BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                                    AB 1378


                                                                     Page A


          Date of Hearing:  May 18, 2015





                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION


                                 Philip Ting, Chair





          AB 1378  
          (Holden) - As Introduced February 27, 2015


          


          Majority Vote. Tax Levy. Fiscal Committee


          SUBJECT:  Property tax:  base year value transfers


          SUMMARY:  Allows each spouse to qualify individually for the  
          base year value transfer property tax relief.  Specifically,  
          this bill:  


          1)Revises the definition of "claimant" to exclude a spouse of  
            the person claiming the base year value transfer property tax  
            relief.  Specifically, this bill eliminates the requirement  
            that the claimant's spouse, who is a record owner of the  
            replacement dwelling, be considered a "claimant" for purposes  
            of determining whether in any future claim filed by the spouse  











                                                                    AB 1378


                                                                     Page B


            the condition of eligibility has been met. 


          2)Makes technical, conforming changes to the provisions relating  
            to the base year value transfer eligibility requirements. 


          3)Applies only to persons who file a claim on or after January  
            1, 2016, and who have not been previously granted the base  
            year value transfer property tax relief. 


          4)Takes effect immediately as a tax levy. 


          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, but creates exceptions to numerous  
            transfers.  (California Constitution, Article XIII A, Section  
            2; R&TC Sections 60 - 69.5.)  The assessed value of the  
            property established initially for property tax purposes is  
            generally referred to as "base year value", which is subject  
            to annual increases for inflation, not to exceed 2%.


          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  











                                                                    AB 1378


                                                                     Page C


            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.


          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 from his/her original residence to a replacement  
            dwelling, 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)Defines any person claiming the base year transfer property  
            tax relief as a "claimant" and specifies that spouses are  
            deemed to be a single claimant.  Provides that a person is  
            eligible to claim a base year value transfer as a claimant  
            only if neither that person nor his/her spouse, who is a  
            record owner of the new home, has previously received that  











                                                                    AB 1378


                                                                     Page D


            property tax relief.

          6)Provides that each co-owner of real property, including  
            domestic partners or unmarried couples, is considered to be a  
            separate claimant for purposes of the base year value property  
                         tax relief.

          FISCAL EFFECT:  The State Board of Equalization (BOE) staff  
          estimates that this bill would result in an annual loss of  
          $350,000.


          COMMENTS:  


           1)The Author's Statement  .  The author has provided the following  
            statement in support of this bill:



          "Assembly Bill 1378 recognizes the evolving nature of marriage  
            relations and living patterns of Californians and expands  
            eligibility for a Proposition 60/90 transfer to include one  
            transfer per person in a recognized long-term relationship.   
            Assembly Bill 1378 ensures California law recognizes all types  
            of marriages, cohabitations and housing situations."
           2)Arguments in Support  .  The proponents of this bill state that  
            this bill "clarifies and expands the rules for Proposition 60  
            'base year value transfers' to allow both spouses to make  
            separate claims for transfer of a principal residence to a  
            replacement residence, assuming all other statutory  
            requirements are met."  The proponents claim that this bill is  
            "simply about creating fairness in the years following  
            Proposition 60's passage in 1986."  They argue that it  
            "dispenses with [the] unequal treatment and entitles each  
            individual owner, regardless of marital status, to a once per  
            lifetime base year value transfer" and "will streamline  
            administration of the section 69.5 base year value transfers  
            as Assessors will no longer be required to track couples for  











                                                                    AB 1378


                                                                     Page E


            purposes of ensuring that future transfers are valid."


           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 1% 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.


          4)Base-Year Value Transfers  .  Article XIIIA of the California  
            Constitution contains provisions allowing a homeowner over the  
          ---------------------------

          ---------------------------
          <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.  










                                                                    AB 1378


                                                                     Page F




















































                                                                    AB 1378


                                                                     Page G


            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.


           5)Fifty-Five and Over  .  California has one of the lowest  
            property taxes in the nation and provides the greatest benefit  
            to property owners, especially those that have lived in their  
            homes for many years.  Subject to certain conditions, a  
            homeowner may sell his/her home, buy or build a new one, and  
            transfer the base-year value to a replacement dwelling.  Any  
            person claiming the base year value transfer relief is defined  
            as a "claimant." To qualify, the claimant must provide certain  
            information to the assessor, including his/her name and Social  
            Security number as well as the name of Social Security number  
            of his/her spouse who is also a record owner of the  
          ---------------------------


          <2> In 1986, the voters passed Proposition 60 that amended the  
          Constitution to allow a person 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.  That  
          proposition amended the Constitution to extend the base year  
          value transfer provisions to a replacement residence located in  
          another county on a county-optional basis. 








                                                                    AB 1378


                                                                     Page H


            replacement dwelling.  Under existing law, a person of any age  
            may make a base year value transfer claim as long as that  
            person resides with a spouse who is over 55 or permanently  
            disabled, even if the spouse is not an owner of record of  
            either the original or replacement property.



