BILL ANALYSIS Ó
SB 587
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Date of Hearing: August 1, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
SB
587 (Stone) - As Amended June 22, 2016
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE: Not relevant
SUBJECT: Property taxation: inflation factor: senior citizens
SUMMARY: Eliminates the annual inflation adjustment used to
determine the property tax base for the principal place of
residence of an income-eligible taxpayer 65 years of age or
older. Specifically, this bill:
1)Provides that, for any assessment year beginning on or after
January 1, 2017, the inflation factor used to calculate the
tax base of real property shall not apply to the principal
place of residence of a "qualified taxpayer".
2)Defines a "qualified taxpayer" as a person who owns a dwelling
as his or her principal place of residence who is 65 years of
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age or older on the lien date and satisfies either of the
following:
a) If single, his or her annual household income, as
defined in Revenue and Taxation Code (R&TC) Section 20504,
is $25,000 or less; or,
b) If married, his or her combined annual household income
is $50,000 or less.
3)Specifies that a qualified taxpayer who is 65 years of age or
older includes a married couple, one member of which is 65
years of age or older on the lien date.
4)Provides that when claiming this benefit, the claimant shall
provide all information required by, and answer all questions
contained in, an affidavit furnished by the county assessor to
determine the claimant's eligibility. The assessor may
require additional proof of the information or answers
provided in the affidavit before allowing the benefit.
5)Extends this bill's benefits to a qualified taxpayer who owns
a manufactured home.
6)Provides that, notwithstanding existing law, the state shall
not reimburse local agencies for property tax revenues lost by
them under this bill.
7)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement for those costs shall be made, as specified.
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8)Takes immediate effect as a tax levy.
EXISTING LAW:
1)Specifies that all property is taxable unless otherwise
provided by the California Constitution or federal law.
(California Constitution Article XIII, Section 1.)
2)Limits, as a general rule, the maximum amount of any ad
valorem tax on real property to 1% of the property's "full
cash value". (California Constitution Article XIII A, Section
1(a).)
3)Defines the term "full cash value" as the county assessor's
valuation of real property as shown on the 1975-76 tax bill
or, thereafter, the appraised value of real property when
purchased or newly constructed, or when a change in ownership
occurs. (California Constitution Article XIII A, Section
2(a).) In addition, the full cash value base may reflect from
year to year an inflationary rate not to exceed 2% for any
given year. (California Constitution Article XIII A, Section
2(b).)
4)Provides that, for any assessment year beginning on or after
January 1, 1998, the inflation factor shall be the percentage
change, rounded to the nearest one-thousandth of 1%, from
October of the prior fiscal year to October of the current
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fiscal year in the California Consumer Price Index for all
items, as determined by the California Department of
Industrial Relations. (R&TC Section 51(a)(1)(C).)
5)Provides that the taxable value of real property is the lesser
of its base year value compounded annually by the inflation
factor not to exceed 2%, as provided, or its full cash value.
(R&TC Section 51(a).)
6)Requires the Legislature to reimburse local agencies annually
for certain property tax revenues lost as a result of any
exemption or classification of property for purpuses of ad
valorem property taxation. (R&TC Section 2229)
FISCAL EFFECT: The State Board of Equalization (BOE) estimates
annual revenue losses of $27 million.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
Many senior citizens are on a very fixed income, with most
of that coming from Social Security and pensions. With the
rising costs of health care and prescription drugs, and the
economic uncertainty taking place across the country,
California's senior citizens find themselves in a very
challenging time. There is nothing more important than the
pride and freedom that comes with home ownership. For
seniors at the lower end of the income spectrum, the
ability to stay in their own home is becoming harder and
harder, unless California finds ways to make holding on to
the American Dream more affordable. SB 587 is a small
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attempt to bring financial relief to senior citizens, who
want to stay in their own home, by capping the property tax
assessment for all senior citizens (age 65 or older) who
meet the income requirements. By making property taxes
affordable for more senior citizens on a fixed income, we
can empower the most vulnerable in our society.
2)The BOE notes the following in its staff analysis of this
bill:
a) Freezes assessed values for low-income seniors 65+ : "In
practical application, this bill freezes the assessed value
of any income-qualified person 65 years of age or older at
the home's factored base year value for the 2016-17 fiscal
year, which is the factored base year value for the January
1, 2016 lien date. In addition, as other homeowners reach
the age of 65, their homes' assessed values also will be
frozen."
b) Qualifying homeowners will need to take action :
"Assessors do not have homeowners' age information. The
bill specifies a basic requirement that a claim must be
filed to request this tax benefit."
c) Annual income verification process : "To implement this
bill, assessors will need to establish a procedure to
verify continued income eligibility. The bill requires
that [homeowners] provide proof of income to continue to
receive the benefit."
d) The bill would apply to low income 65+ floating home
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owners : "The law provides that [R&TC] Section 110.1
applies to a floating home and it is to be treated the same
as real property for property tax assessment purposes.
Therefore, age and income qualified floating homeowners
would benefit from the bill."
e) The bill does not address whether the inflation factor
should be eliminated for land in excess of what is
reasonably necessary for use of the property as a home :
"For example, in other areas of law, 'residential dwelling'
means a dwelling occupied by the claimant as the principal
place of residence, and so much of the land surrounding it
as is reasonably necessary for use of the dwelling as a
home."
3)Committee staff comments:
a) California's property tax system : Proposition 13 (1978)
replaced California's market value-based system of property
taxation with an acquisition value-based system. This
change was designed to provide property owners with greater
predictability regarding future property taxes.
