Amended in Assembly May 28, 2014

Amended in Assembly May 14, 2014

Amended in Assembly April 1, 2014

California Legislature—2013–14 Regular Session

Assembly BillNo. 1760


Introduced by Assembly Members Chau and Bocanegra

February 14, 2014


An act to amend Section 214 of the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

AB 1760, as amended, Chau. Property taxation: welfare exemption: rental housing and related facilities: payment in lieu of taxes agreement.

Existing property tax law establishes a partial welfare exemption for property used exclusively for rental housing and related facilities that are owned and operated by either of any certain types of nonprofit entities or veterans’ organizations that meet specified exemption requirements, if either of certain qualifying criteria are met.

This bill would, on or after January 1, 2015, prohibit a local government from entering into a payment in lieu of taxes (PILOT) agreement with a property owner of a low-income housing project, and would make any PILOT agreement entered into in violation of this provision void and unenforceable. This bill would presume that any payments made under any PILOT agreement entered into before January 1, 2015, are used to maintain the affordability of, or reduce the rents otherwise necessary for, the units occupied by lower income households. This bill would require any outstanding ad valorem tax, interest, or penalty that was levied between January 1, 2012, and January 1, 2015, as a result of a PILOT agreement to be canceled, and would also require any tax, interest, or penalty, as so levied, that was paid prior to January 1, 2015, to be refunded. This bill would define a PILOT agreement to mean any agreement entered into between a local government and a property owner of a low-income housing project that requires the owner of the low-income housing project to pay the local government a charge, as provided, and would define a “low-income housing project” to mean a low-income housing project that is eligible for the exemption described above.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 214 of the Revenue and Taxation Code
2 is amended to read:

3

214.  

(a) Property used exclusively for religious, hospital,
4scientific, or charitable purposes owned and operated by
5community chests, funds, foundations, limited liability companies,
6or corporations organized and operated for religious, hospital,
7scientific, or charitable purposes is exempt from taxation, including
8ad valorem taxes to pay the interest and redemption charges on
9any indebtedness approved by the voters prior to July 1, 1978, or
10any bonded indebtedness for the acquisition or improvement of
11real property approved on or after July 1, 1978, by two-thirds of
12the votes cast by the voters voting on the proposition, if all of the
13following conditions are met:

14(1) The owner is not organized or operated for profit. However,
15in the case of hospitals, the organization shall not be deemed to
16be organized or operated for profit if, during the immediately
17preceding fiscal year, operating revenues, exclusive of gifts,
18endowments and grants-in-aid, did not exceed operating expenses
19by an amount equivalent to 10 percent of those operating expenses.
20As used herein, operating expenses include depreciation based on
21cost of replacement and amortization of, and interest on,
22indebtedness.

23(2) No part of the net earnings of the owner inures to the benefit
24of any private shareholder or individual.

P3    1(3) The property is used for the actual operation of the exempt
2activity, and does not exceed an amount of property reasonably
3necessary to the accomplishment of the exempt purpose.

4(A) For the purposes of determining whether the property is
5used for the actual operation of the exempt activity, consideration
6shall not be given to use of the property for either or both of the
7following described activities if that use is occasional:

8(i) The owner conducts fundraising activities on the property
9and the proceeds derived from those activities are not unrelated
10business taxable income, as defined in Section 512 of the Internal
11Revenue Code, of the owner and are used to further the exempt
12activity of the owner.

13(ii) The owner permits any other organization that meets all of
14the requirements of this subdivision, other than ownership of the
15property, to conduct fundraising activities on the property and the
16proceeds derived from those activities are not unrelated business
17taxable income, as defined in Section 512 of the Internal Revenue
18Code, of the organization, are not subject to the tax on unrelated
19business taxable income that is imposed by Section 511 of the
20Internal Revenue Code, and are used to further the exempt activity
21of the organization.

