BILL ANALYSIS Ó
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Date of Hearing: April 4, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
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(Brown) - As Amended February 8, 2016
Tax levy. 2/3 vote. Fiscal committee.
SUBJECT: Property taxation: exemptions: fruit and nut trees:
base-year value transfers: persons with a severely disabled
child
SUMMARY: Proposes to expand several constitutionally prescribed
property tax exemptions for personal and real property.
Specifically, this bill:
1)Modifies Section 3 of Article XIII of the California
Constitution to extend the existing property tax exemption for
newly planted pistachio trees from four years, starting after
the season in which they were planted in orchard form, to six
years.
2)Modifies Section 2 of Article XIIIA of the California
Constitution to do all of the following:
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a) Allow spouses to qualify individually for the "base-year
value" transfer property tax relief. Specifically:
i) Provides that, for purposes of existing statutory
law, a person shall not be deemed to have previously
claimed and been granted the property tax relief by
reason of being or having been:
(1) The spouse of a person who previously was
granted that property tax relief; and,
(2) A record owner of the replacement dwelling.
ii) Applies only to persons who file a claim for the
property tax relief on or after the effective date of
this measure.
b) Authorize the Legislature to extend the property tax
relief for the "base-year value" transfer to homeowners
with a severely disabled child, but only with respect to
replacement dwellings purchased or newly constructed on or
after effective date of this measure.
c) Make technical, conforming changes to the provisions
relating to property tax exemptions and base year value
transfer eligibility requirements.
EXISTING LAW:
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1)Provides that all property is taxable, unless otherwise
provided by the California Constitution or federal laws
[Section 1(a), Article XIII, California Constitution]. Limits
ad valorem taxes on real property to 1% of the full cash value
of that property [Section 1(a), Article XIII A, California
Constitution (Proposition 13)].
2)Exempts from property tax fruit and nut trees planted in
orchard form until four years after the season first planted
[Section 3(i), Article XIII, California Constitution]. The
land upon which the trees are planted remains subject to tax.
A similar exemption exists for grapevines, except that the
exemption period is for three years.
3)Requires real property to be reassessed to its current fair
market value whenever a "change in ownership" occurs, but
creates exceptions to numerous transfers. (California
Constitution, Article XIII A, Section 2; R&TC Sections 60 -
69.5.) The assessed value of the property established
initially for property tax purposes is generally referred to
as "base-year value", which is subject to annual increases for
inflation, not to exceed 2%.
4)Allows a property owner over 55 years of age and a disabled
person a once-in-a-lifetime opportunity to transfer the
base-year value of his or her principle residence, within two
years from the sale of the original residence, to a
replacement home of equal or lesser value within the same
county (Proposition 60, 1988) or to a replacement home in
counties that have adopted ordinances allowing the transfer
(Proposition 90, 1990), provided certain conditions are met
and the county assessor is properly notified. Currently,
Alameda, El Dorado, Los Angeles, Orange, Riverside, San
Bernardino, San Diego, San Mateo, Santa Clara, and Ventura
Counties allow these out-of-county transfers. In 1990,
Proposition 110 also amended the California Constitution to
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extend the "base-year" transfer property tax relief to any
severely and permanently disabled person regardless of age.
"Base-year" transfers allow taxpayers to continue to pay
property taxes at the amount and rate of growth of their
previous home and prevent reassessments of their newly
purchased homes to full market value.
5)Provides that, if the replacement dwelling is purchased before
the original property is sold, the taxpayer may transfer the
base-year value only if the replacement property is 100% or
less of the original property's value. If the replacement
dwelling is purchased within the first year after the sale,
then the taxpayer may transfer the base year if the
replacement property is within 105% of the original property's
value. And, if the replacement dwelling is purchased within
the second year after the sale, then the taxpayer may transfer
the base year if the replacement property is within 110% of
the original property's value.
6)Allows a homeowner, who has been granted a base-year value
transfer from his/her original residence to a replacement
dwelling, to perform new construction on the replacement
property subsequent to the transfer and exempts the new
construction from assessment. The new construction must be
completed within two years of the sale of the original
property and its value may not exceed the sales price of the
original property.
7)Defines any person claiming the base-year transfer property
tax relief as a "claimant" and specifies that spouses are
deemed to be a single claimant. Provides that a person is
eligible to claim a base-year value transfer as a claimant
only if neither that person nor his/her spouse, who is a
record owner of the new home, has previously received that
property tax relief.
