BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |AB 571                           |Hearing    |7/1/15   |
          |          |                                 |Date:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |Brown                            |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |5/4/15                           |Fiscal:    |No       |
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          |Consultant|Grinnell                                              |
          |:         |                                                      |
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             PROPERTY TAXATION:  PROPERTY STATEMENT:  CHANGE IN OWNERSHIP  
                                 STATEMENT:  PENALTY



          Changes the standard used by assessment appeals board when  
          determining whether to abate two property tax penalties.


           Background and Existing Law

           Section 1 of Article XIII of the California Constitution  
          provides that all property is taxable unless explicitly exempted  
          by the Constitution or federal 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.  

          Each County Board of Supervisors, or an assessment appeals board  
          of its own creation, constitutes the county board of  
          equalization, which equalizes the values of all property on the  
          assessment roll by adjusting individual assessments.  Currently,  
          19 California county boards of supervisors perform this duty.   
          Counties may have up to five of these boards to hear and  
          adjudicate assessment appeals, constituted of members selected  
          by the presiding judge of the superior court and nominated by  
          the County Board of Supervisors, or selected directly by the  
          Board.  These boards are charged with fairly and impartially  







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          conducting hearings between taxpayers and the assessor,  
          including requesting penalty abatement.

          Whenever ownership changes, state law requires the new owner to  
          file a Change in Ownership Statement (COS).  Alternatively, the  
          new owner may file a Preliminary Change in Ownership Report,  
          which is nearly identical to the COS, at the time the deed for  
          change in ownership is recorded, thereby generally satisfying  
          the requirement for filing the Change in Ownership Statement.   
          If a taxpayer must submit a change in ownership statement, and  
          the Board of Equalization (for legal entities) or the assessor  
          (for real property) sends one, and the taxpayer fails to file  
          the statement within 90 days of the request, the following  
          penalties apply:
                 For real property eligible for the homeowners'  
               exemption, $100, or 10% of the taxes applicable to the new  
               value up to $5,000, whichever is greater.

                 For real property not eligible for the homeowners'  
               exemption, $100 or 10% of the taxes applicable to the new  
               value up to $20,000, whichever is greater.

                 For changes in legal entities, a penalty of 10% of the  
               taxes applicable to the new value if a change of ownership  
               occurred, or 10% of the taxes applicable to the current  
               value if no change of ownership took place, provided the  
               violation was not willful (SB 507, DeSaulnier, 2011).  

          While the Constitution limits the maximum amount of any ad  
          valorem tax on real property at 1% of full cash value, and  
          precludes reassessment unless the property is newly constructed  
          or changes ownership, assessors value personal property each  
          year.  Each year, taxpayers with more than $100,000 in value of  
          business personal property complete business personal property  
          statements, which list the value of each item of business  
          equipment the taxpayer owns, which the assessor uses when  
          determining the total value of property subject to tax.   
          Taxpayers must submit the statement to the assessor after the  
          January 1st lien date but before April 1st each year; however,  
          taxpayers can submit the statement without penalty by May 7th.   
          Assessors must impose a penalty of 10% of the value of the  
          unreported property.  

          An assessment appeals board can abate penalties attributable to  








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          the failure to file a change in ownership statement or business  
          personal property statement if the taxpayer can establish that  
          the failure to file the statement was due" to reasonable cause  
          and not willful neglect."  However, state law allows assessment  
          appeals boards to abate penalties under other property tax laws  
          according to a slightly different standard, that of "reasonable  
          cause and circumstances beyond the assessee's control, and  
          occurred notwithstanding the exercise of ordinary care in the  
          absence of willful neglect."  Assessors want to conform the  
          standard assessment appeals board apply to abating penalties for  
          failing to timely file business personal property statements and  
          change of ownership statements.


           Proposed Law

           Assembly Bill 571 amends the standard used by assessment appeals  
          boards for penalties for failing to file a business property  
          statement or change in ownership statement for real property.   
          Instead of allowing abatement based upon "reasonable cause and  
          not willful neglect," AB 571 allows as for abatement based upon"  
          reasonable cause and circumstances beyond the assessee's  
          control, and occurred notwithstanding the exercise of ordinary  
          care in the absence of willful neglect." 


           State Revenue Impact

           BOE estimates minimal revenue impact.


           Comments

           1.  Purpose of the bill  .  According to the author, "AB 571 aligns  
          existing penalty forgiveness provisions in Revenue & Taxation  
          Code Sections 463 and 483 to mirror the language used in Section  
          4985.2.  The consistent standard will provide individuals with  
          an opportunity to have their penalty waived if they are able to  
          demonstrate that the failure to file was due to circumstances  
          beyond their control and occurred notwithstanding the exercise  
          of ordinary care. Clarification of this discrepancy will benefit  
          taxpayers qualifying for penalty forgiveness."

          2.   Hobgoblins  .  The Executive Committee of the Trusts and  








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          Estates Section of the State Bar of California (TEXCOM) oppose  
          AB 571, stating that the measure's effort to make penalty  
          abatement consistent may make abatement more difficult for  
          taxpayers to obtain.  TEXCOM argues that the current standard is  
          well established in law, and sufficient to establish grounds to  
          abate a penalty that accounts for unusual circumstances that a  
          surviving spouse, child or other personal representative can  
          face after the death of a property owner.  TEXCOM also asserts  
          that requiring abatement only on circumstances beyond the  
          assessee's control, doesn't fit in the particular circumstances  
          of the successors of an entity coping with a property owner's  
          death, where successor property owners are trying to establish  
          control of potentially valuable property or a legal entity  
          shortly after death.  However, the California Assessors'  
          Association states that AB 571's standard has been in place for  
          35 years, and ample case law exists to interpret it.  Assessors  
          add that cases interpreting the standard require that the  
          standard of ordinary care increase in direct proportion to the  
          sophistication of the taxpayer.  Ultimately, assessment appeals  
          boards in 58 counties will determine how to apply the measure's  
          standard when they adjudicate specific cases, but the Committee  
          may wish to consider whether AB 571's consistency is worth the  
          potential effect of limiting abatement for successors who  
          inherit control of property or legal entities.

          3.   Dos mas  .  BOE states that the standard that AB 571 would  
          apply for failing to file business property statements and  
          change in ownership statements appears in 56 of 76 relevant  
          sections of property tax law.  To ensure further consistency,  
          BOE also recommends making conforming changes to two sections of  
          law for aircraft business property statements identical to the  
          bill's current change.


           Assembly Actions

           Assembly Floor                     77-0

          Assembly Appropriations            17-0
          Assembly Revenue and Taxation        9-0

           Support and  
          Opposition   (6/25/15)









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           Support  :  California Assessors' Association, Howard Jarvis  
          Taxpayers Association. 


           Opposition  :  Executive Committee of the Trusts and Estates  
          Section of the State Bar of California.



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