22(B) For purposes of subparagraph (A):

23(i) “Occasional use” means use of the property on an irregular
24or intermittent basis by the qualifying owner or any other qualifying
25organization described in clause (ii) of subparagraph (A) that is
26incidental to the primary activities of the owner or the other
27organization.

28(ii) “Fundraising activities” means both activities involving the
29direct solicitation of money or other property and the anticipated
30exchange of goods or services for money between the soliciting
31organization and the organization or person solicited.

32(C) Subparagraph (A) shall have no application in determining
33whether paragraph (3) has been satisfied unless the owner of the
34property and any other organization using the property as provided
35in subparagraph (A) have filed with the assessor a valid
36organizational clearance certificate issued pursuant to Section
37254.6.

38(D) For the purposes of determining whether the property is
39used for the actual operation of the exempt activity, consideration
40shall not be given to the use of the property for meetings conducted
P4    1by any other organization if the meetings are incidental to the other
2organization’s primary activities, are not fundraising meetings or
3activities as defined in subparagraph (B), are held no more than
4once per week, and the other organization and its use of the
5property meet all other requirements of paragraphs (1) to (5),
6inclusive, of this subdivision. The owner or the other organization
7also shall file with the assessor a copy of a valid, unrevoked letter
8or ruling from the Internal Revenue Service or the Franchise Tax
9Board stating that the other organization, or the national
10organization of which it is a local chapter or affiliate, qualifies as
11an exempt organization under Section 501(c)(3) or 501(c)(4) of
12the Internal Revenue Code or Section 23701d, 23701f, or 23701w.

13(E) Nothing in subparagraph (A), (B), (C), or (D) shall be
14construed to either enlarge or restrict the exemption provided for
15in subdivision (b) of Section 4 and Section 5 of Article XIII of the
16California Constitution and this section.

17(4) The property is not used or operated by the owner or by any
18other person so as to benefit any officer, trustee, director,
19shareholder, member, employee, contributor, or bondholder of the
20owner or operator, or any other person, through the distribution
21of profits, payment of excessive charges or compensations, or the
22more advantageous pursuit of their business or profession.

23(5) The property is not used by the owner or members thereof
24for fraternal or lodge purposes, or for social club purposes except
25where that use is clearly incidental to a primary religious, hospital,
26scientific, or charitable purpose.

27(6) The property is irrevocably dedicated to religious, charitable,
28scientific, or hospital purposes and upon the liquidation,
29dissolution, or abandonment of the owner will not inure to the
30benefit of any private person except a fund, foundation, or
31corporation organized and operated for religious, hospital,
32scientific, or charitable purposes.

33(7) The property, if used exclusively for scientific purposes, is
34used by a foundation or institution that, in addition to complying
35with the foregoing requirements for the exemption of charitable
36organizations in general, has been chartered by the Congress of
37the United States (except that this requirement shall not apply
38when the scientific purposes are medical research), and whose
39objects are the encouragement or conduct of scientific
P5    1investigation, research, and discovery for the benefit of the
2community at large.

3The exemption provided for herein shall be known as the
4“welfare exemption.” This exemption shall be in addition to any
5other exemption now provided by law, and the existence of the
6exemption provision in paragraph (2) of subdivision (a) of Section
7202 shall not preclude the exemption under this section for museum
8or library property. Except as provided in subdivision (e), this
9section shall not be construed to enlarge the college exemption.

10(b) Property used exclusively for school purposes of less than
11collegiate grade and owned and operated by religious, hospital, or
12charitable funds, foundations, limited liability companies, or
13corporations, which property and funds, foundations, limited
14liability companies, or corporations meet all of the requirements
15of subdivision (a), shall be deemed to be within the exemption
16provided for in subdivision (b) of Section 4 and Section 5 of Article
17XIII of the California Constitution and this section.

18(c) Property used exclusively for nursery school purposes and
19owned and operated by religious, hospital, or charitable funds,
20foundations, limited liability companies, or corporations, which
21property and funds, foundations, limited liability companies, or
22corporations meet all the requirements of subdivision (a), shall be
23deemed to be within the exemption provided for in subdivision
24(b) of Section 4 and Section 5 of Article XIII of the California
25Constitution and this section.

