BILL NUMBER: SB 259 AMENDED
BILL TEXT
AMENDED IN SENATE JANUARY 14, 2016
AMENDED IN SENATE JUNE 29, 2015
INTRODUCED BY Senator Bates
FEBRUARY 18, 2015
An act to amend Sections 64, 480.1, 480.2, and 482 of, to add
Section 480.9 to, and to add and repeal Section 486 of, the Revenue
and Taxation Code, relating to taxation, and declaring the urgency
thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
SB 259, as amended, Bates. Property taxation: change in ownership.
The California Constitution generally limits ad valorem taxes on
real property to 1% of the full cash value of that property. For
purposes of this limitation, "full cash value" is defined as the
assessor's valuation of real property as shown on the 1975-76 tax
bill under "full cash value" or, thereafter, the appraised value of
that real property when purchased, newly constructed, or a change in
ownership has occurred.
Existing law specifies those circumstances in which the transfer
of ownership interests in a corporation, partnership, limited
liability company, or other legal entity results in a change in
ownership of the real property owned by that entity, and generally
provides that a change in ownership as so described occurs if a legal
entity or other person obtains a controlling or majority ownership
interest in the legal entity. Existing law requires the Franchise Tax
Board to include a question on returns for partnerships, banks, and
corporations to assist in the determination of whether a change in
ownership under the circumstances described above has occurred.
This bill would additionally specify that if 90% or more of the
direct or indirect ownership interests in a legal entity are sold or
transferred in a single transaction, as defined, the real property
owned by that legal entity has changed ownership whether or not any
one legal entity or person that is a party to the transaction obtains
control, as defined. This bill would require the Franchise Tax Board
to include an additional question on returns for partnerships,
banks, and corporations to assist in the determination of whether a
change in ownership as so described has occurred. This bill would
require the State Board of Equalization to prescribe regulations as
may be necessary to carry out the purposes of this act. This bill
would also require the State Board of Equalization to report to the
Legislature, no later than January 1, 2021, regarding the
implementation of these changes in ownership, including, but not
limited to, the economic revenue impact
and frequency of reassessments of real property owned by legal
entities. The bill would require the Legislative Analyst's
Office to report to the Legislature no later than January 1, 2021,
regarding the economic impact of this bill.
Existing law requires, upon a change in control or change in
ownership of a legal entity that owns an interest in real property in
this state, or when requested by the State Board of Equalization,
that the person or legal entity acquiring ownership or control, or
the legal entity that has undergone a change in ownership, file a
change in ownership statement with the board, as specified. Existing
law requires a penalty of 10% of the taxes applicable to the new base
year value, as specified, or 10% of the current year's taxes on the
property, as specified, to be added to the assessment made on the
roll if a person or legal entity required to file a change in
ownership statement fails to do so.
This bill would require a person or legal entity acquiring
ownership interests in a legal entity, if 90% or more of the
ownership interests in the legal entity are sold or transferred, as
described above, to file a change in ownership statement signed under
penalty of perjury with the State Board of Equalization. This bill
would increase the penalties for failure to file a change in
ownership statement, as described above, from 10% to 15%, and would
provide that the penalty shall apply for failure to file a complete
statement with the State Board of Equalization following a transfer
of legal entity ownership interests.
This bill would require the State Board of Equalization to notify
assessors if a change in control or a change in ownership of a legal
entity has occurred.
By expanding the crime of perjury and by imposing new duties upon
local county officials with respect to changes in ownership, this
bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that with regard to certain mandates no
reimbursement is required by this act for a specified reason.
With regard to any other mandates, this bill would provide that,
if the Commission on State Mandates determines that the bill contains
costs so mandated by the state, reimbursement for those costs shall
be made pursuant to the statutory provisions noted above.
This bill would declare that it is to take effect immediately as
an urgency statute.
Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 64 of the Revenue and Taxation Code is amended
to read:
64. (a) Except as provided in subdivision (i) of Section 61 and
subdivisions (c) and (d), the purchase or transfer of ownership
interests in legal entities, such as corporate stock or partnership
or limited liability company interests, does not constitute a
transfer of the real property of the legal entity. This subdivision
applies to the purchase or transfer of ownership interests in a
partnership without regard to whether it is a continuing or a
dissolved partnership.
