BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 434 |Hearing | 5/6/15 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Allen |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |2/25/15 |Fiscal: |No | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Grinnell | |: | | ----------------------------------------------------------------- MANUFACTURED HOUSING: VEHICLE LICENSE FEE: PROPERTY TAXATION Requires owners of mobilehomes or manufactured homes to request local property taxation when affixing the home to the ground but retaining the original chassis. Background and Existing Law Section 1 of Article XIII of the California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law. The Constitution limits the maximum amount of any ad valorem taxes on real property at 1% of full cash value and precludes reassessment unless the property is newly constructed or changes ownership. Mobilehomes and manufactured homes are different than traditional residential properties in California, especially for property tax purposes. The Department of Housing and Community Development (HCD) maintains a title registry of all mobilehomes and manufactured homes in the state. Prior to 1980, all mobilehomes paid an in-lieu fee (ILF) to HCD instead of the property tax; however, the Legislature required any mobilehomes sold after July 1, 1980 to pay the property tax as personal property. Any new mobilehomes sold in the state are automatically placed on the local property tax roll. Additionally, individuals can elect to pay local property taxes instead of paying the ILF by making a request to HCD. HCD must SB 434 (Allen) 2/25/15 Page 2 of ? inform counties of new registrations, title transfers, and conversions to local property taxation each month. The difference between the two taxes can be significant: ILF is .65 percent of pre-1980 value depreciated according to a statutory schedule, and usually totals between $16 and $80, while the property tax would generally total 1% of its assessed value. A property owner must first obtain a building permit from HCD to install a mobilehome, manufactured home, or modular home on the original foundation. HCD will only approve new construction that allows the home to be moved on its original chassis, or else, it's subject to local property taxation as personal property. If HCD approves the permit and grants a certificate of occupancy, it must record a document in the county recorder's office within five days naming the owner of the real property and declaring that the mobilehome, manufactured home, or commercial modular home has been affixed to the real property by installation on a foundation. The Los Angeles County Assessor noticed that current mobilehome owners in areas with high land values would tear down a current home, and replace it with a newly built one, while keeping its original steel chassis. HCD approved these changes, which they now admit was done in error, because these rebuilds are no longer movable on their original chassis. However, taxpayers have already completed the rebuilds and avoided significant taxes. The Los Angeles County Assessor wants homes similarly converted in the future to pay the property tax as personal property instead. Proposed Law Senate Bill 434 requires an owner of a manufactured home or mobilehome currently subject to the vehicle license fee to request a transfer to local property tax when he or she submits building plans to HCD that rebuilds the home in a way that leaves only the chassis of the original home in place. The measure also makes conforming changes. State Revenue Impact No estimate. SB 434 (Allen) 2/25/15 Page 3 of ? Comments 1. Purpose of the bill . According to the author, "SB 434 addresses an exploitation of tax law by a small but sophisticated subset of mobile home owners. Under current statute, owners of mobile homes first purchased prior to 1980 are taxed at a rate of between $16 and $80 annually, because the home is considered a vehicle. These homes, typically over 35 years old and constructed of aluminum siding with a flat roof, are often owned by residents of modest means with fixed incomes. An issue of fairness arises when certain owners choose to entirely and sometimes opulently rebuild their homes, retaining only the steel chassis of the original structure, and nothing else, surrounded by the new foundation, and under the floor of the newly-constructed home. The savvy owner does this with the sole and explicit intent of narrowly meeting the letter of the law so he or she is still permitted to only pay a nominal vehicle license fee. Compare this to the case of an average single family home owner, who, when rebuilding his or her house to be essentially the same as new, is reassessed under Proposition 13 guidelines, with the property taxes increasing to an amount relative to the increase in the property's overall value. As a simple matter of fairness, if a mobile home owner completely rebuilds a pre-1980 structure, SB 434 would require them to pay property taxes like other homeowners instead of a much smaller vehicle license fee. The bill is not retroactive, and would only impact construction undertaken beginning in 2016. Stripping a 35-year-old mobile home down to the chassis and building a multi-million dollar structure around it, just so the home can be taxed like a vehicle, is dishonest. These homes aren't mobile, nor are they vehicles. Their owners should pay their fair share of property tax like any other California homeowner." 2. Of barn doors . The Los Angeles County Assessor states that between 50 and 100 of these conversions occur each year, mostly in areas with high land values, so the revenue impact of the avoided taxes and therefore the incentive to avoid them, is likely significant. However, HCD admits that the conversions were approved in error, and won't approve similar conversions in the future. HCD adds that it will only permit changes so long as the footings can be removed and the unit can be moved. If SB 434 (Allen) 2/25/15 Page 4 of ? HCD addresses the measure administratively, the Committee may wish to consider whether the measure is necessary. 3. Rounding up horses . SB 434 would provide that whenever HCD receives plans in the future that would rebuild the home in a way that only retains the original chassis; however, those who already received HCD approval and continue to pay the ILF would remain unaffected. The measure could instead direct assessors to revalue these homes in the next taxable year, requiring these homeowners to pay property tax based on the newly enrolled value. However, this amendment will likely cause Legislative Counsel to rekey the measure as a 2/3 vote tax increase. 4. Honesty . SB 434 identifies a tax loophole whereby mobilehome owners grandfathered into VLF taxation significantly improve their homes tax-free, when the assessor would have normally revalued the home as new construction. The measure relies on HCD's plan approval authority to ensure compliance. When the owner submits the plan, SB 434 requires him or her to change to the local property tax using the voluntary conversion section of law. This solution presumes a great deal of honesty by the taxpayer, as he or she will likely forego thousands of dollars in tax savings when requesting conversion. Instead, the measure should require HCD to convert the homes automatically, relying on provisions in existing law requiring the department to inform counties of properties the bill converts to property tax. However, directing HCD to do so may cause Legislative Counsel to rekey the measure as fiscal. 5. Personal, not real . Unlike other homes, mobilehomes and manufactured homes are treated as personal property by statute. This treatment accounts for mobilehome and manufactured general tendency to depreciate in value, unlike other homes that usually appreciate, which assessors value as real property subject to a total rate of 1% and limits on reassessment. To provide additional clarity, the Committee may wish to consider amending SB 434 to make a conforming change to Revenue and Taxation Code sections regarding manufactured homes to ensure that any property transferred to local property taxation by SB 434 is taxed as personal, not real, property. Support and Opposition (4/23/15) SB 434 (Allen) 2/25/15 Page 5 of ? Support : California Assessors' Association; Los Angeles County Assessor Jeffrey Prang; Los Angeles County Board of Supervisors. Opposition : Unknown. -- END --