BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
------------------------------------------------------------------
|Bill No: |AB 571 |Hearing |7/1/15 |
| | |Date: | |
|----------+---------------------------------+-----------+---------|
|Author: |Brown |Tax Levy: |No |
|----------+---------------------------------+-----------+---------|
|Version: |5/4/15 |Fiscal: |No |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant|Grinnell |
|: | |
-----------------------------------------------------------------
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
AB 571 (Brown) 5/4/15 Page 2
of ?
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
AB 571 (Brown) 5/4/15 Page 3
of ?
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
AB 571 (Brown) 5/4/15 Page 4
of ?
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)
AB 571 (Brown) 5/4/15 Page 5
of ?
Support : California Assessors' Association, Howard Jarvis
Taxpayers Association.
Opposition : Executive Committee of the Trusts and Estates
Section of the State Bar of California.
-- END --