes imposed on  
               companies who own commercial property will likely be passed  
               on to the tenants of such property through higher rent,  
               including businesses as well as individuals who rent  
               apartments in which to live.  The increased costs could  
               result in reduced employee benefits, workforce reductions,  
               or even higher prices for consumers.  

               Moreover, the proposed definition of "change of ownership"  
               under AB 188, will trigger reporting requirements for  
               multiple "owners" of these entities.  Despite the  
               percentage of ownership acquired, an individual or entity  
               will be required to report this change in ownership or face  
               a penalty up to 20% of the assessed fair market value of  
               the commercial property.  A penalty for failure to file a  
               statement is imposed even if the county assessor ultimately  
               determines no "change of ownership" has occurred.  This  
               duplicative and onerous reporting requirement that AB 188  
               seeks to impose creates a potentially unfair monetary trap  
               for a minority owner in a company who is unaware that a  
               100% change of ownership has even taken place within the  
               previous three years.

           4)Background:  Proposition 13 and "Change in Ownership"  .  The  
            property tax applies to all classes of property and is one of  
            the major general revenue sources for local governments in  
            California.  It is imposed on the property owners and is based  
            on the value of the property.  Much of the law pertaining to  
            taxation of property is prescribed by the California  
            Constitution, Article XIII and Article XIII A.  Since the  
            adoption of Proposition 13 in 1978, real property has,  
            generally, been taxed based on its value at the time of its  
            acquisition, with increases for inflation limited to 2% per  
            year.  The property is reassessed to its market value when the  
            ownership of property is changed.  While the requirement to  
            reassess property upon a change in ownership is contained in  
            the California Constitution, the phrase "change in ownership"  









                                                                  AB 188
                                                                  Page G
            is not defined. 

          Shortly after the passage of Proposition 13, this Committee  
            appointed a special Task Force - a broad-based 35-member panel  
            that included legislative and BOE staff, county assessors,  
            attorneys in the public and private sectors, and trade  
            associations - to recommend the statutory implementation for  
            Proposition 13, including the "change in ownership"  
            provisions.  With respect to a transfer of ownership interest  
            in a legal entity that owns real property, the Task Force  
            initially recommended adopting the "separate entity" theory  
            that respects the separate identity of the legal entity.   
            According to this theory, so long as the legal entity owned  
            the property, the property will not be reassessed, even if  
            most or all of the ownership interests in the entity, i.e.  
            stock or partnership interests, had been transferred.  The  
            Task Force recommended the "separate entity" approach because  
            of the perceived administrative and enforcements problems with  
            disregarding the separate identity of a legal entity and the  
            unpredictable ripple effects of ignoring the general separate  
            entity laws.   

          However, the "majority-takeover-of-corporate stock" provision  
            was subsequently added "out of a concern that, given the lower  
            turnover rate of corporate property, mergers or other transfer  
            of majority controlling ownership should result in a  
            reappraisal of the corporation's property - an effort to  
            maintain some parity with the increasing relative tax burden  
            of residential property statewide, due to more rapid turnover  
            of homes."  (Implementation of Proposition 13, Volume 1,  
            Property Tax Assessment, a report prepared by the Assembly  
            Revenue and Taxation Committee, California State Assembly  
            Publication 748, October 29, 1979).  Thus, the law was amended  
            to provide that, whenever any person or entity has purchased  
            or otherwise acquired more than 50% ownership of a corporation  
            or other legal entity, any real property owned by the acquired  
            entity must be reappraised to full market value.  

          It should be noted that, while the Task Force, in order to  
            mitigate administrative difficulties, recommended the  
            "separate entity" approach for determining when a change in  
            ownership of real property occurs, it was concerned with the  
            fact that commercial and industrial properties change  
            ownership less frequently than residential property and  
            proposed that the Legislature study the idea of a  









                                                                  AB 188
                                                                  Page H
            constitutional amendment to appraise commercial and industrial  
            property periodically at current market value.

