BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1113
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          Date of Hearing:   June 25, 2014


                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                                Raul Bocanegra, Chair

                    SB 1113 (Knight) - As Amended:  April 1, 2014


          Majority vote.  Fiscal committee. 

           SENATE VOTE  :   36-0
           
          SUBJECT  :   Property taxation:  disabled veterans' exemption:   
          refunds:  statute of limitations

           SUMMARY  :   Extends the statute of limitations for filing a  
          property tax refund claim if the claim is filed in connection  
          with the disabled veteran's exemption. Specifically,  this bill  :   
           

          1)Contains legislative findings and declarations relating to the  
            disabled veterans' property tax exemption and its purpose of  
            relieving economic hardship on members of the military and  
            their families. 

          2)Extends the statute of limitations for filing a claim for a  
            property tax refund from four to eight years after making the  
            property tax payment sought to be refunded, but only if the  
            claim relates to the disabled veterans' exemption, as  
            specified.

          3)Applies to claims for refund that are filed on or after  
            January 1, 2015, as specified. 

          4)Corrects an erroneous statutory cross-reference in Military  
            and Veterans Code Section 890.3 related to disabled veterans'  
            property tax exemption and property tax refund claims. 

           EXISTING LAW  :

          1)Exempts from property tax, in whole or in part, the home of a  
            veteran who is totally disabled because of injury or disease  
            incurred in military service, or his/her surviving unmarried  
            spouse.  [Article XIII, Section 4, California Constitution;  








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            Revenue and Taxation Code (R&TC) Section 205.5.]  The disabled  
            veterans' exemption is also available to the surviving spouse  
            of a person who has died as a result of service-connected  
            injuries while on active military duty.  The amount of the  
            exemption depends on the claimant's income.  The basic  
            exemption amount is $100,000, adjusted annually for inflation.  
             For low-income claimants, the exemption amount is $150,000,  
            adjusted annually for inflation, when the veteran's household  
            income does not exceed $40,000, as adjusted.  For 2014, the  
            disabled veterans' exemption amount is $187,399 of assessed  
            value for those with a household income below $56,101 (the  
            "low-income" exemption), and $124,932 for all other disabled  
            veterans (the 'basic' exemption).  

          2)Defines a "totally disable veteran" as a veteran who has a  
            disability rating from the United States Department of  
            Veterans Affairs (USDVA), or the military service from which  
            the veteran was discharged, at 100%, or has a disability  
            compensation rating at 100% because he/she is unable to secure  
            or follow a substantially gainful occupation.  

          3)Allows a surviving spouse of a disabled veteran to receive the  
            exemption if the veteran's death is service-connected, as  
            determined by the USDVA.  

          4)Provides that a home becomes eligible for the disabled  
            veteran's exemption as of the effective date of a 100%  
            disability rating or on the day when the active duty service  
            person dies. 

          5)Requires a disabled veteran to file a claim with the local  
            county assessor to receive the exemption.  To receive the  
            basic exemption, a claimant needs to file a claim only once.   
            To receive the larger low-income exemption, the claimant must  
            file a claim each year to verify income eligibility.  The  
            annual filing period is between January 1 and February 15.  

          6)Specifies that, if a claim is filed after the deadline, the  
            exemption can still be obtained at a reduced level (either 90%  
            or 85% of the exemption amount), as outlined in R&TC Section  
            276.  However, an exception to this "partial exemption" rule  
            is allowed in the case of late-filed claims where the USDVA  
            has not finished processing the veterans' disability rating  
            certification.  If a person files a late claim due to a  
            pending disability rating from the USDVA, the full amount of  








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            the exemption will be granted retroactively, effective on the  
            date of a disability, but the claim must be filed no later  
            than 90 days after receiving a disability rating letter from  
            the USDVA, or before the next following lien date (January 1).  
             

           FISCAL EFFECT  :  The State Board of Equalization (BOE) staff  
          estimates that this bill will result in an annual property tax  
          revenue loss of $240,000.  
           
          COMMENTS  :   

           1)The Author's Statement  .  The author has provided the following  
            statement in support of this bill:

          "Qualified veterans who receive a 100 percent disability rating  
            from the U.S. Department of Veterans Affairs are given a  
            special property tax reduction in California.  Currently, 100  
            percent disabled veterans are entitled to a property tax  
            reduction on the value of their home, up to $124,932 or  
            $187,399 in 2014 and equivalent amounts adjusted for inflation  
            in future years.

          "California law specifies that a home becomes eligible for the  
            exemption as of the effective date of the veteran's 100  
            percent disability rating.  Veterans are also entitled to  
            claim a refund for up to four years of back taxes paid.  This  
            is especially useful when the disability rating is granted  
            retroactively.

          "But some veterans struggle with the VA to get this rating, with  
            appeals and litigation.  Some are incorrectly rated with  
            mistakes uncovered years later.  Some veterans wait well  
            beyond the four-year statute of limitations to receive their  
            rating, to no fault of their own.

          "In these cases, 100 percent disabled veterans are paying more  
            taxes that they should while they fight for their 100 percent  
            disability rating from the VA, only to find that they have  
            exceeded the statute of limitations.  As a result, some  
            disabled veterans miss out on thousands of dollars that  
            California has determined they are entitled to.

          "Doubling the statute from four to eight years parallels the  
            provisions of law requiring eight years of back taxes to be  








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            collected from taxpayers for escape assessments related to  
            unrecorded changes in ownership.

          "SB 1113 seeks to balance veterans' need to receive added relief  
            with government's need to certainty and closure. Veterans who  
            are 100 percent disabled as a direct result of serving our  
            country shouldn't be penalized for delays over which they have  
            no control.

