BILL ANALYSIS Ó SENATE COMMITTEE ON VETERANS AFFAIRS Senator Ben Hueso, Chair BILL NO: SB 1113 HEARING DATE: 4/8/14 AUTHOR: Knight VERSION: As amended, 4/1/14 FISCAL: Yes VOTE: 21 SUBJECT Disable veterans property tax exemption: refunds: statute of limitations DESCRIPTION Existing law: 1.Provides for the exemption from property taxation of specified amounts of the assessed value of the home of a disabled veteran or a veteran's spouse under certain qualifying conditions. 2.Requires - in cases where a claimant was unable to take advantage of the exemption due to the claimant's inability to receive a timely disability rating from the United States Department of Veterans Affairs (VA) - that a refund must be provided retroactively so long as the claimant meets certain filing requirements. 3.Existing law requires property taxes to be refunded upon the filing of a refund claim within four years after making the relevant tax payment. This bill: Provides that -- for refund claims filed on or after January 1, 2015 - the refund application window is extended to eight years after making the relevant tax payment. BACKGROUND The disabled veterans' exemption (DVE) is available for qualified veterans to reduce their property tax liability. The program originally provided a basic $100,000 exemption to a disabled veteran or a $150,000 exemption for a disabled veteran, who also meets specified low-income criteria. More specifically, the basic option exempts from property taxation that portion of the property's full value, as adjusted for the relevant assessment year, up to a maximum of $100,000 (adjusted annually for inflation). The low-income option exempts that portion of the property's full value, up to a maximum of $150,000 (adjusted annually for inflation), when the veteran's household income does not exceed $40,000, as adjusted for the relevant assessment year. Veteran disability qualifications A qualified veteran must have been honorably discharged from one of the military services and served during one of several specified time periods. In addition, the veteran must have incurred an injury during that military service, which resulted in at least one of the following: Blind in both eyes, or Lost the use of two or more limbs, or Designated as having a 100% disability rating by either (1) the federal VA or (2) the military service from which the veteran was discharged. The unmarried surviving spouse of a DVE-qualified veteran may continue to claim an exemption under the program. If the surviving spouse married, he or she loses the exemption privilege. However, upon the death of or divorce from the new spouse, the once-qualified surviving spouse of a qualified veteran is eligible again to receive the exemption. Property eligibility SB 1113 (Knight) 2 In order for property to qualify for the DVE, the property must be used as the principal place of residence of the veteran or the unmarried surviving spouse of a qualified disabled veteran. One exception to this requirement occurs when the claimant is confined to a hospital or other care facility and the property would be that claimant's principal place of residence were it not for such confinement, provided that the residence is not rented or leased. The property may be owned by the veteran, the veteran's spouse, or the veteran and spouse jointly. No other property tax exemption may be granted to a residence which has been granted a DVE exemption. However, if two or more qualified veterans own a property in which they reside, each is entitled to the DVE to the extent of his or her interest. Annual adjustments Existing law provides that two aspects of the DVE disabled veterans' exemption may be adjusted annually for inflation. [Revenue and Taxation Code section 205.5, subdivisions (g) and (h)] The exemption amount for both the basic and low-income exemption; and The household income limit for the low-income disabled veterans' exemption. For each assessment year, both the exemption amount and the income limit are compounded annually by an inflation factor based upon the California Consumer Price Index (CCPI). The State Board of Equalization (BOE) annually provides the exemption amounts and household income limits for the upcoming year and prior years in a Letter to Assessor, which may be found at the Board's website in the applicable year. The BOE reports that, for 2014, the following amounts are effective: Exempted property tax amounts Basic option: amount exempted: $124,932 SB 1113 (Knight) 3 Low-income option: amount exempted: 187,399 Income limit Low-income household income limit: $56,101 Impact of VA-rating delays California law specifies that a home becomes eligible for the exemption as of the effective date of the veteran's 100% disability rating. However, because disabled veterans can encounter significant time delays until the federal VA determines their ratings, they can lose thousands of dollars in property tax savings. Some disabled veterans receive initial ratings that are incorrect, but the processing mistakes are discovered years later and the rating is increased. In these cases, veterans are entitled to claim a refund for taxes overpaid for up to four years of back taxes paid. This is especially useful when the