BILL ANALYSIS Ó
AB 567
Page A
ASSEMBLY THIRD READING
AB
567 (Gipson)
As Introduced February 24, 2015
Majority vote
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|Committee |Votes|Ayes |Noes |
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| | | | |
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|----------------+-----+-----------------------+--------------------|
|Revenue & |5-3 |Ting, Gipson, Roger |Brough, Patterson, |
|Taxation | |Hernández, Mullin, |Wagner |
| | |Quirk | |
| | | | |
| | | | |
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SUMMARY: Allows the State Board of Equalization (BOE), as well as
county assessors, to disclose that a person or legal entity has
filed a legal entity change in ownership statement with the BOE or
that the BOE has issued a determination to the assessor relating
to that statement. Specifically, this bill:
1)Contains legislative findings and declarations relating to the
transparency of the property tax system, the right to privacy,
and the balance between the taxing authority's responsibility to
safeguard confidential taxpayer information and the public's
right to timely information.
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2)Creates an exception to the confidentiality requirement for
information reported in a change in ownership (CIO) statement by
providing that:
a) The BOE and the assessor are not required to hold
information requested or furnished in a CIO statement for a
change in control or a change in ownership, as defined,
secret; and,
b) The disclosure by the BOE or assessor that a CIO statement
has been filed shall not be deemed to violate the
confidentiality of taxpayer return information in the case
where the filing of the statement was prompted by information
collected by the Franchise Tax Board (FTB) from the property
tax query on the taxpayer's state income tax return, as
specified.
EXISTING LAW:
1)Provides that all property is taxable, unless otherwise provided
by the California Constitution or federal laws [California
Constitution Article XIII, Section 1(a)]. Limits ad valorem
taxes on real property to 1% of the full cash value of that
property [California Constitution Article XIII A, Section 1(a)
(Proposition 13 of 1978)]. Requires real property to be
reassessed to its current fair market value whenever a "change
in ownership" occurs. (California Constitution, Article XIII A,
Section 2; Revenue and Taxation Code (R&TC) Sections 60 to 69.5)
2)Requires new owners of real property and certain legal entities
to submit a CIO or a change-in-control statement, either with
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the county recorder or assessor, at the time of recording or, if
the transfer is not recorded, within 90 days of the date of the
CIO, except as provided.
3)Requires certain CIO statements to be filed directly with the
BOE.
4)Imposes a penalty for failure to file any of the following
statements within the prescribed time period:
a) A CIO statement required to be filed by a new property
owner for real property transfers that must be reported to
the local county assessor;
b) A Legal Entity Ownership Program (LEOP) CIO or a
change-in-control statement required to be mailed by a legal
entity to the State Board of Equalization (BOE); or
c) A response to a BOE written request for a legal entity to
file a LEOP CIO statement or change-in-control statement.
5)Requires the BOE and the assessor to hold secret all information
furnished in the CIO statement. (R&TC Section 481). These
statements are not considered public documents and are not open
to inspection except to explicitly authorized persons for
certain purposes. (R&TC Sections 408, 481, and 408.2)
6)Allows public access to certain information, including the
assessment roll and a quarterly updated list of all property
transfers occurring in the prior two years in each county.
(R&TC Section 601, 602, and 408.1)
FISCAL EFFECT: According to the BOE staff, this bill would have
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no direct impact on General Fund revenues.
COMMENTS:
1)Author's Statement. The author has provided the following
statement in support of this bill, "Transparency in assessed
value information is critical to the integrity of the property
tax system. The public should have sufficient information to
provide assurance the property tax laws are equitably applied
and that the property tax burden is fairly distributed. AB 567
will help add the kind of oversight the public has been looking
for regarding these types of transactions."
2)Background: Proposition 13 and "Change in Ownership". The
property tax applies to all classes of property and is one of
the major general revenue sources for local governments in
California. A property tax is imposed on the property owners
and is based on the value of the property. Much of the law
pertaining to taxation of property is prescribed by the
California Constitution Article XIII and Article XIII A
(commonly known as "Proposition 13"). 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
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powers of state and local governments.<1> California
Constitution Article XIII A, Section 1 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" means 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" (emphasis added) [California Constitution
Article XIII A, Sections 1 and 2]. In other words, the
California Constitution requires that real property be
reassessed to its current fair market value whenever a "change
in ownership" occurs. The definition of a "change in ownership"
was not included in Proposition 13, but was left to implementing
legislation.
3)Legal Entities: Change in Ownership: Transfers of Real
Property. Generally, county assessors discover a CIO via grant
deeds or other documents that are recorded with the county
recorder. In addition, the county recorder must provide the
assessor with a copy of the transfer of ownership document as
soon as possible. However, ordinarily the transfer of ownership
interests in a legal entity does not involve a recorded deed
even if a property reassessment is called for under existing
law.
