BILL ANALYSIS Ó
SB 690
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Date of Hearing: August 1, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
SB
690 (Stone) - As Amended June 22, 2016
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE: Not relevant
SUBJECT: Property tax: senior and disabled veterans
SUMMARY: Eliminates the property tax inflation adjustment for
the principal place of residence of a "qualified veteran" 65 or
older and grants a full property tax exemption for the principal
place of residence of a disabled veteran whose income does not
exceed $40,000, as specified. Specifically, this bill:
1)Provides that, for any assessment year commencing on or after
January 1, 2017, the taxable value of real property for a
"qualified veteran's" principal place of residence, including
a manufactured home, shall no longer be adjusted annually for
inflation if the following conditions apply:
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a) The "qualified veteran" is 65 years of age or older on
the lien date; and,
b) The "qualified veteran" was honorably discharged from
military service.
2)Defines a "qualified veteran" as a person who meets the
following criteria:
a) He or she meets the criteria for the Veterans' Exemption
specified in the California Constitution [Article XIII,
Section 3(o)], excluding the limitation on the value of
property owned by the veteran or the veteran's spouse; and,
b) His or her annual income, as defined in Revenue and
Taxation Code (R&TC) Section 20504, if single, is $50,000
or less; or his or her household combined annual income, as
defined in R&TC Section 20504, if married, is $100,000 or
less.
3)Requires any claimant of the inflationary adjustment
elimination to provide all information required by an
affidavit furnished by the assessor to determine whether the
claimant is a "qualified veteran." The assessor may require
additional proof of information provided in the affidavit
before granting the claimant the benefit.
4)Expands to a full property tax exemption, for property tax
lien dates on and after January 1, 2017, the partial property
tax exemption currently granted to the principal place of
residence of a veteran if the veteran is blind in both eyes,
has lost the use of two or more limbs, or is totally disabled
as a result of injury or disease incurred in military service,
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and the veteran's household income does not exceed $40,000, as
specified.
5)Makes technical and conforming changes.
6)Provides that, notwithstanding existing law, no appropriation
is made by this act and no reimbursement is required of any
local agency for any property tax revenues lost.
7)Imposes a state-mandated local program, for which
reimbursement to local agencies and school districts shall be
made, as specified.
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
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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
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)Exempts from property tax, in whole or in part, the home of a
veteran who is blind in both eyes, has lost the use of two or
more limbs, or is totally disabled because of injury or
disease incurred in military service. (California
Constitution Article XIII, Section 4; R&TC Section 205.5.)
The disabled veterans' exemption is also available to the
surviving spouse of a person who has died as a result of
service-connected injuries while on active military duty. The
amount of the exemption depends on the claimant's income. The
basic exemption amount is $100,000, adjusted annually for
inflation. For low-income claimants whose household income
does not exceed $40,000, as adjusted, the exemption amount is
$150,000, adjusted annually for inflation. For fiscal year
(FY) 2017-18, the disabled veterans' exemption amount is
$196,262 of assessed value for those with a household income
below $58,754 (the "low-income" exemption), and $130,841 for
all other disabled veterans (the "basic" exemption).
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7)Refers to the constitutional definition of "veteran" to
determine eligibility for the disabled veterans' exemption
from property tax, which includes a person:
a) Who is serving in the U.S. Army, Navy, Air Force,
Marines, Coast Guard, or Revenue Marine Service, or served
in one of the listed services and was discharged under
honorable conditions;
b) Served either in time of war or in time of peace in a
campaign or expedition for which a medal has been issued by
Congress or in time of peace and because of a
service-connected disability was released from active duty;
and,
c) Resides in the State on the current lien date.
(California Constitution Article XIII, Section 3(o); R&TC
Section 205.5.)
8)Requires a disabled veteran to file a claim with the local
county assessor to receive the exemption. (R&TC Section 277.)
9)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 $13.3 million ($7.7 million from
elimination of the inflation adjustment and $5.6 million from
expansion of the exemption).