           5)Is There a Problem With the Existing "Change of Ownership"  
            Definition  ?  The current system provides property owners with  
            several ways to structure "change in ownership" transactions  
            to avoid paying higher property taxes and allows purchasers to  
            avoid reassessment even if 100% of a company changes hands.  A  
            business may avoid a reappraisal of the property of an  
            acquired entity by simply structuring the acquisition in a way  
            that prevents any of the separate purchasers from receiving  
            more than 50% ownership in the acquired entity.  Thus, if  
            multiple individuals or entities acquire another entity, in a  
            single transaction, but none of the purchasers acquires more  
            than 50% interest in the entity, a reappraisal of the property  
            is not required.  

          The statutory provisions implementing Proposition 13 were  
            intended to ensure that, when an entity or person acquires a  
            business entity, a reassessment of the acquired entity's real  
            property is triggered, especially in cases when 100% of  
            ownership has changed.  The point of the Task Force, in its  
            role of finding the appropriate rule for a "change in  
            ownership," was to implement a statutory scheme that best  
            represented the intent of the public when it voted for  
            Proposition 13.  The idea of enabling a 100% change in  
            ownership by multiple affiliated purchasers, each of who has  
            acquired less than a 50% ownership interest, to completely  
            avoid a reappraisal of the corporation's underlying property  
            is probably not what the voters were contemplating when they  
            passed Proposition 13.  As noted by the Task Force, the  
            initial recommendation for using a "separate entity" approach  
            was due to the perceived administrative and enforcement  
            problems, not necessarily because it best represented the will  
            of the voters.  With 35 years of experience, it seems  
            appropriate to look again at the rules for "change of  
            ownership" in order to better capture the will of the voters.   
             
             
           6)What is a "Split Roll"  ?  The phrase "split roll" generally  
            refers to a system of taxation where various types of real  
            property are taxed according to different standards or at  
            different tax rates.  The split is typically proposed between  
            residential property (or the subset of owner-occupied homes)  
            and all other property types.  For instance, rather than  









                                                                  AB 188
                                                                  Page I
            taxing all property at the same rate, nonresidential property  
            could be taxed at a higher rate or at a higher percentage of  
            market value.  This phrase is also used to describe any  
            legislation attempting to redefine "change in ownership" as it  
            applies to the purchase or transfer of ownership interests in  
            legal entities (i.e., stock or ownership shares in a  
            corporation or partnership) that own real property in a way  
            that would trigger more frequent reassessments to current  
            market value levels.  Although the phrase is used to describe  
            proposed amendments to the "change in ownership" rule, it is  
            not truly a "split roll" as it is more generally understood  
            because commercial property, under the provisions of this  
            measure, will not be taxed according to a different set of  
            standards, i.e., market value assessment or a different tax  
            rate.  

           7)Market vs. Assessed Value  .  Since property values increase, on  
            average, at a faster rate than 2% a year, the current assessed  
            value of property in California is presumed to be lower than  
            its market value.  However, determining the exact disparity  
            between the assessed and market value of commercial property  
            in California is difficult to accomplish.  Cities and counties  
            vary widely in terms of development.  An older and more  
            established city may have a large number of commercial  
            properties with the original base year rate of 1975, creating  
            a large disparity between the assessed and market value of  
            property.  On the other hand, a newer city with recent  
            development may have a smaller disparity among commercial  
            properties.  For example, the median disparity ratio for  
            non-modified properties in Los Angeles County was 4.0 in  
























                                                                  AB 188
                                                                  Page J
            2002.<1>  [Sexton, Terri A. and Sheffrin, Steven M, The Market  
            Value of Commercial Real Property in Los Angeles County 2002.  
            California Policy Research Center for the Senate Office of  
            Research, (2003)].  Additionally, Los Angeles County has an  
            assessed commercial property value of $147 billion and an  
            estimated market value of $231 billion.  Id.     

            What does this mean?  First, it means that there is in fact a  
            disparity between assessed and market value properties, and,  
            if closed, could lead to additional property tax revenue.   
            Second, disparity ratios provide a glimpse into the magnitude  
            of market inefficiencies in our acquisition valuation system.   
            As explained later, the acquisition value system creates  
            moving penalties, barriers to entry, and increases the price  
            of purchasing property.  However, even if all properties are  
            suddenly assessed at their current market value, these  
            inefficiencies will persist because annual assessments are  
            based on the date of acquisition.  
                
