BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 567|
|Office of Senate Floor Analyses | |
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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
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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.
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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.
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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)
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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
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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
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