BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 567| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 567 Author: Gipson (D) Introduced:2/24/15 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 4-3, 7/8/15 AYES: Hertzberg, Hernandez, Lara, Pavley NOES: Nguyen, Beall, Moorlach ASSEMBLY FLOOR: 47-29, 5/28/15 - See last page for vote SUBJECT: Property taxation: change in ownership statement: confidentiality of information SOURCE: Board of Equalization Chairman Jerome Horton DIGEST: This bill allows the Board of Equalization (BOE) or assessors to disclose whether they've received a change in ownership statement (COS) for a legal entity, or that BOE has issued a determination regarding the change. ANALYSIS: Existing law: 1)Provides that all property is taxable unless explicitly exempted by the Constitution or federal law. 2)Precludes assessors from revaluing real property for tax AB 567 Page 2 purposes unless a property is newly constructed, or changes ownership. 3)Applies different standards for assessors to determine whether real property has changed ownership from changes in ownership interests in legal entities, like corporations and partnerships, which own real property. a) Provides that when direct interests in real property change ownership, assessors generally only revalue that percentage interest which transfers. b) Directs assessors to 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 co-owners reaches 50% in one or more transactions. 4)Requires the new owner of a property to file a COS with the assessor. 5)Considers any information appearing on the COS a secret, and not subject to public disclosure. 6)Enacts the Legal Entity Ownership Program 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. a) Requires legal entities to file a change of ownership statement with BOE within 90 days of the change, or pay a penalty equal to 10% of the tax on the new value of the property reflecting the change of ownership. b) Directs the Franchise Tax Board (FTB) to send BOE a list of legal entities that have reported a change in control or ownership on income tax return. c) Requires BOE to analyze completed statements and information from FTB to determine whether a change in control or ownership occurred. AB 567 Page 3 d) Directs BOE to notify county assessors of changes in control or ownership detects to ensure reassessment occurs. 7)Provides that the assessment roll, and a quarterly updated list of all property transfers, is a public document. This bill: 1)Allows BOE or the assessor to disclose that a person or legal entity has filed a legal entity COS with the BOE. 2) Permits BOE to disclose whether it has issued a determination to the assessor relating to the statement filed. Comments 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, Statutes of 2006 and AB 1424, Perea, Chapter 455, Statutes of 2011).Requiring FTB to publish on its Web site a list of the 1,500 largest corporate taxpayers filing a Form 10-K with the Securities and Exchange Commission (AB 2439, Eng, 2011). The bill 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 the 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. AB 567 Page 4 However, the piercing is minor in comparison to previous 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. 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, 2003 and 2005) 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:NoLocal: No SUPPORT: (Verified7/10/15) AB 567 Page 5 Board of Equalization Chairman Jerome Horton (source) American Federation of State, County and Municipal Employees California Tax Reform Association Los Angeles Assessor Jeffrey Prang Service Employees International Union OPPOSITION: (Verified7/10/15) Air Logistics Corporation Associated Builders and Contractors Associated Builders and Contractors - San Diego Chapter Building Owners and Managers 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 Company Council on State Taxation Family Business Association International Council of Shopping Centers 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. ARGUMENTS IN SUPPORT: 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 AB 567 Page 6 public has been looking for regarding these types of transactions." ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association, "There is no valid reason to begin violating taxpayers' fundamental protection of keeping their tax information confidential to be released to the public; and would allow the information to be released without tax officials first making a proper determination regarding a property owner's taxes. The bill will not promote 'transparency,' because no public interest would be served by allowing tax officials to release confidential tax information regarding changes in ownership. In fact, an erosion would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break that trust. Oftentimes, no change-in-ownership statement if filed because no change in ownership occurred. In these cases, what purpose is served in disclosing to the public that no form was filed?" ASSEMBLY FLOOR: 47-29, 5/28/15 AYES: Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Jones-Sawyer, Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Williams, Wood, Atkins NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Dababneh, Dahle, Beth Gaines, Gallagher, Hadley, Harper, Irwin, Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk NO VOTE RECORDED: Alejo, Bloom, Daly, Grove Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119 7/10/15 15:55:31 **** END **** AB 567 Page 7