BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 378 (Beall) - Property taxation: base year value transfers
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|Version: January 14, 2016 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: January 19, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 378 would permit base year value transfers to
properties of greater value for certain taxpayers.
Fiscal Impact:
The Board of Equalization (BOE) indicates that this bill
would result in an annual revenue loss of $7 million. Lower
local property tax revenues lead to increased General Fund
Proposition 98 spending by up to roughly 50 percent (the
exact amount depends on the specific amount of the
Proposition 98 guarantee, which in turns depends of a
variety of economic, demographic and budgetary factors).
BOE would incur minor and absorbable costs to update
publications and its internet site.
Under the California Constitution, this bill's imposing
of new duties on local county officials related to the real
property tax assessment process could be subject to
reimbursement by the State. The magnitude of these
potential costs is unknown.
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Background: Under the California Constitution (Proposition 13,
1978), 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
percent, and directs assessors to only reappraise property when
newly constructed, or when ownership changes. Subsequent to
Proposition 13, voters 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, 1988, and Proposition 110, 1990), or to homes
in counties that adopt ordinances allowing the transfer
(Proposition 90, 1990); ten counties currently permit such
out-of-county transfers. Taxpayers can only transfer base year
values for properties eligible for the homeowners' exemption,
must file a claim with the assessor, and may only transfer base
year values once. Base year value transfers allow taxpayers to
continue to pay property taxes at the 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.
Taxpayers seeking to transfer base year values cannot do so
until the original property is sold, and have two years to
purchase the replacement dwelling. State law allows for
inflationary adjustments to maintain taxpayer eligibility while
accounting for growth in property values. Without adjustments,
a taxpayer counting on transferring their base year value may be
priced out of the transfer based on local market conditions.
Currently:
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
percent 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
percent of the original property's value.
If the replacement dwelling is purchased within the
second year after the sale, then the taxpayer may transfer
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the base year if the replacement property is within 110
percent of the original property's value..
Bill Summary: This bill would do the the following:
Allow disabled persons or those over the age of 55 to
transfer their base year value to a home of greater value
within two years of the sale of the original property,
effective for the lien date for fiscal year 2016-17.
Apply 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.
Staff Comments: SB 378 would allow qualifying taxpayers to
purchase more expensive homes and still maintain the lower
property tax base from the home they had sold. For example, a
qualifying taxpayer has a base year value of $200,000 (resulting
in property taxes of $2,000 per year), sells the home for
$400,000, and purchases a replacement home for $500,000. The
base year of the newly purchased home would be $300,000 (the
$200,000 base year value of the original property plus the
$100,000 difference in price between the original home and the
new home), resulting in a property tax reduction of $2,000
($3,000 in property tax from a base year of $300,000, instead of
$5,000 in property tax resulting from the $500,000 purchase
price of the new dwelling). Thus, viewed by itself, the property
tax revenues resulting from the bill would be lower than had the
$500,000 home been purchased as a regular Proposition 13 sale.
One mitigating impact on the revenue loss concerns the sale of
the $400,000 house in this example. If it too were purchased as
a regular Proposition 13 sale, the resulting property tax would
be higher than the taxpayer who sold it ($4,000 versus $2000).
The aggregate impact of this on revenues is unknown.
BOE estimates the revenue loss from this bill to be $7 million
annually. This revenue estimate is based on internal data which
indicate that 5,200 base year value
transfer claims are currently granted on average each year. BOE
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assumes that number would double under the bill, (in other
words, the number of claims would increase by 5,200). Because
comprehensive data are not available, BOE further assumes that
for each claim, the value would rise from the average assessed
value of a property receiving the homeowners exemption (about
$340,000) to the statewide median home price (about $475,000).
The $135,000 difference, when multiplied by 5,200 claims and
taken at the one percent property tax rate, results in the
estimated revenue loss of $7 million. The revenue loss from the
bill could be higher or lower to the extent that the number of
claims differs from BOE's assumption, and would depend on the
specific facts of each case (original property's assessed value,
the original property's selling price, and the selling price of
the replacement dwelling).
This bill would provide the statutory operative language for SCA
9 (Beall), and would only take effect if SCA 9 is approved by
the voters.
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