COMMENTS:
1)Author's Statement : The author has provided the following
statement in support of this bill:
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An issue that is currently plaguing California is the issue
of veterans who are homeless. Veterans have sacrificed
much for their country, and in return, local, state and
federal governments need to do everything in their power to
help them succeed. There is no single solution that will
solve this crisis, as the reasons for the large number of
homeless veterans are complex and numerous. SB 690 is a
small attempt to help the veterans who have sacrificed the
most receive tax relief from the state in order to stay in
their homes. SB 690 caps the inflation for property taxes
for all veterans over the age of 65 who [are] totally
disable[d] and [meet] the income restrictions. Every
dollar saved will help. By making this change, it will go
a long way to helping veterans stay in their homes by
making their living situation more affordable.
2)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.
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b) Base Year Values : A property's "base year value" refers
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) Existing "Disabled Veterans' Exemption" : Existing law
authorizes a property tax exemption for the principal
residence of a disabled veteran or for the unmarried
surviving spouse of a deceased disabled veteran. For
purposes of the exemption, the veteran must have been
discharged under honorable conditions and the disability
rating must be 100%, generally occurring for a veteran who
is blind in both eyes, has lost the use of two or more
limbs, or is totally disabled. This exemption is commonly
referred to as the "disabled veterans' exemption."
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The property tax exemption amount is equal to the assessed
value of the property, up to $100,000. If the household
income does not exceed $40,000, the maximum property tax
exemption is increased to $150,000. The exemption amounts
and income limitation are adjusted annually for the change
in the California Consumer Price Index for all items, as
determined by the California Department of Industrial
Relations. For FY 2017-18, the disabled veterans'
exemption amount is $196,262 of assessed value for those
with a household income below $58,754 (the "low-income"
exemption), and $130,841 for all other disabled veterans
(the "basic" exemption). According to the BOE, 37,653
exemptions were granted in FY 2015-16, with 33,196 at the
basic exemption amount and 4,457 at the low-income
exemption amount.
The exemption is only available on a veteran's principal
place of residence. The eligible veteran must file a
timely claim with the county assessor by the specified
deadlines to receive the full amount of the property tax
exemption. Since the home may only receive one property
exemption, if a homeowners' exemption has been granted on a
property and the owner subsequently qualifies for the
disabled veterans' exemption, the homeowners' exemption is
generally cancelled to allow for the disabled veterans'
exemption as it provides the greater benefit.
d) Purpose of this Bill - Increased Property Tax Relief for
Senior and Disabled Veterans : This bill is designed to
provide property tax relief to homeowners honorably
discharged from military service in two ways: (i) by
eliminating the property tax inflation adjustment for
senior veterans, and (ii) by granting a full property tax
exemption to certain disabled veterans.
For any assessment year beginning on or after January 1,
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2017, this bill provides that the assessed value of a
"qualified veteran's" principal place of residence will be
frozen once the owner turns 65, preventing property taxes
from rising with inflation. In order to benefit from this
provision of this bill, the "qualified veteran's" annual
household income must be $50,000 or less if single or
$100,000 or less if married. In order to claim this
benefit, this bill requires the taxpayer to provide all
information required by an affidavit furnished by the
county assessor to determine that the claimant is a
qualified veteran.
For any assessment year beginning on or after January 1,
2017, this bill also provides that a veteran currently
eligible for the low-income disabled veterans' exemption
will be granted a full exemption from property tax instead
of the partial exemption amount equal to $150,000 of the
property's assessed value.
e) Income-Testing : The property tax relief provided by
this bill only applies to senior or disabled veterans below
certain income thresholds. Generally, property tax
exemptions do not depend on the taxpayer's income, with the
different basic and low-income disabled veterans' exemption
amounts being the exception to the norm.
