BILL ANALYSIS Ó
AB 571
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Date of Hearing: April 27, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 571
(Brown) - As Introduced February 24, 2015
Majority vote. Fiscal committee.
SUBJECT: Property taxation
SUMMARY: Expands the existing property tax relief provision
that allows an eligible person to transfer the base-year value
of his/her principal residence to a replacement dwelling, as
provided, to include a person who has a severely and permanently
disabled child. Revises the "reasonable cause" standard for
abating penalties related to late-filed "change in ownership"
(CIO) statements and property statements. Specifically, this
bill:
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1)Provides that any person with a severely and permanently
disabled child residing in property eligible for the
homeowners' exemption, as defined, may transfer, as specified,
the base-year value of that property to any replacement
dwelling of equal or lesser value that:
a) Is located within the same county or a county that
allows an out-of-county transfer; and,
b) Is purchased or newly constructed by that same person as
his/her principal residence within 2 years of the sale of
the original property.
2)Applies, with respect to the transfer of base-year value by a
person with a severely and permanently disabled child, to
replacement dwelling that are purchased or newly constructed
on or after January 1, 2016.
3)Requires a person who claims the base-year transfer relief
under this measure to provide to the assessor, in addition to
other information, proof that she/he or his/her spouse, who
resided in the original property with the person, had a
permanently disabled child, as provided.
4)Revises the "reasonable cause" standard for abating penalties
imposed for failure to timely file a CIO statement or business
property statement to require the assessee to establish, in
addition to reasonable cause and absence of willful neglect,
both of the following:
a) That the circumstances were beyond the assessee's
control; and,
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b) That the circumstances occurred notwithstanding the
exercise of ordinary care in the absence of willful
neglect.
EXISTING LAW:
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)]. 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; R&TC Sections 60 - 69.5).
2)Allows property owners over 55 years of age and disabled
persons once-in-a-lifetime opportunity to transfer the
base-year value of their 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. 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.
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3)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.
4)Allows a homeowner, who has been granted a base-year value
transfer, 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.
5)Requires new owners of real property and certain legal
entities to submit a change-in-ownership or a
change-in-control statement, either with 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.
6)Imposes a penalty for failure to file any of the following
statements within the prescribed time period:
a) A change-in-ownership statement required to be filed by
a new property owner for real property transfers that must
be reported to the local county assessor;
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b) A Legal Entity Ownership Program (LEOP)
change-in-ownership 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 change-in- ownership statement or
change-in-control statement.
7)Allows the county board of equalization or the assessment
appeals board, whichever is applicable, to abate the penalty
if the assessee, among other things, establishes to the
satisfaction of the board that the failure to file the
change-in-ownership statement or change-in-control statement,
as required, was due to reasonable cause and not due to
willful neglect.
8)Requires any person owning taxable personal property having an
aggregate cost of $100,000 or more for any assessment year to
file a signed property statement with the county assessor.
Imposes a penalty of 10% of the assessed value of unreported
taxable tangible property if the annual statement has not been
filed within the prescribed time limit. Allows the county
board of equalization or the assessment appeals board to abate
the penalty for failure to file an annual business property
statement if the assessee establishes that the failure was due
to reasonable cause and not due to willful neglect.
FISCAL EFFECT: According to the BOE staff, this bill would
reduce property tax revenues at the basic 1% tax rate by $1,400
per claim granted. This amount however could grow over time if
assessed value differences also grow in relation to real estate
market values.
COMMENTS:
1)Author's Statement . The author has provided the following
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statement in support of this bill:
"First, the bill 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. The bill 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.
"'Second, Assembly Bill 571 eliminates confusion regarding the
standard for the forgiveness of the application of a penalty
for the lack of filing a change of ownership. Today, a County
Assessor or the State Board of Equalization may request
information regarding a change of ownership. A penalty may be
assessed if the taxpayer does not respond in the required
time. This penalty may be waived if the taxpayer demonstrates
that the failure to file a response was due to circumstances
beyond his or her control and occurred notwithstanding the
exercise of ordinary care. The authority to waive the penalty
occurs in Sections 463 and 483 of the Revenue and Taxation
Code and in Section 4985.2 of the Revenue and Taxation Code.