(b) Any corporate reorganization, where all of the corporations
involved are members of an affiliated group, and that qualifies as a
reorganization under Section 368 of the United States Internal
Revenue Code and that is accepted as a nontaxable event by similar
California statutes, or any transfer of real property among members
of an affiliated group, or any reorganization of farm credit
institutions pursuant to the federal Farm Credit Act of 1971 (Public
Law 92-181), as amended, shall not be a change of ownership. The
taxpayer shall furnish proof, under penalty of perjury, to the
assessor that the transfer meets the requirements of this
subdivision.
For purposes of this subdivision, "affiliated group" means one or
more chains of corporations connected through stock ownership with a
common parent corporation if both of the following conditions are
met:
(1) One hundred percent of the voting stock, exclusive of any
share owned by directors, of each of the corporations, except the
parent corporation, is owned by one or more of the other
corporations.
(2) The common parent corporation owns, directly, 100 percent of
the voting stock, exclusive of any shares owned by directors, of at
least one of the other corporations.
(c) (1) (A) When a corporation, partnership, limited liability
company, other legal entity, or any other person obtains control
through direct or indirect ownership or control of more than 50
percent of the voting stock of any corporation, or obtains a majority
ownership interest in any partnership, limited liability company, or
other legal entity through the purchase or transfer of corporate
stock, partnership, or limited liability company interest, or
ownership interests in other legal entities, including any purchase
or transfer of 50 percent or less of the ownership interest through
which control or a majority ownership interest is obtained, the
purchase or transfer of that stock or other interest shall be a
change of ownership of the real property owned by the corporation,
partnership, limited liability company, or other legal entity in
which the controlling interest is obtained.
(B) (i) When 90 percent or more of the direct or indirect
ownership interests in a legal entity are sold or transferred in a
single transaction, the purchase or transfer of the ownership
interests is a change in ownership of the real property owned by the
legal entity, including the real property owned by legal entities
under its control, whether or not any one legal entity or person that
is a party to the transaction obtains control, except when the sale
or transfer qualifies for an exclusion from change in ownership under
any other law or does not result in a change in ownership under any
other law.
(ii) For purposes of this subparagraph:
(I) "Control" means control as described in subparagraph (A).
(II) "Legal entity" means a corporation, partnership, limited
liability company, or other legal entity.
(III) "Ownership interests" means corporate voting stock,
partnership capital and profits interests, limited liability company
membership interests, and other ownership interests in legal
entities.
(IV) "Single transaction" means a plan consisting of one or more
sales or transfers of ownership interests that occur on or after
January 1, 2016. For purposes of this subclause, it shall be
rebuttably presumed that a sale or transfer is part of a single
transaction if either of the following occur:
(ia) The transferees are persons described in Section 267(b) of
Title 26 of the United States Code.
(ib) The sales or transfers occur with a 36-month period,
commencing on the date of the first sale or transfer of the ownership
interests that occurs on or after January 1, 2016.
(V) "Sold or transferred" does not include either of the
following:
(ia) A transfer of ownership interests that occurs upon death,
without payment for the ownership interests, other than taxes due
with respect to the transfer, paid by or on behalf of the transferee.
(ib) A sale of stock or interests of a publicly traded corporation
or a publicly traded partnership in the regular course of a trading
activity on an established securities market, as defined in Section
1.7704-1(b) of Title 26 of the Code of Federal Regulations, unless
shares are acquired as part of a merger, acquisition, private equity
buyout, transfer of partnership shares, or any other means by which a
change in ownership would otherwise occur pursuant to this
subparagraph.
(2) On or after January 1, 1996, when an owner of a majority
ownership interest in any partnership obtains all of the remaining
ownership interests in that partnership or otherwise becomes the sole
partner, the purchase or transfer of the minority interests, subject
to the appropriate application of the step-transaction doctrine,
shall not be a change in ownership of the real property owned by the
partnership.