            8)Proposition 13:  Market Inefficiencies  .  The acquisition value  
            system causes a number of economic inefficiencies.   
            Specifically, it increases the cost of purchasing property,  
          ---------------------------
          <1> Professor Terri Sexton has attempted to quantify the  
          disparity between assessed                                               value and market value of commercial  
          properties in Los Angeles County.  She provides disparity  
          ratios, which are defined as the ratio of market to assessed  
          value, for non-modified and modified commercial and industrial  
          properties.  The median disparity ratio for non-modified  
          properties is 4.0.  A disparity ratio of 4.0 means that the  
          actual market value of non-modified properties that have not  
          changed ownership since 1975 is roughly four times higher than  
          their assessed value for tax purposes.  Non-modified properties  
          with a 1975 base year have a total assessed value on the 2001-02  
          roll of $9.37 billion.  Applying the disparity ratio of 4.0 to  
          these properties produces a market value of $37.45 billion.  All  
          together, the report found that Los Angeles County has an  
          assessed value of $147 billion and an estimated market value of  
          $231 billion.  The disparity ratio is not constant and that the  
          number of properties with a 1975 base year rate has declined  
          since the enactment of Proposition 13.  The percentage of  
          commercial properties with the 1975 base year value was 36% in  
          1991, 29% in 1996, and 18% in 2002.  Additionally, the report  
          found that 40% of the additional property tax revenue, if all  
          properties were reassessed at market value, would come from 1975  
          base year properties.








                                                                  AB 188
                                                                  Page K
            imposes moving penalties, and creates barriers to entry.  

              a)   Capitalization of Property  .  To a certain degree, the  
               tax benefits provided by Proposition 13 are capitalized  
               into the market values of property.  Capitalization occurs  
               when the costs of acquiring an asset are included into the  
               price of the asset.  Proposition 13 has increased the  
               amount that potential buyers are willing to pay for a  
               property.  [Sexton, Terri A. and Sheffrin, Steven M, and  
               O'Sullivan, Arthur, Proposition 13: Unintended Effects and  
               Feasible Reform. National Tax Journal, 52.1 (1999)].  In  
               general, a decrease in the property tax rate increases the  
               net benefit of owning property.  Although the study focuses  
               on residential property, the rule also applies to  
               commercial real estate.  Since owning the property for a  
               long period of time maximizes the net benefit of  
               Proposition 13, those that change ownership less frequently  
               will be most likely to pay more for the property.  Those  
               that purchase and sell property more frequently may be  
               discouraged or pushed out of the market by higher bidders.   
               As Professor Sexton noted, "the winners will be those with  
               the lowest turnover rates and the losers will be those with  
               the highest turnover rates."  Id.

              b)   Moving Penalty  .  In addition to increasing the cost of  
               purchasing property, the acquisition value system penalizes  
               commercial property owners when they move from one location  
               to another.  If the market values of the surrounding  
               properties increase at a rate higher than 2% a year, a gap  
               begins to form between the assessed and market values of  
               property.  As a result, a property owner faces a  
               significant increase in property taxes when he/she  
               purchases a property in a new location.  The moving penalty  
               may make a business less responsive to changes in business  
               and market conditions.  Id.  A business owner may decide to  
               tolerate changes in the market, but even if the business is  
               able to keep its customer base, it may become more  
               difficult for the business to remain competitive.

              c)   Barriers to Entry  .  One of the most significant issues  
               with Proposition 13's acquisition value system is that it  
               creates a barrier to entry for new businesses.  If a new  
               business moves next door to an existing competitor and  
               purchases an identical building, the new business will pay  
               higher property taxes because its property will be assessed  









                                                                  AB 188
                                                                  Page L
               at the current market value.  The difference between what  
               the two businesses pay in property tax will vary, but it  
               will be an additional expense that the new business will  
               have to include in the costs of production.<2>  

           9)The Proposed Solution.   As discussed, properties owned by  
            legal entities are taxed under a "separate entity" theory,  
            which means that, as long as the property is owned by the same  
            legal entity, that property would not be reassessed, even if  
            most or all of the ownership interests in the entity (i.e.,  
            stock in the corporation, partners in the partnership) had  
            changed ownership.  According to the sponsor, this bill is  
            designed to close this obvious and egregious loophole in the  
            law by providing that, when 100% of ownership interests in a  
            legal entity holding real property are sold or transferred in  
            a single transaction, the property must be reassessed, no  
            matter how many purchasers take ownership of the entity and  
            regardless of whether any one legal entity acquires more than  
            50% of the ownership interest.  Under current law, only if a  
            particular transaction results in a change in control of a  
            legal entity (i.e. one legal entity or individual acquires  
            more than half of the ownership interest in the legal entity)  
            would the property owned by that legal entity be subject to  
            reassessment. 