          A spouse who shares title of the newly purchased home with the  
            "claimant" is also considered to be a "claimant."   
            Consequently, if "A" and "B" are married and record owners of  
            property which has received the benefits of the base year  
            transfer value relief, then neither A nor B is eligible for a  
            similar benefit in the future.<5>  Furthermore, if "A" and "B"  
            divorce, and "A" marries "C", C will not be eligible for the  
            base year value transfer relief with respect to C's  
            replacement dwelling if both "A" and "C" are co-owners of  
            record.  The relief will be unavailable to "C" because "A"  
            would be considered a "claimant" for purposes of "C's" claim.   
             

           6)What is a Problem  ?  The proponents of this bill point out that  
            married people are unfairly penalized when divorced.   
            According to the author, existing law creates a "marriage  
            penalty" by disallowing the benefits afforded by Propositions  
            60 and 90 to a married person whose spouse has already claimed  
            a base year value transfer property tax relief.  The author  
            argues that base year value property transfers "remains one of  
            the few areas of law continuing to make a distinction between  
            domestic partnership and marriage."  The purpose of this bill  
            is to "remove tax considerations" when a couple decides on the  
            type of relationship that "is best for them." 

           7)Proposed Solution  . This bill proposes to stop treating a  
            married couple as one "claimant" for purposes of the base year  
            value transfer relief and, instead, grant this property tax  
            relief to every individual regardless of his/her marital  
            status.  Practically speaking, this bill would allow a married  



          ---------------------------
          <5> BOE Annotation 200.0020 "Claimant (New Spouse)".










                                                                    AB 1378


                                                                     Page I


            couple to transfer their base year value twice, similarly to  
            unmarried co-owners and registered domestic partners.   
            However, this bill would disallow a claim made by a claimant  
            who is under the age of 55, even if the claimant resides with  
            a spouse who meets the age requirement.  As noted by the BOE  
            staff, residency by an over-55 spouse will no longer suffice  
            to permit transfer of the base year value.  To qualify, the  
            over-55 spouse must file the actual claim and be a recorded  
            owner of both homes.  Under current law, a person who is under  
            the age of 55 may be a claimant if he/she resides with a  
            spouse who is over 55 years of age. 

           8)Married Couple as a "Single Economic Unit  ."  As observed by  
            one of the prominent tax law professors, the choice between  
            marriage neutrality and couples neutrality cannot be made  
            purely on the basis of tax logic, but must consider "society's  
            assumptions about the role of marriage and the family" and "in  
            the end can rest on nothing more precise or permanent than  
            collective social preferences."<6>  Thus, under both federal  
            and state income tax laws, a married couple is treated as a  
            single economic unit.  Generally, spouses file a joint tax  
            return, reporting their combined income and calculate their  
            tax liability based on that combined income.  A married  
            taxpayer filing separately is still subject to tax liability  
            different from that if filed as single.  Many tax preferences  
            are disallowed to married taxpayers filing separately.   These  
            differences are called marriage penalties and marriage  
            bonuses.<7>  It appears that existing California property tax  
            law similarly treats married taxpayers as a single economic  
            unit in contrast to couples that cohabitate or are registered  
            as domestic partners.  The Committee may wish to consider  
            whether the rationale for this tax treatment of a married  
            couple as a single economic unit is warranted in the context  
            of the property tax law.  The Committee may also wish to  
          ---------------------------
          <6> Marriage and the Income Tax, L. Zelenak, 67 S. Cal. Rev.  
          339, p. 342 (1994), citing Boris I. Bittker, Federal Income  
          Taxation and the Family, 27 Stan. L. Rev. 1389, 1395-96 (1975).   

          <7> Id., at p.339. 










                                                                    AB 1378


                                                                     Page J


            consider limiting the application of this bill to a married  
            couple where one of the spouses was previously married and  
            received a base year value transfer on a home he/she, or  
            his/her ex-spouse, owned in the prior marriage.

           9)Statewide Tracking Database  .  To monitor and enforce the  
            one-time relief, the Board of Equalization is required to  
            collect data from counties and maintain a database of base  
            year value transfer claimants and their spouses if names of  
            both spouses appear on the title to the new home.  If  
            claimant's spouse subsequently claims another base year value  
            transfer, the BOE database would match the name and the claim  
            will be denied.  This bill would allow a married couple to  
            move their base year value twice but only if each spouse makes  
            a claim for the first time after January 1, 2016.  Because  
            this bill applies prospectively, a spouse of the person who  
            has already been granted a base year value transfer will not  
            be able to claim a second base year value transfer.

           10)Prior Legislation  :


             a)   AB 321 (Niello), of the 2009-10 Legislative Session, was  
               similar to this bill.  AB 321 was held on the Assembly  
               Committee on Appropriations' Suspense File.


             b)    AB 2579 (Niello), of the 2007-08 Legislative Session,  
               was similar to this bill. AB 2579 was held on the Senate  
               Appropriations Committee's Suspense File.


          REGISTERED SUPPORT / OPPOSITION:




          Support












                                                                    AB 1378


                                                                     Page K



          Howard Jarvis Taxpayers' Association


          California Association of Assessors


          California Association of Realtors


          California Taxpayers Association




          Opposition


          None on file




          Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098