BILL ANALYSIS Ó AB 483 Page 1 Date of Hearing: April 15, 2013 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Raul Bocanegra, Chair AB 483 (Ting) - As Introduced: February 19, 2013 Majority vote. SUBJECT : Property taxation: valuing property: comparable sales SUMMARY : Makes a technical clarifying change to property tax law. Specifically, this bill replaces the term "lien date" with "valuation date" for purposes of the comparable sales valuation method. EXISTING LAW : 1)Defines "lien date" as either the date on which taxes on the supplemental roll become a lien on the property resulting from a change in ownership or, under the regular roll, the date on which all tax liens attach annually on January 1. [Revenue and Taxation Code (R&TC) Sections 75.54 and 2192]. 2)Provides that "near in time to the valuation date" does not include any sale more than 90 days after a lien date. (R&TC Section 402.5). FISCAL EFFECT : None. COMMENTS : 1)The author has provided the following statement in support of this bill: AB 483 amends Revenue and Taxation Code [Section] 402.5, replacing the term "lien date" with "valuation date." This creates conformity between state law and BOE rules and eliminates potential confusion for taxpayers and taxpayer agents. 2)Proponents state: Currently, the Revenue and Taxation Code is written in a AB 483 Page 2 way that conflicts with California Board of Equalization's (BOE) rules. Assembly Bill 483 resolves a technical discrepancy and changes comparable property assessment law in the Revenue and Taxation Code by replacing the term "lien date" with "valuation date." This technical change will bring state law into conformity with existing BOE rules. BOE rules state that when making comparable sales, the value of property must be assessed at the "valuation date" instead of the "lien date." These two terms are not interchangeable and have caused confusion among county assessors. Assembly Bill 483 creates conformity between state law and BOE rules, streamlining property assessment throughout California. 3)Background . Assessors, when valuing property, may use a Comparative Sale Approach. Under this approach, the appraiser: a) Selects comparable properties based on their similarities to the property being appraised; b) Compares the selected properties to the subject property; and, c) Adjusts the sales prices of the comparable properties to reflect significant differences between the subject and comparable properties. The comparable sales approach is based on the principal of substitution, which states that an informed participant would not pay more for the property than the cost of acquiring a substitute property of equal utility. A comparable property must be sufficiently comparable in terms of location, physical characteristics, and use. Additionally, sales of comparable property must have occurred "near in time to the valuation date" of the subject property. Specifically, R&TC Section 402.5 provides that "'near in time to the valuation date' does not include any sale more than 90 days after the lien date." 4)Construction of current law . A lien date is the day on which taxes are levied against property. R&TC Section 2192 defines the regular roll "lien date" as all the tax liens that attach AB 483 Page 3 annually on January 1. This attachment occurs during the county assessor's annual assessment of all taxable property in the county. However, under the supplemental roll "lien date" of R&TC Section 75.54, a lien may also attach to real property on the day the property changes ownership or upon completion of new construction. This change in ownership has also been referred to as the "event date" and "valuation date." Despite having two separate definitions, "lien date" is more commonly associated with the annual assessment date of January 1st. R&TC Section 402.5 provides that the phrase "near in time to the valuation date" does not include any sale more than 90 days after the lien date. This has caused confusion because the lien date can either be the annual assessment date of January 1st, or the date on which the property changes ownership. To makes things clear, the BOE has determined that "lien date," for purposes of R&TC Section 402.5, is synonymous with "valuation date," i.e., change of ownership date [BOE Rule 342(d)]. Without this clarification, taxpayers may attempt to eliminate the use of certain comparable properties during an assessment appeals hearing by restricting properties to those made no more than 90 days after January 1st. The BOE's interpretation also accomplishes the legislative intent of using "near in time" comparable sales under R&TC Section 402.5. For example, under the annual assessment definition of "lien date," if a home is sold on August 1, 2012, the selection of comparable sales would be limited to those made before April 1st of that year. This would prevent the use of a comparable sale made on August 2, 2012, even though it occurred a day after the sale of the subject property. According to the California County Assessors' Association, the method of property tax assessment in the State of California changed substantially after the passage of Proposition 13. Prior to its passage, the "lien date" of January 1st was the date used for estimating the valuation of property. Proposition 13 adopted an acquisition system of taxation, utilizing the date of change in ownership or completion of construction as the date of valuation. In 1980, two years after the passage of Proposition 13, the R&TC Section 402.5 was amended to replace the term "lien date" with "valuation date" in two places but missed a third. AB 483 will rectify the problem by making an additional amendment to that section. AB 483 Page 4 5)Is there a change in law? Current law provides that "near in time to the valuation date" does not include any sale more than 90 days after the lien date. Since the BOE has determined that "lien date" and "valuation date," for purposes of R&TC Section 402.5, are synonymous, this bill would only provide technical clarification to existing law. REGISTERED SUPPORT / OPPOSITION : Support California Assessor's Association (Sponsor) American Federation of State, County and Municipal Employees Opposition None on file Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916) 319-2098