26(d) Property used exclusively for a noncommercial educational
27FM broadcast station or an educational television station, and
28owned and operated by religious, hospital, scientific, or charitable
29funds, foundations, limited liability companies, or corporations
30meeting all of the requirements of subdivision (a), shall be deemed
31to be within the exemption provided for in subdivision (b) of
32Section 4 and Section 5 of Article XIII of the California
33Constitution and this section.

34(e) Property used exclusively for religious, charitable, scientific,
35or hospital purposes and owned and operated by religious, hospital,
36scientific, or charitable funds, foundations, limited liability
37companies, or corporations or educational institutions of collegiate
38grade, as defined in Section 203, which property and funds,
39foundations, limited liability companies, corporations, or
40educational institutions meet all of the requirements of subdivision
P6    1(a), shall be deemed to be within the exemption provided for in
2subdivision (b) of Section 4 and Section 5 of Article XIII of the
3California Constitution and this section. As to educational
4institutions of collegiate grade, as defined in Section 203, the
5requirements of paragraph (6) of subdivision (a) shall be deemed
6to be met if both of the following are met:

7(1) The property of the educational institution is irrevocably
8dedicated in its articles of incorporation to charitable and
9educational purposes, to religious and educational purposes, or to
10educational purposes.

11(2) The articles of incorporation of the educational institution
12provide for distribution of its property upon its liquidation,
13dissolution, or abandonment to a fund, foundation, or corporation
14organized and operated for religious, hospital, scientific, charitable,
15or educational purposes meeting the requirements for exemption
16provided by Section 203 or this section.

17(f) Property used exclusively for housing and related facilities
18for elderly or handicapped families and financed by, including,
19but not limited to, the federal government pursuant to Section 202
20of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section
21231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of
22Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of
23Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and
24operated by religious, hospital, scientific, or charitable funds,
25foundations, limited liability companies, or corporations meeting
26all of the requirements of this section shall be deemed to be within
27the exemption provided for in subdivision (b) of Section 4 and
28Section 5 of Article XIII of the California Constitution and this
29section.

30The amendment of this paragraph made by Chapter 1102 of the
31Statutes of 1984 does not constitute a change in, but is declaratory
32of, existing law. However, no refund of property taxes shall be
33required as a result of this amendment for any fiscal year prior to
34the fiscal year in which the amendment takes effect.

35Property used exclusively for housing and related facilities for
36elderly or handicapped families at which supplemental care or
37services designed to meet the special needs of elderly or
38handicapped residents are not provided, or that is not financed by
39the federal government pursuant to Section 202 of Public Law
4086-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public
P7    1Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law
290-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law
3101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption
4pursuant to this subdivision unless the property is used for housing
5and related facilities for low- and moderate-income elderly or
6 handicapped families. Property that would otherwise be exempt
7pursuant to this subdivision, except that it includes some housing
8and related facilities for other than low- or moderate-income elderly
9or handicapped families, shall be entitled to a partial exemption.
10The partial exemption shall be equal to that percentage of the value
11of the property that is equal to the percentage that the number of
12low- and moderate-income elderly and handicapped families
13occupying the property represents of the total number of families
14occupying the property.

15As used in this subdivision, “low and moderate income” has the
16same meaning as the term “persons and families of low or moderate
17income” as defined by Section 50093 of the Health and Safety
18Code.