8)Provides that each co-owner of real property, including
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domestic partners or unmarried couples, is considered to be a
separate claimant for purposes of the base year value property
tax relief.
FISCAL EFFECT: The BOE staff estimates that the provision
expanding the property tax exemption for pistachio trees will
result in an annual revenue loss of $2 million, the provision
re-defining the definition of "claimant" in the case of a
married couple will result in an annual revenue loss of
$333,750, and the provision relating to a parent of a severely
disabled child will result in an annual revenue loss of $1,335
per transfer.
COMMENTS:
1)Author's Statement . The author has provided the following
statement in support of this bill:
"ACA 6 would allow the transfer of Proposition 13 base year
value on residential property to assist those families caring
for children who are permanently and severely disabled.
Current law, Proposition 60, allows a Proposition 13 base year
transfer for persons over the age of 55 and to persons who are
severely and permanently disabled. This ACA arises from a
situation in San Diego County where permanently disabled
veterans are returning from military action and returning to
their parents' home, a house that is not accessible to
permanently disabled inhabitants. Allowing base year
transfers under these limited circumstances maintains the
spirit of Proposition 60 and can easily be administered by the
County Assessor's office."
2)Arguments in Support . The proponents of this constitutional
amendment state that the provisions relating to the property
tax exemption for fruit and nut trees would "recognize
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pistachios as 'bearing' six years after the season in which
they were planted in orchard form" and would "align the County
Tax Assessors Handbook with the definition of 'bearing' of
pistachios trees as defined by the United States Department of
Agriculture and by current industry standards and would
provide two additional years of land tax exemption from the
County Tax Assessor." They argue that because pistachio trees
are currently treated as "bearing" at the end of the four-year
period the valuation of these trees for property tax purposes
is increased from $100 per acre to $13,000 per acre. This
bill would provide two additional years of tax exemption, in
line with the findings of the U.S. Department of Agriculture.
The proponents also argue that this constitutional amendment is
needed to assist families caring for severely and permanently
disabled children. They assert that "numerous parents have
had to contend with the hardship of what occurs when a minor
child becomes suddenly and severely disabled." This
constitutional amendment "makes this challenging time easier
for both parents and children." The proponents state that ACA
6 "updates the current base-year value transfer eligibility
requirements in important ways in order to reflect the
changing times in which we live, while at the same time
benefitting both seniors and children with disabilities."
3)Proposition 13 . Much of the law pertaining to property
taxation is prescribed by Articles XIII and XIII A (commonly
known as "Proposition 13") of the California Constitution.
Proposition 13 was added to the California Constitution in
June 1978 and was most recently amended by Proposition 26 in
2010. Proposition 13 was designed to provide real property
tax relief by imposing a set of interlocking limitations upon
the assessment and taxing powers of state and local
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governments.<1>
Section 1 of Article XIII A states that, as a general rule,
the maximum amount of any ad valorem tax on real property may
not exceed 1% of the property's full cash value, as adjusted
for the lesser of inflation or 2% per year. The term "full
cash value" is defined as the "county assessor's valuation of
real property as shown on the 1975-1976 tax bill" or,
thereafter, "the appraised value of real property when
purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment" [California Constitution,
Article XIII A, Sections 1 and 2].
4)Property Tax Exemption: Fruit and Nut Trees . Existing law
exempts fruit and nut bearing trees and grapevines from
property tax during the first few years of their life and
synchronizes the imposition of the tax with the ability of the
trees to produce a sellable crop. Thus, the California
Constitution exempts from property tax fruit and nut trees
planted in orchard form until four years after the season
first planted and is intended to exempt from taxation plants
that are harvested or replanted annually or that are too
young. Section 211 of the Revenue and Taxation Code (R&TC)
restates the exemption provisions of the constitution and
additionally provides that any tree severely damaged during
certain exemption period as a result of freezes restarts the
exemption for another four years. In addition to the exemption
for newly planted orchards provided by R&TC Section 211,
Property Tax Rule 131 provides that the four-year exemption
period will also apply to individual trees when: (a) a tree
is newly planted within an existing orchard (i.e., a
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<1> Since any tax savings resulting from the real property tax
limitations provided in Sections 1 and 2 of Article XIII A could
be effectively eliminated through the imposition of additional
state and local taxes, Sections 3 and 4 place additional
restrictions upon the imposition of any such taxes. See Amador
Valley Joint Union High Sch. Dist. v. State Bd. of Equalization,
(1978) 22 Cal.3d 208.