(3) For purposes of this section, indirect ownership or transfer
of ownership interests shall be measured proportionately.
(d) If property is transferred on or after March 1, 1975, to a
legal entity in a transaction excluded from change in ownership by
paragraph (2) of subdivision (a) of Section 62, then the persons
holding ownership interests in that legal entity immediately after
the transfer shall be considered the "original coowners." Whenever
shares or other ownership interests representing cumulatively more
than 50 percent of the total interests in the entity are transferred
by any of the original coowners in one or more transactions, a change
in ownership of that real property owned by the legal entity shall
have occurred, and the property that was previously excluded from
change in ownership under the provisions of paragraph (2) of
subdivision (a) of Section 62 shall be reappraised.
The date of reappraisal shall be the date of the transfer of the
ownership interest representing individually or cumulatively more
than 50 percent of the interests in the entity.
A transfer of shares or other ownership interests that results in
a change in control of a corporation, partnership, limited liability
company, or any other legal entity is subject to reappraisal as
provided in subdivision (c) rather than this subdivision.
(e) (1) To assist in the determination of whether a change of
ownership has occurred under subdivisions (c) and (d), the Franchise
Tax Board shall include a question in substantially the following
form on returns for partnerships, banks, and corporations (except
tax-exempt organizations):
(A) If the corporation (or partnership or limited liability
company) owns real property in California, has cumulatively more than
50 percent of the voting stock (or more than 50 percent of total
interest in both partnership or limited liability company capital and
partnership or limited liability company profits) (1) been
transferred by the corporation (or partnership or limited liability
company) since March 1, 1975, or (2) been acquired by another legal
entity or person during the year? (See instructions.)
(B) If the corporation (or partnership or limited liability
company) owns real property in California, has 90 percent or more of
the direct or indirect ownership interests in that legal entity been
sold or transferred (1) in a single transaction, or (2) amongst
persons described in Section 267(b) of Title 26 of the United States
Code, or (3) in multiple transactions (other than those occurring on
an established securities market) within a 36-month period? (See
instructions.)
(2) If the entity answers "yes" to any of the above questions,
then the Franchise Tax Board shall furnish the names and addresses of
that entity and of the stock or partnership or limited liability
company ownership interest transferees to the State Board of
Equalization.
(f) For purposes of this section, ownership interests counted to
determine that a change in control or change in ownership of a legal
entity has occurred shall not be counted again in determining whether
any other sale or transfer of ownership interests results in a
change in ownership of the real property reassessed as a result of
the change in control or change in ownership.
(g) The board shall prescribe regulations as may be necessary to
carry out the purposes of the act adding this subdivision.
SEC. 2. Section 480.1 of the Revenue and Taxation Code is amended
to read:
480.1. (a) Whenever there is a change in control of any
corporation, partnership, limited liability company, or other legal
entity, as defined in subparagraph (A) of paragraph (1) of
subdivision (c) of Section 64, a signed change in ownership statement
as provided for in subdivision (b), shall be filed by the person or
legal entity acquiring ownership control of the corporation,
partnership, limited liability company, or other legal entity with
the board at its office in Sacramento within 90 days from the date of
the change in control of the corporation, partnership, limited
liability company, or other legal entity. The statement shall list
all counties in which the corporation, partnership, limited liability
company, or legal entity owns real property.
