BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 567 |Hearing |7/8/15 |
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|Author: |Gipson |Tax Levy: |No |
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|Version: |2/24/15 |Fiscal: |No |
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|Consultant|Grinnell |
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PROPERTY TAXATION: CHANGE IN OWNERSHIP STATEMENT:
CONFIDENTIALITY OF INFORMATION
Allows BOE or assessors to disclose whether they've received a
change in ownership statement for a legal entity, or that BOE
has issued a determination regarding the change.
Background and Existing Law
Proposition 13 (1978) amended Article XIIIA of the California
Constitution to preclude assessors from revaluing real property
for tax purposes unless a property is newly constructed, or
changes ownership. Assessors revalue property at current, full
market value for property tax purposes whenever either of these
two events occurs.
Different standards apply when assessors determine whether real
property has changed ownership and changes in ownership
interests in legal entities, like corporations and partnerships,
which own real property. When direct interests in real property
change ownership, Assessors generally only revalue that
percentage interest which transfers. For legal entities,
assessors revalue all of the legal entity's property to fair
market value only when one person or legal entity purchases or
otherwise acquires more than 50% ownership of the corporation or
other legal entity in a single transaction, or when the changes
in the cumulative ownership of the legal entity's original
AB 567 (Gipson) 2/24/15 Page 2
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co-owners reaches 50% in one or more transactions.
Whenever ownership changes, state law requires the new owner to
file a Change in Ownership Statement (COS); however, any
information appearing on the forms, is considered a secret and
not subject to public disclosure. However, the assessment roll,
and a quarterly updated list of all property transfers, is a
public document.
Often, assessors are unaware a legal entity's ownership changes,
which can trigger reassessment of properties owned by that legal
entity. Assessors usually rely on changes in title information
supplied by the County Recorder, which don't account for changes
in legal entities. To help track potential reassessments, BOE
created the Legal Entity Ownership Program (LEOP) in 1982 to
help find and detect changes in control and ownership of
corporations, partnerships, and other legal entities, which have
no recorded deed or notice of a transfer of an ownership
interest in a legal entity. Under LEOP, legal entities must
file a change of ownership statement with BOE within 90 days of
the transfer, or pay a penalty equal to 10% of the tax on the
new value of the property reflecting the change of ownership (SB
816, Ducheny, 2009). Additionally, Franchise Tax Board sends
BOE a list of legal entities that have reported a change in
control or change in ownership on income tax returns. BOE
analyzes completed statements to determine changes in control or
ownership, and based on its review, can send legal entities a
LEOP COS. BOE then notifies county assessors of changes in
control and ownership it detects to ensure reassessment occurs.
Proposed Law
Assembly Bill 567 allows the Board of Equalization (BOE) or the
assessor 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
the statement filed. The measure also makes legislative
findings and declarations supporting its purposes.
State Revenue Impact
BOE states the measure doesn't affect property tax revenues.
AB 567 (Gipson) 2/24/15 Page 3
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Comments
1. Purpose of the bill . According to the author, "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. Piercing the veil . As a general matter in California tax
law, any information that a taxpayer enters on a return and
submits to a tax enforcement agency is considered confidential,
and criminal sanctions apply to persons who unlawfully inspect
or disclose any confidential tax information. The Legislature
has considered several measures that would make public
confidential taxpayer information in the hopes of increasing
collections, or stimulating debate about the state's tax
policies, such as:
Directing FTB and BOE to publish lists of the top 500
tax delinquencies over $100,000 (AB 1418, Horton, 2006 and
AB 1424, Perea, 2011). The measure was enacted.
Requiring FTB to publish on its website a list of the
1,500 largest corporate taxpayers filing a Form 10-K with
the SEC (AB 2439, Eng, 2011). The measure failed passage
on the Senate Floor
Requiring FTB to compile information on any tax
expenditure claimed by a taxpayer that is a publicly-traded
company, and develop a searchable database by company name
and the amount of tax expenditures claimed (AB 2666,
Skinner, 2010). Governor Arnold Schwarzenegger vetoed this
bill.
AB 567 pierces the veil of taxpayer confidentiality by allowing
either the BOE or an assessor to disclose that a taxpayer filed
a change in ownership statement for a legal entity, or that BOE
has determined that a change in ownership has occurred.
However, the piercing is minor in comparison to previous
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efforts: the measure doesn't compel disclosure of any taxpayer
specific information on the form itself, and any changes in
ownership show up on the assessment roll or the quarterly
transfer eventually. The Committee may wish to consider whether
the value of the information AB 567 would bring to public light
is worth its cost of taxpayer confidentiality.
3. Baby steps . AB 567 makes a small change in an area of great
dispute. Shortly after passage of Proposition 13, the Assembly
Committee on Revenue and Taxation appointed a task force of to
wrestle with the various interpretations necessary to implement
the initiative. The task force's initial recommendation
concerning changes in ownership of property owned by legal
entities was to adopt the "separate entity" theory, providing
that so long as the same legal entity owned the property, it
would not be reassessed, regardless of whether ownership
interests in the entity change, such as stock in the
corporation, or partners in the partnership. However, the task
force subsequently added the
'majority-takeover-of-corporate-stock,' or "change in control,"
provision to maintain some parity with the increasing relative
tax burden of residential property statewide. As enacted,
assessors revalue property to fair market value when one person
or legal entity purchases or otherwise acquires more than 50%
ownership of a corporation or other legal entity in a single
transaction. Ever since, taxpayers have generally been able to
plan around the change of ownership rules for legal entities to
avoid reassessment. Several legislative measures to change
these rules were unsuccessful, such as SB 82 (Kopp, 1992) and SB
17 (Escutia, 2005 and 2007) all of which would have overturned
the 50% rule. Last year, the Legislature considered a measure
that defined as a change in ownership a single transaction when
more than 90% or more of the ownership interests in a legal
entity are sold in a single transaction to a person or legal
entity, regardless of whether a single individual acquires more
than 50% of the ownership interest. That measure responded to a
single taxpayer's transaction, and would have ensnared unwitting
taxpayers that lacked the legal expertise to structure a
transaction to avoid the reformed standard. The Senate
Appropriations Committee held the measure on its suspense file.
Assembly Actions
AB 567 (Gipson) 2/24/15 Page 5
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Assembly Floor 47-29
Assembly Revenue and Taxation 5-3
Support and
Opposition (7/2/15)
Support : BOE Chairman Jerome Horton; California Tax Reform
Association; Los Angeles County Assessor Jeffrey Prang, Service
Employees International Union; American Federation of State,
County, and Municipal Employees.
Opposition : Air Logistics Corporation; Associated Builders and
Contractors; Associated Builders and Contractors - San Diego
Chapter; Building Owners and Manager Association of California;
California Association of Boutique and Breakfast Inns;
California Business Properties Association; California Chamber
of Commerce; California Hotel and Lodging Association;
California Manufacturers and Technology Association; California
Tank Lines, Inc.; California Taxpayers Association; Chemical
Transfer Co.; Council on State Taxation; Family Business
Association; International Council of Shopping Center; Kern
County Taxpayers Association; NAIOP of California, the
Commercial Real Estate Development Association; National
Federation of Independent Business; Silicon Valley Leadership
Group; Superior Tank Wash, Inc.; TechAmerica; TechNet; West
Coast Recycling, LLC.
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