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replacement tree), or (b) a tree that had reached commercial
production requires grafting causing another non-producing
period before it will bear fruit or nuts. Once the exemption
period expires and the trees are subject to tax, R&TC Section
53 provides that the initial "base-year value" of the trees
for purposes of Proposition 13 will be the full cash value of
the trees as of January 1 on the first year when they are
taxable.
a) The Proposed Change for Taxing Pistachio Trees. A
pistachio tree is native to western Asia and Asia Manor and
was first introduced to the United States in 1890, when it
was planted in California at the Plant Introduction Station
in Chico, California in 1904.<2> The areas of the
southwest San Joaquin Valley produce the best yields of
pistachios. Pistachios are characterized by a long juvenile
period, typically bearing few nuts before five years of
age, and achieve full bearing between 10 and 12 years of
age.<3> Peak yields are obtained from trees that are 10 to
20 years old. These trees are alternate bearing, meaning
the crop production tends to alternate between high and low
yields from year to year.<4> Since pistachio trees are not
considered bearing until six years after the season in
which they were planted, this bill proposes to exempt these
trees from property tax for two more years.
b) Taxation of Agricultural Land. Agricultural land is
generally subject to property tax under Proposition 13;
only the trees and vines are temporarily exempt. However,
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<2> The Pistachio Tree; Botany and Physiology and Factors that
Affect Yield, by Louise Ferguson, Vito Polito and Craig Kallsen,
p. 1.
<3> Ibid.
<4> Pistachio Timeline, by Nicole Mosz, HIB/BEAD, January 14,
2002.
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under the California Land Conservation Act (the "Williamson
Act"), landowners may enter into contracts with cities and
counties to restrict the land voluntarily to agricultural
or open-space uses. In exchange, the land is valued
according to income earning potential, which may be lower
than the land's current fair-market value or Proposition
13- factored base-year value. According to the BOE staff
analysis of this proposed constitutional amendment, most
pistachio tree acres are located on land subject to the
Williamson Act, which already results in the lowest value
of the land for property tax purposes. The Committee may
wish to consider whether the unique bearing age of
pistachio trees warrants a full property tax exemption for
extra two years given that most of those trees are grown on
land already taxed at the lowest possible rate under the
Williamson Act.
5)Property Tax Exemption: Base-Year Value Transfers:
Background . California has one of the lowest property taxes
in the nation and provides the greatest benefit to property
owners, especially those who have lived in their homes for
many years. Proposition 13 contains provisions allowing a
homeowner over the age of 55<5> or a homeowners who is
disabled<6> a once-in-a-lifetime opportunity to transfer the
base-year value in his/her principal residence, within two
years from the sale of the original residence, to a
replacement home of equal or lesser value within the same
county or to a replacement home in counties that have adopted
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<5> In 1986, the voters passed Proposition 60, which amended the
Constitution to allow persons over the age of 55 to sell a
principal residence and transfer its base-year value to a
replacement principal residence within the same county.
<6> In 1990, the voters passed Proposition 110, which amended
the Constitution to extend these provisions to any severely and
permanently disabled person regardless of age.
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ordinances allowing the transfer<7>, provided certain
conditions are met and the county assessor is properly
notified. Base-year transfers allow homeowners to continue
paying property taxes at the amount and rate of growth of
their previous homes and prevent reassessments of their newly
purchased or constructed homes to full market value. This
system, established by Proposition 13, may result in
substantial property tax savings for long-term property
owners.
6)Base-Year Value Transfer: Fifty-Five and Over: Spouses . A
person claiming the base-year value transfer relief is defined
as a "claimant." To qualify, the claimant must provide certain
information to the assessor, including his/her name and Social
Security number as well as the name and Social Security number
of his/her spouse who is also a record owner of the
replacement dwelling. Under existing law, a person of any age
may make a base-year value transfer claim as long as that
person resides with a spouse who is over 55 or permanently
disabled even if the spouse is not an owner of record of
either the original or replacement property. However, the
implementing statute, but not the Constitution, limits this
"base-year value" benefit to a one-time relief. The statute
requires that the "claimant" have not previously received this
"property tax relief."
a) What is a Problem ? A spouse who shares title of the
newly purchased home with the "claimant" is also considered
to be a "claimant." Consequently, if "A" and "B" are
married and record owners of property which has received
the benefits of the base-year transfer value relief, then
neither "A" nor "B" is eligible for a similar benefit in
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<7> In 1988, the voters passed Proposition 90, which amended the
Constitution to extend the base-year value transfer provisions
to a replacement residence located in another county on a
county-optional basis.