           10)Does AB 188 Provide Assistance  ?  As noted by the BOE's  
            analysis, it is difficult to estimate the number of  
            transactions that will be subject to reassessment if the  
            provision of AB 188 were to be enacted.  However, it is clear  
            that these provisions would likely lead to more frequent  
            assessment of property.  As such, it would bring more property  
            assessments up to current market value.  The benefits of more  
            frequent assessments are the increase in property tax revenues  
            and potentially a reduction in the disparity ratio among  
            commercial properties.  However, the imposition of a "split  
            roll" may create a number of economic problems.  
          ---------------------------
          <2> For example, Company A has held the same commercial property  
          since 1975 and pays $10,000 a year in property taxes.  If  
          Company B purchases a similar property next door, it will be  
          assessed at the current market value.  Assuming that market  
          values have increased an average of more than 2% a year and  
          assuming both properties are identical, if the property is  
          purchased at $3 million, its market value, Company B will be  
          paying $30,000 in property taxes.  All else being equal, the  
          cost of doing business will be higher for Company B.








                                                                  AB 188
                                                                  Page M

            According to a 2005 report by Pepperdine University, An  
            Analysis of Split Roll Property Tax Issues and Impacts, a  
            split roll proposal in California would do all of the  
            following:  a) increase property taxes by an estimated $6  
            billion, b) cost the California economy $71.8 billion in lost  
            output and 396,345 jobs, c) result in increased instability  
            for local government finances, and d) would further undermine  
            the attractiveness of the business climate in California.   
            Additionally, a switch to market valuation taxation would  
            create upward pressure on rents.<3>  It is true that  
            increasing property taxes on commercial properties will add to  
            the cost of production and may have a serious impact on  
            business decisions, e.g., hiring personnel, expanding  
            operations, creating a new line of products.  However, the  
            Pepperdine University report assumes that no measure will be  
            implemented to mitigate the impact of a split roll proposal.  

            Several actions can be taken to mitigate the impact of a  
            split-roll proposal.  As noted in this Committee's  
            informational hearing on April 8, 2013, Proposition 13 and  
            Local Taxes, by Professor Terri Sexton, Professor Kirk Stark,  
            and Legislative Analyst's Office's (LAO) Policy Analyst, Chas  
            Alamo, the impact of a split roll proposal can be mitigated by  
            providing tax credits to low-income tenants and small  
            businesses.  Additionally, a "split roll" proposal can be made  
            revenue neutral by reducing the tax rate below 1%. 

           11)Notification Requirement.   As explained by BOE staff,  
            assessors discover changes in ownership of real property via  
            grant deeds or other documents that are recorded with the  
            county recorder.  In addition, the county recorder must  
            provide the assessor with a copy of the transfer of ownership  
            document as soon as possible.  However, no grant deed or other  
            document is recorded when a change in ownership of a legal  
            entity occurs, even if it triggers reassessment of underlying  
            real property.  The BOE monitors changes in ownership and  
            changes in control of legal entities via the Legal Entity  
            Ownership Program (LEOP) and helps assessors to discover  
            unreported changes.  But, ultimately, assessors depend on  
            legal entities to self-report these types of changes of  
            ownership.  



          ---------------------------
          <3> Proposition 13: Unintended Effects and Feasible Reform. at  
          110.








                                                                  AB 188
                                                                  Page N
          Existing law requires a legal entity to file a change in  
            ownership statement with BOE within 90 days of whenever a  
            change in control or a change in ownership of a legal entity  
            occurs.  If a legal entity fails to report and the failure is  
            discovered later on, then an escape assessment will be made  
            for every tax year that the entity failed to file the change  
            in ownership statement.  There is no statute of limitations  
            that would apply to those escape assessments.  The penalty for  
            failure to file a change in ownership statement upon written  
            request by the BOE is 10% of the new base year value resulting  
            from the transfer, or 10% of the current year's taxes on that  
            property if no change in control or change in ownership  
            occurred.  