19(g) (1) Property used exclusively for rental housing and related
20facilities and owned and operated by religious, hospital, scientific,
21or charitable funds, foundations, limited liability companies, or
22corporations, including limited partnerships in which the managing
23general partner is an eligible nonprofit corporation or eligible
24limited liability company, meeting all of the requirements of this
25section, or by veterans’ organizations, as described in Section
26215.1, meeting all the requirements of paragraphs (1) to (7),
27inclusive, of subdivision (a), shall be deemed to be within the
28exemption provided for in subdivision (b) of Section 4 and Section
295 of Article XIII of the California Constitution and this section
30and shall be entitled to a partial exemption equal to that percentage
31of the value of the property that the portion of the property serving
32lower income households represents of the total property in any
33year in which any of the following criteria applies:

34(A) The acquisition, rehabilitation, development, or operation
35of the property, or any combination of these factors, is financed
36with tax-exempt mortgage revenue bonds or general obligation
37bonds, or is financed by local, state, or federal loans or grants and
38the rents of the occupants who are lower income households do
39not exceed those prescribed by deed restrictions or regulatory
P8    1agreements pursuant to the terms of the financing or financial
2assistance.

3(B) The owner of the property is eligible for and receives
4low-income housing tax credits pursuant to Section 42 of the
5Internal Revenue Code of 1986, as added by Public Law 99-514.

6(C) In the case of a claim, other than a claim with respect to
7property owned by a limited partnership in which the managing
8general partner is an eligible nonprofit corporation, that is filed
9for the 2000-01 fiscal year or any fiscal year thereafter, 90 percent
10or more of the occupants of the property are lower income
11households whose rent does not exceed the rent prescribed by
12Section 50053 of the Health and Safety Code. The total exemption
13amount allowed under this subdivision to a taxpayer, with respect
14to a single property or multiple properties for any fiscal year on
15the sole basis of the application of this subparagraph, may not
16exceed twenty thousand dollars ($20,000) of tax.

17(D) (i) The property was previously purchased and owned by
18the Department of Transportation pursuant to a consent decree
19requiring housing mitigation measures relating to the construction
20of a freeway and is now solely owned by an organization that
21qualifies as an exempt organization under Section 501(c)(3) of the
22Internal Revenue Code.

23(ii) This subparagraph shall not apply to property owned by a
24limited partnership in which the managing partner is an eligible
25nonprofit corporation.

26(2) In order to be eligible for the exemption provided by this
27subdivision, the owner of the property shall do both of the
28following:

29(A) (i) For any claim filed for the 2000-01 fiscal year or any
30fiscal year thereafter, certify and ensure, subject to the limitation
31in clause (ii), that there is an enforceable and verifiable agreement
32with a public agency, a recorded deed restriction, or other legal
33document that restricts the project’s usage and that provides that
34the units designated for use by lower income households are
35continuously available to or occupied by lower income households
36at rents that do not exceed those prescribed by Section 50053 of
37the Health and Safety Code, or, to the extent that the terms of
38federal, state, or local financing or financial assistance conflicts
39with Section 50053, rents that do not exceed those prescribed by
40the terms of the financing or financial assistance.

P9    1(ii) In the case of a limited partnership in which the managing
2general partner is an eligible nonprofit corporation, the restriction
3and provision specified in clause (i) shall be contained in an
4enforceable and verifiable agreement with a public agency, or in
5a recorded deed restriction to which the limited partnership
6certifies.

7(B) Certify that the funds that would have been necessary to
8pay property taxes are used to maintain the affordability of, or
9reduce rents otherwise necessary for, the units occupied by lower
10income households.

11(3) As used in this subdivision, “lower income households” has
12the same meaning as the term “lower income households” as
13defined by Section 50079.5 of the Health and Safety Code.

14(4) (A)   Notwithstanding any other law, both of the following
15shall apply:

16(i) (I) On or after January 1, 2015, a local government shall not
17enter into a payment in lieu of taxes (PILOT) agreement with a
18property owner of a low-income housing project.

19(II) Any PILOT agreement entered into in violation of subclause
20(I) shall be void and unenforceable.

21(ii) (I) It shall be presumed that any payments made under any
22PILOT agreement entered into before January 1, 2015, are used
23to maintain the affordability of, or reduce rents otherwise necessary
24for, the units occupied by lower income households.