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the future.<8> Furthermore, if "A" and "B" divorce, and
"A" marries "C", "C" will not be eligible for the base-year
value transfer relief with respect to "C's" replacement
dwelling if both "A" and "C" are co-owners of record. The
relief will be unavailable to "C" because "A" is considered
a "claimant" for purposes of "C's" claim.
b) Proposed Solution . This constitutional amendment
proposes to stop treating a married couple as one
"claimant" for purposes of the "base-year value" transfer
relief and, instead, grant this property tax relief to any
individual regardless of his/her marital status.
Practically speaking, this proposed constitutional
amendment would allow a married couple to transfer their
base-year value twice, similarly to unmarried co-owners and
registered domestic partners. However, this bill would not
allow a claimant under the age of 55 to qualify for the tax
relief even if the claimant resides with a spouse who meets
the age requirement. As noted by the BOE staff, residency
by an over-55 spouse will no longer suffice to permit
transfer of the base-year value. To qualify, the over-55
spouse must file the actual claim and be a recorded owner
of both homes. Under current law, a person who is under
the age of 55 may be a claimant if he/she resides with a
spouse who is over 55 years of age.
c) Prospective or Retroactive ? This proposed
constitutional amendment does not specify whether
retroactive claims are allowed. As noted by the BOE staff,
it is unclear whether a spouse who was a record owner of a
replacement dwelling for which a "base-year value" transfer
was granted prior to the effective date of this
constitutional amendment, would be eligible to file a claim
for the "base-year value" relief on another replacement
dwelling. It appears that the retroactive application of
this provision would create certain administrative
difficulties for the BOE. To monitor and enforce the
existing one-time relief, the BOE is required to collect
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<8> BOE Annotation 200.0020 "Claimant (New Spouse)".
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data from counties and maintain a database of base-year
value transfer claimants and their spouses if names of both
spouses appear on the title to the new home. If claimant's
spouse subsequently claims another base-year value
transfer, the BOE database would match the name and the
claim will be denied. However, the original paper claims
submitted by claimants to the BOE in the past years might
have been destroyed. Thus, it may be impossible to
determine whether the person (whose name is in the
database) was listed as a spouse of the claimant or was the
claimant himself/herself. The Committee may wish to
consider amending this proposed constitutional amendment to
clarify its prospective or retroactive application.
d) Married Couple as a "Single Economic Unit ." As observed
by one of the prominent tax law professors, the choice
between marriage neutrality and couples neutrality cannot
be made purely on the basis of tax logic, but must consider
"society's assumptions about the role of marriage and the
family" and "in the end can rest on nothing more precise or
permanent than collective social preferences."<9> Thus,
under both federal and state income tax laws, a married
couple is treated as a single economic unit. Generally,
spouses file a joint tax return, reporting their combined
income and calculate their tax liability based on that
combined income. A married taxpayer filing separately is
still subject to tax liability different from that if filed
as single. Many tax preferences are disallowed to married
taxpayers filing separately; these differences are called
"marriage penalties" and "marriage bonuses".<10> It
appears that existing California property tax law similarly
treats married taxpayers as a single economic unit in
contrast to couples that cohabitate or are registered as
domestic partners. The Committee may wish to consider
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<9> Marriage and the Income Tax, L. Zelenak, 67 S. Cal. Rev.
339, p. 342 (1994), citing Boris I. Bittker, Federal Income
Taxation and the Family, 27 Stan. L. Rev. 1389, 1395-96 (1975).
<10> Id., at p.339.
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whether the rationale for this tax treatment of a married
couple as a single economic unit is warranted in the
context of the property tax law. The Committee may also
wish to consider limiting the application of this proposed
constitutional amendment to a married couple where one of
the spouses was previously married and received a base-year
value transfer on a home he/she, or his/her ex-spouse,
owned in the prior marriage.
e) Is the Constitutional Amendment Relating to Base-Year
Transfer for Spouses Necessary ? As noted by the BOE
staff, this constitutional amendment addresses a problem
that was created by the implementing statute rather than
the Constitution. Put differently, the Constitution does
not limit the number of base-year value transfers one
person may receive nor does it require both spouses to be
claimants. This requirement was imposed by the
Legislature. The Committee may wish to consider whether
this constitutional amendment is necessary to provide the
property tax relief to spouses and ex-spouses, where the
Legislature itself has full authority to change the
implementing statute (as it proposed to do in 2015).
f) Related Legislation. Last year, Governor Brown vetoed
AB 1378 (Holden), sponsored by the Howard Jarvis
Association, that would have allowed each spouse the
opportunity to make a separate, one-time claim after
January 1, 2016. Because AB 1378 would have applied
prospectively only, it would have allowed a married couple
to move their base-year value twice but only if each spouse
makes a claim for the first time after January 1, 2016.