            The provision in this bill would strengthen reporting  
            requirements by requiring the BOE to notify assessors if a  
            change in ownership occurs.  Additionally, individuals  
            acquiring a legal entity ownership interest must report the  
            acquisition to the BOE and file a deed with the county  
            recorder.  Provisions also require a legal entity to report  
            any changes of the original co-owner interest to the assessor.  
             Finally, this bill would increase the penalty for a person or  
            legal entity that does not file a change in ownership  
            statement.  Since assessors rely heavily on self-reporting  
            measures, these additional requirements may help the BOE and  
            county assessors discover changes in ownership that may  
            otherwise go unnoticed.  The requirement to file a deed with  
            the county recorder will also notify the public of a change in  
            ownership.    

           12)Similar Legislation  .  The BOE notes that, in recent years,  
            numerous bills have been introduced to require annual  
            reassessment of nonresidential property to its current market  
            value via constitutional amendment, increase the tax rate on  
            nonresidential property, or modify the change in ownership  
            definitions for legal entities (which generally own  
            nonresidential property).  The following BOE table lists some  
            of those measures:

           ------------------------------------------------------------------- 
          |Year|Bill         |Summary                                         |
          |    |             |                                                |
          |----+-------------+------------------------------------------------|
          |2012|AB 2014      |Change in Ownership: Legal Entity Task Force.   |
          |    |(Ammiano)    |Convene a task force to update the work done by |









                                                                  AB 188
                                                                  Page O
          |    |             |the 1979 task force.                            |
          |    |             |                                                |
          |----+-------------+------------------------------------------------|
          |2011|AB 448       |Change in Ownership Definitions.  Reassessment  |
          |    |(Ammiano)    |of property owned by a legal entity whenever    |
          |    |             |100% of the ownership interests in that legal   |
          |    |             |entity are sold or transferred in a three-year  |
          |    |             |period.                                         |
          |----+-------------+------------------------------------------------|
          |2010|AB 2498      |Change in Ownership Definitions.  Reassessment  |
          |    |(Ammiano) -  |of property owned by a legal entity whenever    |
          |    |Amended      |100% of the ownership interests in that legal   |
          |    |5/18/10      |entity are sold or transferred in a three-year  |
          |    |             |period.                                         |
          |----+-------------+------------------------------------------------|
          |2010|AB 2492      |Change in Ownership Definitions.  Reassessment  |
          |    |(Ammiano) -  |of property owned by publicly traded companies  |
          |    |Amended      |once every three years (rebuttable              |
          |    |4/8/10       |presumption).  Property owned by other types of |
          |    |             |legal entities would be reassessed to current   |
          |    |             |market value in proportion to the percentage of |
          |    |             |ownership interests in the legal entity         |
          |    |             |transferred.                                    |
          |----+-------------+------------------------------------------------|
          |2008|AB 2461      |Split Roll - Revenue Estimate. Required the BOE |
          |    |(Davis)      |to conduct a study on the amount of revenue     |
          |    |             |that would have been generated if               |
          |    |             |nonresidential commercial property, as defined, |
          |    |             |had been reassessed at its fair market value.   |
          |----+-------------+------------------------------------------------|
          |2005|SB           |Change in Ownership Definitions.  Provided that |
          |    |17(Escutia)  |a change in ownership occurs when more than 50% |
          |    |             |of the ownership interests in a legal entity    |
          |    |             |(excluding publicly traded companies) are       |
          |    |             |transferred to one or more persons or entities  |
          |    |             |during a calendar year.                         |
          |----+-------------+------------------------------------------------|
          |2003|SB           |Change in Ownership Definitions.  Redefine      |
          |    |17(Escutia)  |change in ownership for nonresidential          |
          |    |             |commercial and industrial property.             |
          |    |             |(Legislative intent)                            |
          |----+-------------+------------------------------------------------|
          |2003|ACA 16       |Annual Reassessment.  Annual reassessment of    |
          |    |(Hancock)    |nonresidential, nonagricultural property.       |
          |----+-------------+------------------------------------------------|