          "SB 1113 changes the statute of limitations on refunds  
            associated with disabled veterans by amending Revenue and  
            Taxation Code §5097 and Military and Veterans Code §890.3 to  
            allow a disabled veteran to receive a refund of property taxes  
            paid within the last eight years, instead of the current four,  
            when the federal government issues the veteran a retroactive  
            100 percent disability rating.

          "Veterans wounded in the defense of our country should not be  
            penalized by a slow bureaucratic process. SB 1113 is necessary  
            to give veterans better access to the full benefit that a  
            grateful California has determined they are entitled to."

           2)Arguments in Support  .  The proponents of this bill state that  
            the disabled veterans' property tax exemption is an "important  
            benefit offered by California, and the state should make  
            certain not to exclude fully qualified veterans from receiving  
            the full benefit to which they are entitled."  The proponents  
            argue that the current statute of limitations is problematic  
            because it limits the veterans' ability to claim the exemption  
            while the veterans' disabled status is under review by the  
            USDVA, or the rating determination is being appealed or  
            litigated. 

           3)The Bill's Purpose  .  This bill is intended to allow disabled  
            veterans to receive the maximum amount of the property tax  
            exemption on their home on a retroactive basis by extending  
            the statute of limitations for filing refund claims from four  
            to eight years.  

           4)Background  .  Under existing law, a veteran must receive a  
            disability certification from either the USDVA or the military  
            service, from which the veteran was discharged, in order to  
            qualify for the property tax exemption.  In addition, the  
            eligible veteran must file a timely claim with the county  
            assessor by the specified deadlines to receive the full amount  








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            of the property tax exemption.  However, it may take years for  
            a veteran to receive a final USDVA disability rating  
            certification, especially if the veteran appeals the initial  
            disability rating.  In 2000, the law was changed to allow  
            disabled veterans to receive the maximum amount of the  
            property tax exemption retroactively, once they receive a  
            qualifying disability rating.  [SB 1362 (Poochigian), Chapter  
            1085, Statutes of 2000.]  Thus, under existing law, the  
            effective date of the exemption in those cases is considered  
            to be the same as the effective date of the disability as  
            determined by the USDVA or the military service.   
            Consequently, a disabled veteran who has already paid property  
            taxes may recover the payments by filing a claim for refund.   
            However, the four-year statute of limitations applicable to  
            refunds may, in some cases, preclude veterans from receiving  
            the benefit of the exemption as of the effective disability  
            date.  

           5)The Four-Year Statute of Limitation for Filing a Refund Claim  .  
             This bill extends the existing four-year statute of  
            limitations for filing a claim for refund associated with the  
            disabled veterans' property tax exemption to eight years.  

          Generally, a four-year statute of limitations applies to refund  
            claims to recover already paid taxes in California. This bill  
            departs from the general rule to allow disabled veterans or  
            their surviving spouses to receive a refund for the property  
            taxes already paid beyond the four-year period if certain  
            specified requirements are met.  As explained by the BOE staff  
            in the analysis of this bill, the existing statute of  
            limitations on property tax refunds "can undercut the  
            provision of law allowing the disabled veteran to receive the  
            exemption as of the disability effective date."  For example,  
            even if a veteran successfully appeals or litigates the  
            disability rating issued by the USDVA or if the USDVA issues a  
            new rating to correct an initial rating error, the veteran may  
            still not be able to receive a refund for the property taxes  
            already paid because of the four-year statute of limitations  
            for filing claims for refund.  Furthermore, because of the  
            processing backlogs or lost paperwork at the USDVA, it may  
            take more than four years for a veteran to obtain a 100%  
            disability determination from the USDVA.  According to the BOE  
            staff, on occasion "veterans or their advocates contact the  
            BOE with backdated disability effective dates of more than 20  
            years, seeking help to obtain refunds beyond the allowable  








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            four years," and "are disheartened that, after years of  
            struggling with the federal government to obtain a 100%  
            disability rating, California law limits available property  
            tax relief."  The proposed extension of the statute of  
            limitations to eight years is similar to an eight-year statute  
            of limitations applicable for "escape assessments," i.e. back  
            taxes collected from taxpayers for escape assessments related  
            to unrecorded changes in ownership. 

          Federal courts have stated that fixed deadlines - statute of  
            limitations - may appear harsh because they can be missed, but  
            the resulting occasional harshness is redeemed by the clarity  
            imparted.  (Prussner v. United States (7th Cir. 1990) 896 F.2d  
            218, 222-223 [quoting United States v. Locke (1985) 471 U.S.  
            84; United States v. Boyle (1985) 469 U.S. 241, 249].)   
            According to the sponsor, this bill seeks to balance the  
            veteran's need to receive added property tax relief with the  
            state and local government's need to certainty and closure on  
            property tax revenue receipts.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          State Board of Equalization (Sponsor)
          American Legion, Department of California
          AMVETS, Department of California
          California Association of County Veterans Service Officer
          California State Commanders Veterans Council
          California Taxpayers Association
          George Runner, Member, Second District, State Board of
            Equalization
          Jerome E. Horton, Chairman, Board of Equalization
          Howard Jarvis Taxpayers Association
          Santa Clarita Valley Chamber of Commerce
          Veterans Caucus of the California Democratic Party
          Veterans of Foreign Wars, Department of California
          Vietnam Veterans of America, California State Council
           
          Opposition 
           
          None of file

           Analysis Prepared by  :    Oksana Jaffe / REV. & TAX. / (916)  
          319-2098 








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