The full property tax exemption proposed for disabled
veterans expands upon current law that already provides an
enhanced exemption for disabled veterans with household
incomes of $58,754 or less. In order to claim the disabled
veterans exemption, the claimant must fill out a form
furnished by the county assessor. Claimants of the basic
exemption only need to complete the form once, while
claimants of the low-income exemption must complete the
form annually to ensure the veteran continues to meet the
household income limit.
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Elimination of the inflation adjustment proposed for senior
veterans would only apply to those with annual household
incomes of $50,000 or less if single, or $100,000 or less
if married, which are different income thresholds than that
for the disabled veterans' exemption as currently exists
and as proposed to be expanded. Because county assessors
do not possess income information for property owners, this
bill would also require the taxpayer to provide the
assessor with a new affidavit attesting to his or her
eligibility. It is not clear, however, whether this
affidavit would have to be submitted annually given that a
taxpayer's income may fluctuate over time. Adding
additional income-based factors to property tax
administration complicates assessment uniformity. This
Committee may wish to consider whether this expansion of
property tax benefits should depend on taxpayers' income,
requiring assessors to verify taxpayers' private financial
matters unrelated to property value, and whether such a
limitation is warranted given the potential administrative
costs involved with implementation.
f) Existing Property Tax Relief Provisions for California
Seniors and Veterans : Beyond the protections afforded by
Proposition 13, California seniors and veterans 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, the
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
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program is scheduled to resume later this year. This
program, administered by the State Controller, will allow
income eligible individuals with a disability or at least
62 years of age to postpone property tax payments on their
principal residence.
The California Constitution also provides for a Veterans'
Exemption that applies to any property owned by a person
who serves or has served in the military, but it is almost
effectively obsolete as individuals with property valued at
$5,000 or more ($10,000 or more for a married couple) are
disqualified from the exemption. 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. 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 Veterans'
Exemption, or re-establish a rebate program to assist
qualified homeowners.
g) Questions of Constitutional Authority and
Interpretation : With regard to the provision of this bill
to eliminate the inflation adjustment for senior veterans,
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:
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The full cash value base may reflect from year to year
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.
Moreover, the BOE staff analysis notes that it is unclear
whether this bill's provisions could potentially be in
tension 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."
f) Technical Amendments : Committee staff recommends the
following technical amendments:
i) On Page 4, Line 26, insert "household" between
"annual" and "income";
ii) On Page 4, Line 27, strike "less than fifty thousand
dollars" and insert "fifty thousand dollars or less";
iii) On Page 4, Line 29, insert "annual" between "her"
and "household";
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iv) On Page 4, Line 30, strike "combined annual";
v) On Page 4, Lines 30-31, strike "less than one
hundred thousand dollars" and insert "one hundred
thousand dollars or less";
vi) On Page 6, Line 27, replace "paragraph (1)" with
"subparagraph (A)"; and,
vii) On Page 10, Line 38, strike "combined".
g) Related Legislation :
i) SB 1104 (Stone) was substantially similar to this
bill, except that SB 1104 would have also provided a full
property tax exemption for disabled veterans currently
eligible for the basic exemption. SB 1104 was held on
the Senate Appropriations Committee's Suspense File.
ii) SB 1126 (Stone) would have eliminated the annual
inflation adjustment for the principal place of residence
of an income-eligible ($25,000 or less if single; $50,000
or less if married) taxpayer 65 years of age or older.
SB 1126 was held on the Senate Appropriations Committee's
Suspense File. SB 587 (Stone) was subsequently gutted
and amended to reflect the contents of SB 1126; SB 587
will be heard by this Committee today.
iii) SB 1458 (Bates) allows the Disabled Veterans'
Exemption to be claimed by a person who has been
discharged in other than dishonorable conditions and has
been determined by the United States Department of
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Veterans Affairs to be eligible for federal veterans'
health and medical benefits. SB 1458 is pending hearing
by the Assembly Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
Analysis Prepared by:Irene Ho / REV. & TAX. / (916)
319-2098