The Governor's veto message states:
"This bill would allow each spouse in a marriage to submit
a separate base-year property tax valuation transfer claim.
"I think this bill is too broad and allows an already
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generous property tax benefit to be allowed a second time
on a larger scale.
"I do not believe that it would be prudent to authorize
legislation such as this that would result in significant
long-term costs to the General Fund."
7)Base-Year Value Transfers: Homeowners with Disabled Children .
As discussed, the Constitution and implementing statute allow
a homeowner who is severely and permanently disabled to sell
his/her home, buy or build a new one, and transfer the
base-year value to a replacement dwelling. To qualify, the
move must be necessary to meet disability requirements and the
new home must be of equal or lesser value and located in the
same county or another county that offers this property tax
benefit. In addition, the claimant must provide certain
information to the assessor, including proof of severe and
permanent disability.
a) What is the Problem ? It is unclear if the definition of
a "severely disabled homeowner" includes a child who
resides in his/her parents' home but has no legal right as
a homeowner. According to a BOE annotation<11>, a minor
may obtain the benefit of a base-year value transfer
indirectly if a guardianship or trust is created for the
minor and the minor has received the title to both the
original and replacement homes. A minor may not convey or
make contracts relating to real property even though he/she
may own real property or an interest therein. Nonetheless,
if a guardian or trustee is appointed to sell real property
owned by a minor, the benefits of a base-year value
transfer may be obtained indirectly through a guardianship
or trust. In other words, a disabled child's name must be
added to the title in order to transfer the base-year
value. Once the child is a record owner, he/she becomes a
qualified claimant and the parent may file a claim on the
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<11> Property Tax Annotation 200.0076, State Board of
Equalization.
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child's behalf as the trustee or guardian.<12> However,
adding a minor child to a home's legal title may be a
lengthy, complicated and costly legal process. In some
cases, parents may not be even aware of this indirect way
of obtaining the benefit of a base-year value transfer.
Furthermore, in the case of an adult child, the addition of
the child's name to the title may result in non-tax related
legal complications. To sum up, existing law does not
allow a homeowner with a severely and permanently disabled
child to qualify for this "base-year" value transfer
directly.
b) The Proposed Solution . This constitutional amendment
would extend the benefit of a "base-year value" transfer to
any person with a severely and permanently disabled child
who resides in the home. The intent of the constitutional
amendment is to assist a family caring for a child who is
severely and permanently disabled by allowing the family to
sell their home and build or buy a new one to accommodate
their child's needs. To that end, this proposed
constitutional amendment eliminates the need for parents to
engage in complicated legal proceedings and allows a parent
to claim directly the benefit of the "base-year value"
transfer without adding the child's name to title.
c) BOE's Implementation Concerns . In its analysis, the BOE
staff noted that this constitutional amendment does not
appear to require that the child reside in the home with
the parent. To clarify the intent of the author and
minimize any future implementation issues, the BOE staff
recommends amending R&TC Section 69.5(g)(12). Furthermore,
under this proposed constitutional amendment, any person
(such as a caregiver, a relative or friend and not just a
parent) with a severely and permanently disabled child
would qualify for the base-year value transfer relief. The
Committee may wish to consider amendments that would
clarify the intent of this proposed constitutional
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<12> BOE's Letter to Assessor's 2006/010, Question 6
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amendment.
d) Prior Legislation . AB 571 (Brown), or the 2014-15
Legislative Session, would have, among other things,
provided for a transfer of base-year value of original
property to a replacement dwelling for persons who have a
severely disabled child. However, because the base-year
value transfer relief was created by constitutional
amendments, a new constitutional amendment is required to
expand the scope of the relief to include disabled
children. AB 571 was later amended to delete these
base-year value relief provisions.
REGISTERED SUPPORT / OPPOSITION:
Support
American Pistachio Growers
Howard Jarvis Taxpayers Association
California Assessors' Association
Opposition
None on file
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Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098