disability rating is granted retroactively, however some certifications may be back-dated 20 years. Changing the statute from four to eight years parallels the provisions of law requiring eight years of back taxes to be collected from taxpayers for escape assessments related to unrecorded changes in ownership. COMMENT 1.Committee staff comments : a. SB 1113 would extend the statute of limitations on DVE refunds in cases where the federal government retroactively issues the veteran a 100% disability rating. Specifically, the change would allow the disabled veteran to receive a refund on property taxes paid within the last eight years, instead of the four years provided under existing law. According to the author, this change would parallel other provisions of law that require eight years of back taxes to SB 1113 (Knight) 4 be collected from taxpayers for escape assessments related to unrecorded changes in ownership. b. From BOE staff analysis (3/13/14): "Most first-time claimants for the disabled veterans' exemption with back-dated disability effective dates are not negatively impacted. This is because either the taxes were paid within the existing 4-year limitations period or, as first-time homeowners, they have no property taxes." 2.Related Legislation : AB 188 (Block, Ch. 202, Stats. 2011) provides that the DVE applies when an unmarried surviving spouse is confined to a health care facility. AB 2314 (Block & Knight, Ch. 150, Stats. 2010) extends the time period for a disabled veteran, who has not yet received a disability rating from the federal VA, to file a DVE claim, and deletes a requirement for the disabled veteran to have a "pending" application with the VA. AB 2568 (Houston, held Assembly Rev & Tax, 2008) : Relative to the DVE, this bill would have (1) removed the existing maximum exemptions of $100,000 and $150,000 (for low-income persons); (2) eliminated existing increases for the change in the California Consumer Price Index to both the exemption amount and the income limitation - for purposes of determining low-income homeowners; (3) expanded application of the exemption to unmarried surviving spouses of veterans that died from an injury that was determined to be service-related by the United States Department of Consumer Affairs; (4) applied for property tax lien dates for fiscal year (FY) 2009-10 and each FY thereafter. SB 1637 (Comm on Veterans Affairs, Ch. 677, Stats. 2006) makes several small, technical changes to the DVW. Provides some small enhancements that could be of significant benefit to disabled veterans. The bill increases taxpayer privacy by providing that documents that contain an applicant's name, address, and social security number are not accessible to the public. SB 1113 (Knight) 5 AB 322 (Parra, Ch. 278, Stats. 2003 ) ensures that a disabled veteran, who is confined to a hospital or other care facility, will continue to receive the DVE. SB 2092 (Comm on Rev & Tax, Ch. 775, Stats. 2002 ) makes various administrative changes in the property tax laws, including the following to the DVE: (1) corrects a reference for refund claim statute of limitations; (2) provides a reasonable time for claimant to file with assessor; (3) allows the exemption on existing property owned by claimant; (4) other technical corrections. SB 1362 (Poochigian, Ch. 1085, Stats. 2000) revises provisions related to the DVE: (1) Deletes the distinction between veterans who are totally blind or lost the use of two or more limbs and those who are totally disabled; (2) eliminates the January 2001 sunset for the increased veterans' exemption for totally disabled veterans; (3) increases the income threshold for lower income veterans to $40,000 for the year 2001 and would provide an inflation factor for fiscal years thereafter; (4)Permits full retroactive exemption for veterans that are awaiting a disability rating from the U. S. Department of Veterans Affairs; (5)Permits partial retroactive exemption for any eligible person that did not file a claim; (6) terminates the exemption when a veteran sells their principal place of residence and immediately transfers the exemption to the new residence. AB 2562 (Brewer, Ch. 922, Stats. 2000) permits retroactive disabled veterans' exemptions, increases the amount of the partial exemption granted on claims that are filed late and permit the exemption to be granted immediately on a new home purchased by a disabled veteran. AB 2092 (Reyes, Ch. 575, Stats. 2000) allows a disabled veteran to retroactively file for disabled veterans' benefits, including the disabled property tax exemption, if the filing is due to the federal government delaying in issuing a disability rating. SB 1113 (Knight) 6 POSITIONS Sponsor: George Runner, Member, State Board of Equalization Support: American Legion, Department of California AMVETS, Department of California California Association of County Veterans Service Offices (CASVSO) California State Commanders Veterans Council Veterans of Foreign Wars, Department of California (VFW) Vietnam Veterans of American, California State Council (VVA) California Taxpayers Association (CalTax) Veterans Caucus of the California Democratic Party Oppose: None on file. Analysis by: Wade Cooper Teasdale SB 1113 (Knight) 7