BILL ANALYSIS Ó SB 1113 Page 1 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; SB 1113 Page 2 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 SB 1113 Page 3 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 SB 1113 Page 4 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 SB 1113 Page 5 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 SB 1113 Page 6 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 SB 1113 Page 7