(b) The change in ownership statement as required pursuant to
subdivision (a), shall be declared to be true under penalty of
perjury and shall give that information relative to the ownership
control acquisition transaction as the board shall prescribe after
consultation with the California Assessors' Association. The
information shall include, but not be limited to, a description of
the property owned by the corporation, partnership, limited liability
company, or other legal entity, the parties to the transaction, and
the date of the ownership control acquisition. The change in
ownership statement shall not include any question which is not
germane to the assessment function. The statement shall contain a
notice that is printed, with the title in at least 12-point boldface
type and the body in at least 8-point boldface type, in the following
form:
"Important Notice"
"The law requires any person or legal entity acquiring ownership
control in any corporation, partnership, limited liability company,
or other legal entity owning real property in California subject to
local property taxation to complete and file a change in ownership
statement with the State Board of Equalization at its office in
Sacramento. The change in ownership statement must be filed within 90
days from the date of the change in control of a corporation,
partnership, limited liability company, or other legal entity. The
law further requires that a change in ownership statement be
completed and filed whenever a written request is made therefor by
the State Board of Equalization, regardless of whether a change in
control of the legal entity has occurred. The failure to file a
change in ownership statement within 90 days from the earlier of the
date of the change in control of the corporation, partnership,
limited liability company, or other legal entity, or the date of a
written request by the State Board of Equalization, results in a
penalty of 15 percent of the taxes applicable to the new base year
value reflecting the change in control of the real property owned by
the corporation, partnership, limited liability company, or legal
entity (or 15 percent of the current year's taxes on that property if
no change in control occurred). This penalty will be added to the
assessment roll and shall be collected like any other delinquent
property taxes, and be subject to the same penalties for nonpayment."
(c) In the case of a corporation, the change in ownership
statement shall be signed either by an officer of the corporation or
an employee or agent who has been designated in writing by the board
of directors to sign such statements on behalf of the corporation. In
the case of a partnership, limited liability company, or other legal
entity, the statement shall be signed by an officer, partner,
manager, or an employee or agent who has been designated in writing
by the partnership, limited liability company, or legal entity.
(d) No person or entity acting for or on behalf of the parties to
a transfer of real property shall incur liability for the
consequences of assistance rendered to the transferee in preparation
of any change in ownership statement, and no action may be brought or
maintained against any person or entity as a result of that
assistance.
Nothing in this section shall create a duty, either directly or by
implication, that such assistance be rendered by any person or
entity acting for or on behalf of parties to a transfer of real
property.
(e) The board or assessors may inspect any and all records and
documents of a corporation, partnership, limited liability company,
or legal entity to ascertain whether a change in control as defined
in subparagraph (A) of paragraph (1) of subdivision (c) of Section 64
has occurred. The corporation, partnership, limited liability
company, or legal entity shall, upon request, make those documents
available to the board during normal business hours.
SEC. 3. Section 480.2 of the Revenue and Taxation Code is amended
to read:
480.2. (a) Whenever there is a change in ownership of any
corporation, partnership, limited liability company, or other legal
entity, as defined in subparagraph (B) of paragraph (1) of
subdivision (c) or subdivision (d) of Section 64, a signed change in
ownership statement as provided in subdivision (b) shall be filed by
the corporation, partnership, limited liability company, or other
legal entity with the board at its office in Sacramento within 90
days from the date of the change in ownership of the corporation,
partnership, limited liability company, or other legal entity. The
statement shall list all counties in which the corporation,
partnership, limited liability company, or legal entity owns real
property.
(b) The change in ownership statement required pursuant to
subdivision (a) shall be declared to be true under penalty of perjury
and shall give that information relative to the ownership interest
acquisition transaction as the board shall prescribe after
consultation with the California Assessors' Association. The
information shall include, but not be limited to, a description of
the property owned by the corporation, partnership, limited liability
company, or other legal entity, the parties to the transaction, the
date of the ownership interest acquisition, and a listing of the
"original coowners" of the corporation, partnership, limited
liability company, or other legal entity prior to the transaction.
The change in ownership statement shall not include any question
which is not germane to the assessment function. The statement shall
contain a notice that is printed, with the title in at least 12-point
boldface type and the body in at least 8-point boldface type, in the
following form:
"Important Notice"
"The law requires any corporation, partnership, limited liability
company, or other legal entity owning real property in California
subject to local property taxation and transferring shares or other
ownership interest in such legal entity which constitute a change in
ownership pursuant to subparagraph (B) of paragraph (1) of
subdivision (c) or subdivision (d) of Section 64 of the Revenue and
Taxation Code to complete and file a change in ownership statement
with the State Board of Equalization at its office in Sacramento. The
change in ownership statement must be filed within 90 days from the
date that shares or other ownership interests representing either (1)
cumulatively more than 50 percent of the total control or ownership
interests in the entity are transferred by any of the original
coowners in one or more transactions, or (2) when 90 percent or more
of the direct or indirect ownership interests in a legal entity are
sold or transferred in a single transaction, as defined in
subparagraph (B) of paragraph (1) of subdivision (c) of Section 64.
