BILL ANALYSIS Ó
AB 1378
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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
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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
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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
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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
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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
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<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.
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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
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<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.
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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
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<5> BOE Annotation 200.0020 "Claimant (New Spouse)".
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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
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<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.
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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
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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