BILL ANALYSIS Ó AB 1378 Page 1 Date of Hearing: May 27, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 1378 (Holden) - As Introduced February 27, 2015 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: Yes State Mandated Local Program: NoReimbursable: No SUMMARY: This bill modifies the definition of "claimant" with respect to persons claiming base year value transfer tax relief, excluding the claimant's spouse from being considered a claimant for purposes of determining whether any future claim filed by that spouse remains eligible. As a result of the change, for claims filed on or after January 1, 2016, each disabled spouse aged 55 or older may qualify individually and file separately for one-time base year value transfer property tax relief. FISCAL EFFECT: AB 1378 Page 2 1)Minor and absorbable administrative costs to the Board of Equalization. 2)Significant annual reductions in property tax revenue, possibly around $350,000 in the first year and likely increasing annually thereafter, resulting in GF costs for approximately half the decrease in revenues to reimburse counties under the Proposition 98 funding guarantee. COMMENTS: 1)Purpose. According to the author, this bill recognizes the evolving nature of marriages and living patterns of Californians, expanding eligibility for base year value transfers to allow one transfer per person in a recognized long-term relationship. As a result, the base value year transfer law will recognize all types of marriages and cohabitations. Proponents argue this bill is about fairness, allowing both spouses or cohabitants to make separate claims for transfer, assuming the other statutory requirements are satisfied. 2)Base Year Value Transfers. Adopted in June 1978, Proposition 13 was designed to provide real property tax relief by limiting the assessment and taxing powers of state and local governments. As a general rule, Proposition 13 limits any tax on real property to 1% of the property's assessed value, measured as either the assessed value as of the 1975-76 tax year or the appraisal value when purchased, constructed, or a change in ownership has occurred, subject to adjustment for the lesser of inflation or 2% per year. As a result, real property is only reassessed to fair market value upon a change in ownership. AB 1378 Page 3 One exception to the change in ownership fair market value reassessment is the base year value transfer provision. Under that rule, a disabled homeowner aged 55 or older may elect a once-in-a-lifetime transfer of the base year value of the homeowner's principal residence to a replacement residence of equal or lesser value within the same county, or in certain other counties, within two years of the sale of the original residence. The base year value transfer allows the homeowner to continue paying property taxes at the amount and rate of growth of the previous residence and not the fair market value of the new residence. Under the current base value transfer rules, if a married couple are both record owners of a property that has received base year transfer value relief, neither will be eligible to claim such relief again in the future, even if the couple has divorced. Furthermore, if one of the spouses were to remarry an otherwise eligible person, that new couple would also be ineligible for the base year value transfer because the remarrying individual is not eligible. 3)Love and Marriage. Although very limited in scope, this bill takes a rather progressive view of marital and cohabitant relationships. In general, federal and state income tax laws treat married couples as a single economic unit. This is not based in tax logic or economic experience, but rather reflects society's views on the institution of marriage and the family. Most married couples file joint tax returns, and even married couples filing singly are taxed as married persons. California property tax law similarly treats married taxpayers as a single economic unit, and this bill represents a small, but perhaps symbolic, deviation from that general policy. The committee may wish to consider whether this policy ought to be considered with respect to property tax more generally, and whether this bill should be considered in that broader context. AB 1378 Page 4 Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081