The law further requires that a change in ownership statement be
completed and filed whenever a written request is made therefor by
the State Board of Equalization, regardless of whether a change in
ownership of the legal entity has occurred. The failure to file a
change in ownership statement within 90 days from the earlier of the
date of the change in ownership of the corporation, partnership,
limited liability company, or other legal entity, or the date of a
written request by the State Board of Equalization, results in a
penalty of 15 percent of the taxes applicable to the new base year
value reflecting the change in ownership of the real property owned
by the corporation, partnership, limited liability company, or legal
entity (or 15 percent of the current year's taxes on that real
property if no change in ownership occurred). This penalty will be
added to the assessment roll and shall be collected like any other
delinquent property taxes, and be subject to the same penalties for
nonpayment."
(c) In the case of a corporation, the change in ownership
statement shall be signed either by an officer of the corporation or
an employee or agent who has been designated in writing by the board
of directors to sign such statements on behalf of the corporation. In
the case of a partnership, limited liability company, or other legal
entity, the statement shall be signed by an officer, partner,
manager, or an employee or agent who has been designated in writing
by the partnership, limited liability company, or legal entity.
(d) No person or entity acting for or on behalf of the parties to
a transfer of real property shall incur liability for the
consequences of assistance rendered to the transferee in preparation
of any change in ownership statement, and no action may be brought or
maintained against any person or entity as a result of that
assistance.
Nothing in this section shall create a duty, either directly or by
implication, that such assistance be rendered by any person or
entity acting for or on behalf of parties to a transfer of real
property.
(e) The board or assessors may inspect any and all records and
documents of a corporation, partnership, limited liability company,
or legal entity to ascertain whether a change in ownership as defined
in subparagraph (B) of paragraph (1) of subdivision (c) or
subdivision (d) of Section 64 has occurred. The corporation,
partnership, limited liability company, or legal entity shall upon
request, make those documents available to the board during normal
business hours.
SEC. 4. Section 480.9 is added to the Revenue and Taxation Code,
to read:
480.9. The board shall notify assessors if a change in control or
a change in ownership described in Section 64 has occurred.
SEC. 5. Section 482 of the Revenue and Taxation Code is amended to
read:
482. (a) (1) If a person or legal entity required to file a
statement described in Section 480 fails to do so within 90 days from
the date a written request is mailed by the assessor, a penalty of
either: (A) one hundred dollars ($100), or (B) 10 percent of the
taxes applicable to the new base year value reflecting the change in
ownership of the real property or manufactured home, whichever is
greater, but not to exceed five thousand dollars ($5,000) if the
property is eligible for the homeowners' exemption or twenty thousand
dollars ($20,000) if the property is not eligible for the homeowners'
exemption if the failure to file was not willful, shall, except as
otherwise provided in this section, be added to the assessment made
on the roll. The penalty shall apply for failure to file a complete
change in ownership statement notwithstanding the fact that the
assessor determines that no change in ownership has occurred as
defined in Chapter 2 (commencing with Section 60) of Part 0.5. The
penalty may also be applied if after a request the transferee files
an incomplete statement and does not supply the missing information
upon a second request.
(2) The assessor shall mail the written request specified in
paragraph (1) to the mailing address of the transferee as provided by
subdivision (f).
(b) If a person or legal entity required to file a statement
described in Section 480.1 or 480.2 fails to do so within 90 days
from the earlier of (1) the date of the change in control or the
change in ownership of the corporation, partnership, limited
liability company, or other legal entity, or (2) the date of a
written request by the State Board of Equalization, a penalty of 15
percent of the taxes applicable to the new base year value reflecting
the change in control or change in ownership of the real property
owned by the corporation, partnership, or legal entity, or 15 percent
of the current year's taxes on that property if no change in control
or change in ownership occurred, shall be added by the county
assessor to the assessment made on the roll. The penalty shall apply
for failure to file a complete statement with the board following a
transfer of legal entity ownership interests notwithstanding the fact
that the board determines that no change in control or change in
ownership has occurred as defined in subdivision (c) or (d) of
Section 64. The penalty may also be applied if after a request the
person or legal entity files an incomplete statement and does not
supply the missing information upon that second request to complete
the statement. That penalty shall be in lieu of the penalty
provisions of subdivision (a).
