BILL ANALYSIS Ó
SENATE COMMITTEE ON
ELECTIONS AND CONSTITUTIONAL AMENDMENTS
Senator Ben Allen, Chair
2015 - 2016 Regular
Bill No: SCA 9 Hearing Date: 1/19/16
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|Author: |Beall |
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|Version: |8/18/15 |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Darren Chesin |
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Subject: Property taxation: base year value transfers
DIGEST
This measure amends the California Constitution to allow base
year value transfers to properties of equal or greater value.
ANALYSIS
Existing law :
1)Provides, pursuant to Article XIII of the California
Constitution, that all property is taxable unless explicitly
exempted by the Constitution or federal law. The Constitution
limits the maximum amount of any ad valorem tax on real
property at 1% of full cash value, and directs assessors to
only reappraise property when newly constructed, or ownership
changes (Proposition 13 of 1978).
Voters subsequently approved change in ownership exclusions to
allow homeowners over the age of 55 and disabled persons
(regardless of age) to transfer their home's base year values
to a replacement home of equal or lesser value within the same
county (Proposition 60 of 1988 and Proposition 110 of 1990),
or to homes in counties that adopt ordinances allowing the
transfer (Proposition 90 of 1990). Ten counties currently
allow these out-of-county transfers (Alameda, El Dorado, Los
Angeles, Orange, Riverside, San Bernardino, San Diego, San
Mateo, Santa Clara, and Ventura). Base year value transfers
allow taxpayers to continue to pay property taxes at the
SCA 9 (Beall) Page 2
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factored base year value of their previous home, and not on
the cash value of their newly purchased home, often resulting
in tax savings, and is only available for a taxpayer's
principal place of residence.
This bill:
1)Allows disabled persons and persons over the age of 55 to
transfer their base year value to a home of greater value.
The measure applies to transfers within the same county, or to
transfers when the replacement property is located in a county
that has enacted an ordinance to allow inbound out-of-county
transfers. In the case of a transfer to a property of greater
value, the taxpayer must add to the original base year value
the difference in price between the full cash value of the
original property and the full cash value of the replacement
dwelling.
BACKGROUND
How It Works and Who Benefits . Proposition 13 provided property
owners in California with substantial protections from higher
property tax rates and annual reassessments. However, because
the initiative generally set a property's taxable value at its
purchase price plus growth of up to 2% per year, taxpayers who
sold their homes and purchased new ones will likely pay higher
property taxes, thereby levying a tax penalty on those seeking
to acquire housing that more closely meet their demands. For
example, a four-bedroom single family home may be more house
than an empty-nest couple need, but purchasing a two-bedroom
condominium may lead to a tax increase, especially if the
taxpayer's current home has appreciated in value significantly
during the time they owned it. Proposition 60 and 90 removed
that incentive and allowed persons over 55 and the disabled to
move without the tax consequence, so long as the value of the
replacement home met the definition of "equal or lesser value"
in statute. However, California already has the lowest property
tax rates and most taxpayer-friendly reassessment triggers of
almost any state in the nation, thereby providing significant
benefits to property owners, especially those that have been in
their homes for many years. SCA 9 expands those benefits to
allow base year value transfers values when a taxpayer purchases
a home at a higher price than for the one they sold.
SCA 9 (Beall) Page 3
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SCA 9 grants taxpayers the ability to transfer base year values
to homes of greater value, but not quite in the same way as
transfers to properties with lesser values. Instead, the
taxpayer must add the difference between the full cash value of
the original property and the full cash value of the replacement
property to the original base year value. For example, an
eligible taxpayer who has a base year value of $200,000 and
property taxes of $2,000 per year, sold her home for $300,000,
and purchased a replacement home for $400,000. The new base
year would be $300,000 (the $200,000 base year value of the
original property plus the $100,000 difference in price between
the original and replacement dwellings), resulting in a property
tax difference of $1,000 ($3,000 in property tax from a base
year of $300,000, instead of $4,000 in property tax resulting
from the $400,000 purchase price of the new dwelling). By
requiring the taxpayer to add the price difference between the
new dwelling and the original property onto the base year, SCA 9
reduces the amount of property tax revenue that local agencies
would have received had a taxpayer not eligible for the base
year transfer purchased the home, but provides a more limited
form of tax benefit than current base year transfers.
Currently, taxpayers can only transfer base year values to homes
of equal or lesser value than the one they sold, under the
assumption that taxpayers "downsizing" will sell their larger
home at a price higher than what they pay for the smaller
replacement. SCA 9 would allow transfers to properties with
greater values, likely leading to more transfers, especially in
areas of California where high local property values make
finding homes at lower prices than their current ones difficult.