25(II) Any outstanding ad valorem tax, interest, or penalty that
26was levied between January 1, 2012, and January 1, 2015, as a
27result of a PILOT agreement shall be canceled, and any tax,
28interest, or penalty, as so levied, that was paid prior to January 1,
292015, shall be refunded.

30(B) For purposes of this paragraph, all of the following shall
31apply:

32(i) “Local government” means any city, county, city and county,
33housing authority, housing successor to a redevelopment agency,
34or a joint powers agency that has approved land use entitlements
35or building permits, provided land or financing, or approved the
36issuance of tax-exempt bonds pursuant to the federal Tax Equity
37and Fiscal Responsibility Act for the low-income housing project.

38(ii) “Low-income housing project” means a low-income housing
39project that is eligible for the exemption provided by this
40subdivision.

P10   1(iii) “Payment in lieu of taxes agreement” means any agreement
2entered into between a local government and a property owner of
3a low-income housing project that requires the owner of the
4low-income housing project to pay the local government a charge,
5including, but not limited to, any charge designed to compensate
6the local government for lost property tax revenues resulting from
7the low-income housing project receiving an exemption pursuant
8to this subdivision. A charge shall not include abegin delete development
9impactend delete
fee that is permitted by the Mitigation Fee Act (Chapter 5
10(commencing with Section 66000), Chapter 6 (commencing with
11Section 66010), Chapter 7 (commencing with Section 66012),
12Chapter 8 (commencing with Section 66016), and Chapter 9
13(commencing with Section 66020) of Division 1 of Title 7 of the
14Government Code)begin delete and is consistent with fees paid by all other
15residential developmentsend delete
pursuant to paragraph (1) of subdivision
16(d) of Section 65008 of the Government Code.

17(h) Property used exclusively for an emergency or temporary
18shelter and related facilities for homeless persons and families and
19owned and operated by religious, hospital, scientific, or charitable
20funds, foundations, limited liability companies, or corporations
21meeting all of the requirements of this section shall be deemed to
22be within the exemption provided for in subdivision (b) of Section
234 and Section 5 of Article XIII of the California Constitution and
24this section. Property that otherwise would be exempt pursuant to
25this subdivision, except that it includes housing and related
26facilities for other than an emergency or temporary shelter, shall
27be entitled to a partial exemption.

28As used in this subdivision, “emergency or temporary shelter”
29means a facility that would be eligible for funding pursuant to
30Chapter 11 (commencing with Section 50800) of Part 2 of Division
3131 of the Health and Safety Code.

32(i) Property used exclusively for housing and related facilities
33for employees of religious, charitable, scientific, or hospital
34organizations that meet all the requirements of subdivision (a) and
35owned and operated by funds, foundations, limited liability
36companies, or corporations that meet all the requirements of
37subdivision (a) shall be deemed to be within the exemption
38provided for in subdivision (b) of Section 4 and Section 5 of Article
39XIII of the California Constitution and this section to the extent
P11   1the residential use of the property is institutionally necessary for
2the operation of the organization.

3(j) For purposes of this section, charitable purposes include
4educational purposes. For purposes of this subdivision,
5“educational purposes” means those educational purposes and
6activities for the benefit of the community as a whole or an
7unascertainable and indefinite portion thereof, and do not include
8those educational purposes and activities that are primarily for the
9benefit of an organization’s shareholders. Educational activities
10include the study of relevant information, the dissemination of that
11information to interested members of the general public, and the
12participation of interested members of the general public.

13(k) In the case of property used exclusively for the exempt
14purposes specified in this section, owned and operated by limited
15liability companies that are organized and operated for those
16purposes, the State Board of Equalization shall adopt regulations
17to specify the ownership, organizational, and operational
18requirements for those companies to qualify for the exemption
19provided by this section.

20(l) The amendments made by Chapter 354 of the Statutes of
212004 shall apply with respect to lien dates occurring on and after
22 January 1, 2005.



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