BILL ANALYSIS Ó
AB 571
Page 1
ASSEMBLY THIRD READING
AB
571 (Brown)
As Amended May 4, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+--------------------+----------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+--------------------+----------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bloom, Bonta, | |
| | |Calderon, Chang, | |
| | |Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Holden, | |
| | |Jones, Quirk, | |
| | |Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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AB 571
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SUMMARY: Revises the "reasonable cause" standard for abating
penalties related to late-filed "change in ownership" (CIO)
statements and property statements. Specifically, this bill:
1)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,
that the failure to file the statement:
a) Was due to circumstances beyond the assessee's control;
and,
b) 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 [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
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
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CIO, except as provided.
3)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).
4)A response to a BOE written request for a legal entity to file a
LEOP CIO statement or change-in-control statement.
5)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 CIO
statement or change-in-control statement, as required, was due
to reasonable cause and not due to willful neglect.
6)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.
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FISCAL EFFECT: None
COMMENTS:
1)Proposition 13. Much of the law pertaining to property taxation
is prescribed by (commonly known as "Proposition 13") California
Constitution Articles XIII and XIII A. 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.
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 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 was left to
implementing legislation.
2)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
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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 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 CIO
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
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file was not willful.
3)Abatement of Penalties. The purpose of imposing a penalty for
failure to file a CIO 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 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.
Analysis Prepared by:
Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN:
0000513
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