Local agencies may receive less property tax revenue to the
extent that a taxpayer taking advantage of SCA 9's benefit buys
a property instead of one who isn't, but these losses can be
offset if the taxpayer's replacement property is sold at a
higher price than its current assessed value. However, because
SCA 9 applies to transfers within a county, as well as transfers
to counties that enact an ordinance, the revenue loss and the
offset may not occur in the same county. Additionally, the
amount of SCA 9's benefit depends on two variables: the
difference between the fair market value and assessed value of
the taxpayer's original property, and the price of the
replacement property. Using the example above, SCA 9 saves a
taxpayer $1,000 in annual property taxes when transferring her
SCA 9 (Beall) Page 4
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base year value to a home with a sales price $100,000 higher
than the price at which she sold her original property.
However, that same taxpayer who sells her house for $1 million
can transfer her base year value to a property worth $1.2
million, so long as the difference between the two prices is
added back for an assessed value of $400,000. A taxpayer not
eligible for a base year value transfer would pay three times as
much, as the tax would be based on the $1.2 million value.
Current Subsidies . In the United States, federal and state
governments offer substantial tax subsidies for owning or
selling a home, such as:
Mortgage Loan Interest: Taxpayers may deduct interest
payments on up to $500,000 single/$1 million joint of
indebtedness used to purchase a first and second home.
Taxpayers may also deduct interest payments on up to $100,000
in home improvement loans.
Capital Gains Exclusion: Taxpayers may exclude up to $250,000
single/$500,000 joint in income resulting from the sale of
their principal residence.
Deductibility of Property Taxes: Taxpayers may deduct
property taxes and some other real estate taxes from federal
income, although California's low property tax rates limit the
benefit for Californians compared to residents of other
states.
COMMENTS
1)According to the Author : Proposition 60 allows homeowners
over the age of 55 and any severely or permanently disabled
person to transfer the base year assessed value of their
principal residence to a replacement home in the same county.
For example, if an individual purchased their principal
residence in 1985 for $100,000 and then sold the home for
$200,000 in 2015, they would be able to transfer the $100,000
base year assessed value and be taxed on that value instead of
on the assessed value of the replacement home. Proposition 90
allows such transfers to a home located in a different county
so long as that county has agreed to participate in the
transfer program.
SCA 9 (Beall) Page 5
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In both cases, however, the value of the replacement home must
be equal to or less than the value of the original principal
residence. In the example above, if the value of the
replacement home is greater than $200,000, the base year
assessed value cannot be transferred. Due to the increased
housing market, many seniors seeking to downsize to a newer,
smaller home must buy a home with a value greater than that of
their current residence. Current law would preclude them from
benefitting utilizing Proposition 60 and thus, discourage them
from moving.
SCA 9/SB 378 would, instead, allow a transfer to a replacement
home with a value greater than that of the original residence.
To ensure a homeowner doesn't receive more of a property tax
benefit than that to which they are entitled, these bills
require that the difference between the value of the
replacement home and that of the original residence is added
to the base year assessed value.
Returning to the example above, if a $210,000 replacement home
is purchased, the $10,000 difference (between that purchase
price and the sale price of the original home; $210,000 -
$200,000 = $10,000) would be added to the base year assessed
value of $100,000 for a total of $110,000. This would be the
amount the homeowner's property taxes would be based upon.
This individual's property taxes would be based on a value
$100,000 less ($110,000 as opposed to $210,000) than the sale
price of the replacement home. This is no more a savings than
if the individual had purchased a home of equal value
($200,000 as opposed to $210,000). In both cases the senior's
property taxes would be based on a value $100,000 less than
the value of the replacement home. In other words, under SCA
9/SB 378, the senior and any severely or permanently disabled
person would not receive property taxes savings greater than
that to which they would otherwise be entitled.
2)Argument in Opposition : According to the California State
Association of Counties, this proposed measure represents a
loss of general purpose revenue for local agencies at a time
when counties are still working to return to pre-Great
Recession levels of fiscal stability.
RELATED/PRIOR LEGISLATION
SCA 9 (Beall) Page 6
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SB 378 (Beall), which makes statutory changes necessary to
implement SCA 9, was recently approved by the Senate Governance
and Finance Committee 7-0 and is now pending in the Senate
Appropriations Committee.
This measure is similar to SCA 11 (Dutton) of 2009 which failed
passage in the Senate Revenue and Taxation Committee.
PRIOR ACTION
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|Senate Governance and Finance |7-0 |
|Committee: | |
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POSITIONS
Sponsor: California Association of Realtors
Support: California Taxpayers Association
Oppose: California State Association of Counties
California Tax Reform Association
Rural County Representatives of California