BILL ANALYSIS Ó AB 1891 Page 1 Date of Hearing: April 4, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Sebastian Ridley-Thomas, Chair AB 1891 (Dababneh) - As Introduced February 11, 2016 Majority vote. Non-fiscal. SUBJECT: School districts: special taxes: exemptions SUMMARY: Specifies requirements for a school district if it imposes a qualified special tax that: (1) provides an exemption for persons 65 years of age or older, and (2) requires those persons to opt out of the qualified special tax. Specifically, this bill: 1)Specifies that school districts, if imposing a qualified special tax that provides an exemption for persons 65 years of age or older and requires those persons to opt out of the qualified special tax, shall only require those persons to opt out of the qualified special tax once. 2)Specifies that once a taxpayer is granted the exemption, the school district shall grant the exemption to the taxpayer for each subsequent taxable period. AB 1891 Page 2 3)Provides that in the case of a qualified special tax on real property, the granted exemption shall be valid until a change in ownership occurs. EXISTING LAW: 1)Authorizes school districts to impose qualified special taxes, in accordance with specified procedures, including the approval of two-thirds of the voters in the district. 2)Provides that "qualified special taxes" must apply uniformly to all taxpayers or all real property within the school district and do not include special taxes imposed on a particular class of property or taxpayers. 3)Authorizes a school district to exempt from a "qualified special tax" any or all of the following persons: a) Persons 65 or older; b) Persons receiving Supplemental Security Income (SSI) for a disability; or, c) Persons receiving Social Security Disability Insurance (SSDI) benefits whose annual income is less than 250% of 2012 federal poverty guidelines. 4)Specifies in Revenue & Taxation Code (R&TC) Sections 60 through 69.5 what constitutes a "change in ownership," and AB 1891 Page 3 provides an exclusion from reassessment for transfers of real property between parents and children, amongst others. FISCAL EFFECT: Unknown COMMENTS: 1)Author's Statement : The author provided the following statement in support of this bill: AB 1891 is a common sense piece of legislation that simply states once an individual has turned 65 years old, and a school district has exempted them from a parcel tax, districts should honor that request and not have an overly burdensome system that can result in a surreptitious tax against those who often have difficulty affording it. This is a simple way to maintain the exemption as well as uphold current law and protect seniors. 2)Arguments in Support : The sponsor of this bill, the Howard Jarvis Taxpayers Association, states: The current system for opting out of parcel taxes is cumbersome. Some school districts already require the opt-out form to be filled out once, but for most taxpayers it is an annual requirement. We have received dozens of phone calls over the years from our members who lost or did not know that the form needed to be completed annually and it resulted in a property tax bill hundreds of dollars higher than it should have been. 3)Qualified Special Taxes : Proposition 13 (1978) not only limited both the tax rates and assessments of property taxes, AB 1891 Page 4 but also eliminated the ability of school districts to levy an incremental ad valorem tax on real property. However, school districts still have limited authority to generate local revenues from qualified special taxes as long as the special tax applies uniformly to all taxpayers (other than persons over the age of 65 or persons receiving SSI or SSDI) and real property within the district. While Proposition 13 did not define the term "special tax," over time the courts have opined that a tax is a "special tax" whenever expenditure of its revenues is limited to specific purposes, i.e., the proceeds of the tax are earmarked or dedicated in some manner to a specific project or projects. In contrast, a tax is a "general tax" only when its revenues are placed into the General Fund and are available for expenditure for any and all governmental purposes. [Bay Area Cellular Telephone Co. v. City of Union City (2008) 162 Cal. App.4th 686; Howard Jarvis Taxpayers Assn. v. City of Roseville (2003) 106 Cal.App.4th 1178.] Because Proposition 218 (1996) prohibits school districts and special districts from imposing general taxes, thus, by definition, any tax levied by a school district is considered to be a special tax subject to two-thirds voter approval. Thus far, school districts have only imposed "qualified special taxes" under Government Code Section 50079 in the form of a parcel tax. 4)Parcel Taxes : A parcel tax is a flat fee imposed by a city, county, or special district on each parcel, residential as well as commercial, rather than on the assessed value of property located within the local entity's jurisdiction. Because the same dollar amount of tax is assessed on each parcel of property, whether the parcel is one acre or 100 acres, parcel taxes are generally regressive, which means owners of smaller parcels of land pay a larger percentage of tax as compared to owners of larger parcels of land. Some districts levy a rate at a fixed amount per square foot of taxable land, and many include an annual inflation adjustment. Although subject to certain requirements, parcel taxes are flexible ways of raising revenues at the local level. AB 1891 Page 5 Existing law does not prescribe a maximum rate of tax nor does it limit the period within which the qualified special tax may be imposed and, therefore, the rate of tax varies significantly among different school districts. Existing law also does not limit how the special tax proceeds may be spent and, therefore, a local school board can specify in the ballot measure how the funds will be used. Generally, local parcel taxes provide secure funding for teacher salaries, books, materials and supplies, computers, and arts, music, and sports programs. 