Specifically, Proposition 13 rolled back the assessed
values of real property to 1975 market value levels and
limited future assessed value increases to the inflation
rate, not to exceed 2%, for as long as a property's
ownership remains unchanged and the property is not
substantially improved (i.e., through new construction).
Thus, even if a property appreciates considerably in value
over time, the 2% maximum inflation adjustment ensures only
limited increases in the property's assessed value. In
this manner, Proposition 13 can result in substantial
property tax savings for long-term property owners.
b) Base year values : A property's "base year value" refers
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to the real property's protected value under Proposition
13. Specifically, existing law requires county assessors
to establish a "base year value" for real property at its
1975 market value, and thereafter reset the value to the
current market value every time the property changes
ownership. This base year value must be compounded
annually by an inflation factor not to exceed 2%. The
property's inflation-adjusted value, in turn, is called the
"factored base year value." Generally, the law requires a
property's assessed value to be based on its factored base
year value or its current market value, whichever is lower.
Reassessment limits and caps on inflation ensure a
predictable, slowly increasing tax obligation for the
taxpayer, as well as predictable revenues for local
agencies. At the same time, however, these provisions may
also result in a taxable base year value for a property
well below the property's actual market value. Critics, in
turn, contend that this system shifts the cost of public
services from longstanding property owners to those who
have only recently purchased property.
c) What would this bill do ? This bill is designed to
provide property tax relief to low-income homeowners by
freezing assessed values once the owner turns 65.
Specifically, this bill provides that, for any assessment
year beginning on or after January 1, 2017, the percentage
increase for an assessment year shall not apply to the
principal place of residence of a "qualified taxpayer". A
"qualified taxpayer", in turn, is defined as a person who
is 65 years of age or older on the lien date and who
satisfies certain income conditions. Specifically, if the
qualified taxpayer is single, his or her annual household
income, as defined in R&TC Section 20504, is limited to
$25,000. If the qualified taxpayer is married, his or her
combined annual household income would be limited to
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$50,000. This bill provides that a qualified taxpayer who
is 65 years of age or older includes a married couple, one
member of which is 65 years of age or older on the lien
date. This bill also specifies that, when claiming this
benefit, the taxpayer shall provide all information
required by an affidavit furnished by the county assessor
to determine that the claimant is a qualified taxpayer. In
addition, the assessor is authorized to require additional
proof before allowing the benefit this bill provides.
Finally, this bill provides similar relief to owners of
manufactured homes.
d) Existing property tax relief provisions for California
seniors : Beyond the protections afforded by Proposition
13, California seniors also benefit from additional
property tax relief measures. For example, individuals
over the age of 55 may "transfer" their Proposition 13 base
year value from one home to another that is of equal or
lesser value and located within the same county or in one
of 11 counties that accept transfers from non-county
residents. In this manner, that individual is able to
avoid a reassessment of the newly purchased home to its
current market value. This once-in-a-lifetime benefit
allows seniors to pay the same level of taxes if they move
by avoiding Proposition 13's reassessment provisions when
purchasing a qualifying new home.
In addition, the state's property tax postponement program
is scheduled to resume later this year. This program,
administered by the State Controller, will allow income
eligible individuals at least 62 years of age to postpone
property tax payments on their principal residence.
Finally, the BOE notes that prior California law provided a
rebate to income qualified homeowners for property taxes
paid up to the first $34,000 of assessed value. Under this
Franchise Tax Board-administered program, the amount
rebated was determined according to a sliding income scale.
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In addition, household income limits were adjusted for
inflation.
This Committee may wish to consider whether this bill's
proposed benefits are merited given those already afforded
under current law. Alternatively, this Committee may wish
to consider whether it would be preferable to augment the
existing property tax postponement program or re-establish
a rebate program to assist qualified homeowners.
e) Income-testing : The benefits of this bill would apply
to individuals aged 65 and older with less than a specified
amount of annual income. For example, if the qualified
taxpayer is single, his or her annual household income, as
defined in R&TC Section 20504, would be limited to $25,000.
Because county assessors do not possess income information
for property owners, this bill would also require the
taxpayer to provide the assessor with an affidavit
attesting to his or her eligibility. It is not clear,
however, whether these affidavits would have to be
submitted annually given that a taxpayer's income may
fluctuate over time. This Committee may wish to consider
whether this bill's expansion of property tax benefits
should depend on a taxpayer's income and whether such a
limitation is warranted given the potential administrative
costs involved with implementation.
f) Questions of constitutional authority and
interpretation : Article XIII A Section 2(b) of the
California Constitution appears to grant the Legislature
discretion on the question of whether or not to adjust the
base year value of real property for inflation.
Specifically, Section 2(b) provides:
The full cash value base may reflect from year to year
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the inflationary rate not to exceed 2 percent for any
given year or reduction as shown in the consumer price
index or comparable data for the area under taxing
jurisdiction, or may be reduced to reflect substantial
damage, destruction, or other factors causing a decline
in value. (Emphasis added.)
Thus, while Article XIII A does not appear to prohibit the
Legislature from enacting a law making the inflation factor
optional, the California Constitution is silent on the
question of whether the inflation factor can be applied in
a differential manner to discrete classes of taxpayers
(e.g., those over a certain age). Moreover, the BOE staff
analysis notes that this bill's provisions could
potentially be in conflict with Article XIII, Section 1(a),
which provides that "[a]ll property is taxable and shall be
assessed at the same percentage of fair market value."
g) Related legislation : This bill is substantially
identical to SB 1126 (Stone), which was held on the Senate
Appropriations Committee's Suspense File. For additional
discussion of this bill's provisions, please refer to the
Senate analysis prepared for SB 1126.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
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Opposition
None on file
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098