BILL ANALYSIS Ó
AB 571
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
571 (Brown)
As Amended September 1, 2015
Majority vote
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|ASSEMBLY: |77-0 |(May 28, 2015) |SENATE: |40-0 |(September 3, |
| | | | | |2015) |
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Original Committee Reference: REV. & TAX.
SUMMARY: Revises the "reasonable cause" standard for abating
penalties related to late-filed "change in ownership" (CIO)
statements and property statements.
The Senate amendments specify that the revised "reasonable
cause" standard for abating penalty would also apply to
late-filed or incomplete CIO statements for transfers of real
property or manufactured homes.
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
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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 Sections 60 to 69.5).
2)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.
3)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;
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);
4)A response to a BOE written request for a legal entity to file
a LEOP change-in- ownership 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
change-in-ownership statement or change-in-control statement,
as required, was due to reasonable cause and not due to
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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.
AS PASSED BY THE ASSEMBLY, this bill revised 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:
1)Was due to circumstances beyond the assessee's control; and,
2)Occurred notwithstanding the exercise of ordinary care in the
absence of willful neglect.
FISCAL EFFECT: None
COMMENTS:
1)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
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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.
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
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 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
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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 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.
3)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
be abated under the same "reasonable cause and not due to
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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:
0002079