(c) The penalty for failure to file a timely statement pursuant to
Sections 480, 480.1, and 480.2 for any one transfer may be imposed
only one time, even though the assessor may initiate a request as
often as he or she deems necessary.
(d) The penalty shall be added to the roll in the same manner as a
special assessment and treated, collected, and subject to the same
penalties for the delinquency as all other taxes on the roll in which
it is entered.
(1) When the transfer to be reported under this section is of a
portion of a property or parcel appearing on the roll during the
fiscal year in which the 90-day period expires, the current year's
taxes shall be prorated so the penalty will be computed on the
proportion of property which has transferred.
(2) Any penalty added to the roll pursuant to this section between
January 1 and June 30 may be entered either on the unsecured roll or
the roll being prepared. After January 1, the penalty may be added
to the current roll only with the approval of the tax collector.
(3) If the property is transferred or conveyed to a bona fide
purchaser for value or becomes subject to a lien of a bona fide
encumbrancer for value after the transfer of ownership resulting in
the imposition of the penalty and before the enrollment of the
penalty, the penalty shall be entered on the unsecured roll in the
name of the transferee whose failure to file the change in ownership
statement resulted in the imposition of the penalty.
(e) When a penalty imposed pursuant to this section is entered on
the unsecured roll, the tax collector may immediately file a
certificate authorized by Section 2191.3.
(f) Notice of any penalty added to either the secured or unsecured
roll pursuant to this section, which shall identify the parcel or
parcels for which the penalty is assessed, and the written request to
file a statement specified in subdivision (a), which shall identify
the real property or manufactured home for which the statement is
required to be filed, shall be mailed by the assessor to the
transferee at his or her address contained in any recorded instrument
or document evidencing a transfer of an interest in real property or
manufactured home or the address specified for mailing tax
information contained in the preliminary change in ownership report.
If the transferee has subsequently notified the assessor of a change
in address for mailing tax information, the assessor shall mail the
notice of any penalty, or the written request to file a statement
specified in subdivision (a), to this address. If there is no address
specified for mailing tax information on either the recorded
instrument, the document evidencing a transfer of an interest in real
property or manufactured home, or on the filed preliminary change in
ownership report, and the transferee has not provided an address for
purposes of mailing tax information, the assessor shall mail the
notice of any penalty, or the written request to file a statement
specified in subdivision (a), to the transferee at any address
reasonably known to the assessor.
SEC. 6. Section 486 is added to the Revenue and Taxation Code, to
read:
486. (a) The board shall report to the Legislature, no later than
January 1, 2021, regarding the implementation of subparagraph (B) of
paragraph (1) of subdivision (c) of Section 64, including, but not
limited to, the economic revenue impact
and frequency of reassessments of real property owned by legal
entities.
(b) The Legislative Analyst's Office shall report to the
Legislature no later than January 1, 2021, regarding the economic
impact of this bill.
(b)
(c) (1) A report Reports
submitted pursuant to subdivision (a)
subdivisions (a) and (b) shall be submitted in compliance with
Section 9795 of the Government Code.
(2) Pursuant to Section 10231.5 of the Government Code, this
section is repealed on January 1, 2025.
SEC. 7. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution for
certain costs that may be incurred by a local agency or school
district because, in that regard, this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
However, if the Commission on State Mandates determines that this
act contains other costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to Part 7 (commencing with Section 17500) of Division 4 of
Title 2 of the Government
Code.
SEC. 8. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect. The facts constituting the necessity are:
In order to close a loophole to provide fair and equitable tax
treatment for all individuals in this state, as all property holders
should be treated equally with regards to the imposition of property
taxes, it is necessary that this act take effect immediately.