                                                                  AB 188
                                                                  Page P
          |2003|SBx1 3       |Change in Ownership Definitions.  Redefine      |
          |    |(Escutia)    |change in ownership for nonresidential          |
          |    |             |commercial and industrial property.             |
          |    |             |(Legislative intent)                            |
          |----+-------------+------------------------------------------------|
          |2002|SB 1662      |Change in Ownership Definitions.  Reassessment  |
          |    |(Peace)      |of nonresidential property when cumulatively    |
          |    |             |more than 50% of the ownership has been         |
          |    |             |transferred.  Broaden the state and local sales |
          |    |             |and use tax base and reduce both the state and  |
          |    |             |local sales and use tax rate.  (Legislative     |
          |    |             |intent)                                         |
          |----+-------------+------------------------------------------------|
          |2001|AB 1013      |Change in Ownership Definitions.  Reassessment  |
          |    |(Leonard)    |of property owned by a legal entity when more   |
          |    |             |than 50% of the ownership shares transfer.      |
          |----+-------------+------------------------------------------------|
          |2000|AB 2288      |Change in Ownership Definitions.  Reassessment  |
          |    |(Dutra)      |of property owned by legal entity once every    |
          |    |             |three years - Rebuttable presumption of change  |
          |    |             |in ownership.  Possible income tax credit to    |
          |    |             |homeowners based on fair market value of homes  |
          |    |             |from additional revenue.  Reduce the sales and  |
          |    |             |use tax rate by 0.25%.                          |
           ------------------------------------------------------------------- 

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          AFSCME
          California Alliance of Retired Americans
          California Professional Firefighters
          California Tax Reform Association
          San Francisco Unified School District
          SEIU California

           Opposition 
           
          American Coating Association
          Apartment Association
          Apartment Association of Greater Los Angeles
          Apartment Association of Orange County
          Associated General Contractors of California
          Association of California Life & Health Insurance Companies









                                                                  AB 188
                                                                  Page Q
          BIOCOM
          Brea Chamber of Commerce
          Building Owners and Managers Association of California
          California Apartment Association
          California Asian Pacific Chamber of Commerce
          California Association of Realtors
          California Attractions and Parks Association 
          California Bankers Association 
          California Building Industry Association
          California Business Properties Association
          California Cable and Telecommunications Association
          California Chamber of Commerce
          California Financial Services Association
          California Grocers Association
          California Hotel & Lodging Association
          California Independent Petroleum Association
          California Manufacturers & Technology Association
          California Mortgage Bankers Association
          California New Car Dealer Association
          California Paint Council
          California Political Consulting Group
          California Railroad Industry
          California Restaurant Association
          California Retailers Association
          California Southern Cities
          California Tank Lines, Inc.
          California Taxpayers Association
          California Travel Association
          Camarillo Chamber of Commerce
          Chambers of Commerce Alliance, Venture & Santa Barbara Counties
          Chemical Transfer Company, Inc.
          Construction Employers' Association
          Council of State Taxation
          East Bay Rental Housing Association
          Family Winemakers Association
          Greater San Fernando Valley Chamber of Commerce
          Howard Jarvis Taxpayers Association
          International Council of Shopping Centers
          NAIOP of California, the Commercial Real Estate Development  
          Association
          National Federation of Independent Business
          NOR CAL Rental Property Association
          Orange County Business Council
          San Diego County Apartment Association
          Santa Barbara Rental Property Association









                                                                  AB 188
                                                                  Page R
          Senator George Runner (ret.)
          Silicon Valley Leadership Group
          Simi Valley Chamber of Commerce
          South Bay Association of Chambers of Commerce
          Southwest California Legislative Council
          TechAmerica
          Tenet Healthcare Corporation
          Torrance Area Chamber of Commerce
          West Coast Leasing, LLC
          West Coast Lumber & Building Material Association 
          Western Electrical Contractors Association
          Western Growers
          Western Manufactured Housing Communities Association
          Western States Petroleum Association
          Wine Institute
           
          Analysis Prepared by  :  Carlos Anguiano / REV. & TAX. / (916)  
          319-2098