The Legislature has attempted to reduce the volume of unreported
business property ownership transfer transactions. The most
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<1>
Since any tax savings resulting from the real property tax
limitations provided in California Constitution Article XIII A,
Sections 1 and 2 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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significant accomplishment was the creation of the LEOP. Under
this program, the BOE gathers, and subsequently disseminates, to
county assessors information regarding changes in control and
ownership of legal entities that own or lease an interest in
real property located in California. That information is
obtained through monitoring publications, such as the Wall
Street Journal and Mergers and Acquisitions, and receiving
referrals from assessors. Existing law also requires the FTB to
include a question on returns for partnerships, banks, and
corporations asking if the entity owns real property in
California and whether more than 50% of its voting stock (or
other interest) has been transferred to another legal entity.<2>
This information is shared by the FTB with the BOE. In turn,
the BOE is authorized to make a written request to the legal
entity to file a LEOP CIO statement to determine if there has
been a change in control or ownership of the legal entity. The
purpose of the LEOP is to assist county assessors in discovering
changes in control or changes in ownership that have not been
captured by a county's own discovery systems.
Similarly to the filing requirements applicable to buyers of
real property, a person or legal entity that acquires control of
another legal entity is responsible for filing a LEOP
change-in-ownership statement within 90 days of the event that
triggers a change-in-control or CIO of a legal entity, where the
entity or any subsidiary owned or held California real property
at the time of the change. If the entity fails to self-report,
the BOE may send a written request to complete the LEOP CIO
statement, in which case the statement must be filed within 90
days of the BOE's written request.<3> If a legal entity fails
to either self- report or answer the BOE's written request and
the failure is discovered later on, then an escape assessment
will be made for every tax year that the entity failed to file
the CIO statement. There is no statute of limitations
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<2> R&TC Section 64(e).
<3> As explained by the BOE staff, the BOE searches for unreported
changes in control and ownership of legal entities under Section
64(c) and (d), in addition to receiving information from the FTB.
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applicable to these escape assessments. The penalty for failure
to file is 10% of the taxes applicable to the new base-year
value of the real property (e.g., land, improvements, and
fixtures) if a change in control or CIO has occurred or 10% of
the current year's taxes on the real property if a change in
control or CIO has not occurred. However, the penalty is
limited to $5,000 in the case of the property eligible for the
homeowners' exemption and to $20,000 in the case of other types
of property, provided that the failure to file was not willful.
6)Disclosure of Tax Information. The State of California, as well
as other states, readily publishes information on unpaid taxes
and delinquent taxpayers with respect to property taxes. An
unpaid property tax becomes a lien against the real property and
dissemination of information on such liabilities is important
for protecting potential buyers, lenders, etc. Any recorded
real property transfers are made available to the public. A
county assessor may also share specified information, otherwise
confidential, with various local and state government entities.
In the area of income tax liabilities, however, state law
generally prohibits disclosure or inspection of any income tax
return information, except as specified in law. In fact, the
FTB is required to notify taxpayers if criminal charges have
been filed for willful unauthorized inspection or disclosure of
their tax data. However, FTB may release tax return information
to certain other agencies, including the BOE, legislative
committees, the Attorney General, the California Parent Locator
Service, the Commissioner of the IRS, and others for certain
statutorily enumerated purposes. BOE is similarly restricted
from divulging taxpayer information unless specifically
authorized by statute. For example, since 2007, both FTB and
BOE are required to make as a matter of public record a list of
the largest 500 tax delinquencies over $100,000.
7)The Limited Scope of this Bill. As noted by the BOE staff, in
recent years, media reports of the disparate consequences of
reassessing property owned by legal entities and property owned
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by individuals have resulted in an increasing number of
inquiries from the public whether specific sales, mergers,
acquisitions, and buyouts reported by media trigger the
reassessment of a legal entity's real estate holdings. Existing
law, however, prohibits BOE staff from providing basic factual
information to public, even though this information could
eventually become public, when, for example, the assessor
reassesses (or does not reassess) the property owned by the
legal entity.
Under this bill, the BOE and county assessors are authorized to
disclose the fact that a CIO statement has been filed with the
BOE or that the BOE has issued a determination to the assessor
relating to a CIO statement filed with the BOE. In addition,
this bill would exempt from the confidentiality requirement the
fact that the filing of a CIO statement was prompted by
information collected by the FTB from the taxpayer's state
income tax return. The scope of the disclosure proposed by this
bill is very limited - it does not require a disclosure of any
factual information reported on the taxpayer's state income tax
return, such as the amount of gross receipts or sales, gross
profit, the amount of credit carryovers, income subject to
apportionment, or the amount of each individual credit claimed
on the tax return. Furthermore, no actual information reported
on a CIO statement, other than the fact that the statement has
been filed, may be disclosed to the public. Detailed financial
information reported in the state income tax return or CIO
statement will remain confidential.
Legal entity change in ownership discovery relies heavily on
self-reporting, which does not always result in 100% compliance.
State agencies assist local assessors because real property
owned by legal entities often undergoes a change in ownership
without the public recordation of documents. As stated by the
BOE staff in its analysis, the "delayed transparency undermines
the public trust in the current property tax system as it
applies to legal entity changes in ownerships and fuels the
perception that laws are inequitable and should be changed."
Transfers of real property are recorded and are already public
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information. Thus, it is unclear why a disclosure of the mere
fact of filing a CIO statement by a legal entity, or the fact
that the filing was prompted by the information collected by the
FTB, would undermine public trust or should remain confidential.
Analysis Prepared by:
Oksana Jaffee / REV. & TAX. / (916) 319-2098 FN:
0000457