Clarification of the Revenue and Taxation Code will provide
consistency and eliminate confusion."
2)Arguments in Support . The proponents state that in order "to
qualify for the disability based exemption under current law,
the disabled individual must be on the title of the property"
- a potentially "costly and complicated process if the only
reason to do so would be to qualify for the exemption." The
proponents also note that, "[o]ver the years, numerous parents
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have had to contend with the hardship of what occurs when a
minor child becomes suddenly and severely disabled." The
proponents argue that this bill is a "common sense measure to
help homeowner" and it "maintains the spirit of Revenue and
Tax Code 69.5 while also helping those who have serious
needs."
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
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 one percent 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
--------------------------
<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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was left to implementing legislation.
4)Base-Year Value Transfers . Proposition 13 contains provisions
allowing a homeowner over the age of 55<2> or a homeowner who
is a disabled person<3> a once-in-a-lifetime opportunity to
transfer the base-year values 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
ordinances allowing the transfer<4>, 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.
Thus, subject to certain conditions, the Constitution and
implementing statute allow a severely and permanently disabled
homeowner 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
--------------------------
<2> In 1986, the voters passed Proposition 60 that 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.
<3> In 1990, the voters passed Proposition 110 that amended the
Constitution to extend these provisions to any severely and
permanently disabled person regardless of age.
<4> In 1988, Proposition 90 was passed by the voters. It
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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of severe and permanent disability.
5)Disabled Children . 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<5>, 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 must qualify as a claimant and must be on title in order
to transfer the base-year value. The act of adding the minor
child on title to the original property can be excluded from
CIO under the parent-child exclusion. However, adding a minor
child to a home's legal title may be a lengthy, complicated
and costly legal process.
This bill 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 this
bill 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 bill allows a parent to claim
directly the benefit of the base-year value transfer without
adding the child's name to title.
6)BOE's Implementation Concerns . In its analysis, the BOE staff
noted that this bill 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 the language of this bill, any person, such
---------------------------
<5> Property Tax Annotation 200.0076, State Board of
Equalization.
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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
the bill.
7)Related Legislation: Contingency. ACA 6 (Brown), a companion
measure to AB 571, would authorize the Legislature to provide
for a transfer of base-year value of property to a replacement
dwelling for persons who have a severely disabled child. The
author intends to amend this bill to specify that the
provisions relating to the expansion of the base-year value
transfer relief would be operative only if ACA 6 is approved
by the voters and would only apply to replacement dwellings
that are purchased or newly constructed on or after the
effective date of ACA 6. 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.
8)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
significant accomplishment was the creation of the Legal
Entity Ownership Program (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. The purpose of the program is to
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assist county assessors in discovering changes in control or
changes in ownership that have not been captured by a county's
own discovery systems.
Thus, 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. A legal
entity must also file a CIO statement within 90 days of the
BOE's written request. If a legal entity fails to report 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
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.
9)Abatement of Penalties . The purpose of imposing a penalty for
failure to file a change-in- ownership or a change-in-control
statement is to ensure that property owners have an incentive
to report required information to the county assessor or
respond to the assessor's inquiry, so that assessors may
accurately assess properties after a CIO. The penalty,
however, may be abated if the property owner establishes to
the satisfaction of either the county board of equalization or
the assessment appeals board, whichever is applicable, that
the failure to file a statement is due to reasonable cause and
not due to willful neglect. Similarly, a penalty imposed for
failure to timely file an annual property statement may also
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be abated under the same "reasonable cause and not due to
willful neglect" standard.
The county assessment appeals boards have the authority to abate
penalties for reasonable cause for numerous violations of
property tax law. However, different standards for abatement
apply to different penalties. This bill proposes to align
various property tax provisions to create identical standards
for abatement of property tax related penalties. The proposed
language mirrors the "reasonable cause" standard employed in
many other provisions of the property tax law and provides
that penalties may be waived if a taxpayer demonstrates that
the failure to file was due to reasonable cause and
circumstances beyond their control and occurred
notwithstanding the exercise of ordinary care.
REGISTERED SUPPORT / OPPOSITION:
Support
Diane L. Harkey, Member, State Board of Equalization
Howard Jarvis Taxpayers Association
Opposition
None on file
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Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098