5)Exemptions from Qualified Special Taxes : School districts are currently authorized to exempt from qualified special taxes persons over the age of 65, persons receiving SSI for a disability regardless of age, and persons receiving SSDI with a specified maximum annual income. The exemption is permissive rather than mandatory, which allows the school district to consider the need for, and impact of, an exemption from special taxes imposed. For example, a school district may choose to exempt all three classes of individuals from one qualified special tax, but may choose to exempt only seniors from another qualified special tax, while the neighboring school district chooses to provide no exemptions. Any exemption, if provided, would be stipulated in the text of the measure approved by voters. Most school parcel tax measures have included the senior exemption to help garner more widespread support, but only a small number of measures have included the disability exemption. 6)Administrative Differences : There is significant variation in how school districts administer any granted exemption. Generally, school districts will require individuals who qualify for the exemption to "opt out" of paying the tax by completing an application demonstrating proof of age or disability benefits, ownership of the property, and residence at the property. While some school districts only require the taxpayer to apply for the exemption once, other districts AB 1891 Page 6 require the taxpayer to fill out a new application every year to maintain the exemption. For example, Campbell Union High School District provides an exemption for both seniors and individuals receiving SSI for a disability. To renew their exemption, seniors must fill out an Exemption Renewal form every year and individuals with a disability must fill out the original application every year. In comparison, neighboring Fremont Union High School District only provides the exemption for seniors and automatically renews the exemption every year - although the school district sends a letter to all exempted seniors annually informing them that their exemption will continue, unless they choose to end the exemption by responding to the letter. 7)An Unnecessary Burden ? The author states that the current variation in opt-out processes can be especially burdensome for seniors and has resulted in examples of taxpayers on fixed incomes who have faced hundreds of dollars of additional tax payments simply because they were not aware that the opt-out paperwork needed to be completed annually. The author has also limited this bill's application to seniors and would not require individuals who solely receive SSI or SSDI benefits to be granted a continuous exemption, if eligible for an exemption from a qualified special tax, as changes in one's health or income may occur that could disqualify the individual from the exemption. This bill specifies that seniors who must opt-out of the qualified special tax to benefit from the exemption only need to do so once, thereby renewing automatically the exemption every year until a change in ownership occurs. However, some voter-approved parcel tax measures not only require seniors to own the property to qualify for the exemption, but also require the property to be their primary residence. Thus, it is possible for a senior to qualify for the exemption one year but not the next despite continuous property ownership, just as it is possible for an individual receiving SSI or SSDI AB 1891 Page 7 benefits to qualify for the exemption one year but not the next. Furthermore, the phrase "change in ownership" has a specific meaning pursuant to Article XIII A of the Constitution and R&TC Sections 60 through 69.5, signifying when a property must be reassessed to its market value under Proposition 13. Under current law, an exclusion from reassessment is generally provided for transfers of real property from parents to children, meaning that an individual under age 65 could be the new owner and occupant of a property with triggering a "change in ownership." If it is not the author's intent to provide a continuous qualified special tax exemption to individuals who no longer qualify for the exemption, the author may wish to provide a more specific and limited definition for "change in ownership" or alternative criteria for determining when the exemption is no longer valid. Given the fact that the intent of the permissive exemption is to preserve local control and flexibility, the Committee may also wish to consider whether it is appropriate to prescribe a one-size-fits-all approach for administering these local voter-approved taxes. 8)Prior Legislation : SB 371 (Hancock), Chapter 81, Statutes of 2015, clarified that a school district is authorized to exempt from qualified special taxes any or all statutory classes of potentially exempt taxpayers. SB 874 (Hancock), Chapter 791, Statutes of 2012, authorized school districts to exempt from qualified special taxes persons receiving SSDI benefits under a specified income limit. AB 385 (Lieber), Chapter 41, Statutes of 2006 authorized school districts to exempt from qualified special taxes persons receiving SSI for a disability. AB 1891 Page 8 REGISTERED SUPPORT / OPPOSITION: Support Howard Jarvis Taxpayers Association (Sponsor) California Association of Realtors California Taxpayers Association Opposition None on file Analysis Prepared by:Irene Ho / REV. & TAX. / (916) 319-2098 AB 1891 Page 9