BILL ANALYSIS Ó 6SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 803 |Hearing |4/29/15 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Committee on Governance and |Tax Levy: |No | | |Finance | | | |----------+---------------------------------+-----------+---------| |Version: |3/24/15 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Grinnell | |: | | ----------------------------------------------------------------- PROPERTY TAXATION Makes seven changes to property tax administration law. Background, Existing Law, and Proposed Law In 1850, the Legislature first directed county assessors to tax property; however, assessors in different counties often applied different tax rates and methods of assessment. The California Constitution of 1879 created BOE to equalize rates and assessment practices among counties, and state law directs BOE to oversee county assessors. BOE annually reviews property tax statutes and makes recommendations to the Legislature for changes to aid property tax administration, or respond to recent litigation. Additionally, county treasurer-tax collectors, who administer property tax billing, collection, and property tax sales at the county level, make similar recommendations to improve implementation of property tax law. I. Code consistency. Real property transferred from parents to children is generally excluded from change of ownership reassessment upon timely filing a claim, but the exemption usually doesn't apply for changes in legal entities, like corporations or partnerships. One specific exception is for parent-child transfers in legal entities in resident-owned floating home marinas and mobile home parks, as well as cooperative housing, where the pro rata share of the legal SB 803 (Committee on Governance and Finance) 3/24/15 Page 2 of ? interest in the project that a parent transfers to a child isn't reassessed. While Revenue and Taxation Code § 63.1 allows for parent-child transfers in legal entities for cooperative housing, mobile home parks and floating home marinas are not explicitly listed; instead, the exclusion is allowed by more general language in the code sections that allow tenants to purchase mobile home parks (§62.1) and floating home marinas (§65) without reassessment. Senate Bill 803 explicitly adds to the list of legal entity changes, eligible for the parent-child transfer in §63.1 the pro rata ownership interest in resident-owned floating home marinas and mobile home parks. II. Eminent domain base year value transfers. Another exclusion from change of ownership reassessment exists for base-year value transfers for taxpayers, who have property taken or purchased by a public agency. A taxpayer who has property purchased or taken by a public agency in an eminent domain, or inverse condemnation proceeding can transfer the original property's base year value and apply it to a new property, starting with the first month after the taxpayer purchases the replacement property. When the voters enacted this exclusion in the California Constitution with Proposition 3 in 1982, the Legislature required affected taxpayers to request the transfer within four years as part of the implementing statute. BOE rule also requires the taxpayer to identify the replacement property as part of the request for the transfer, and that the taxpayer must make a timely filed request. Recently, the Fourth District Court of Appeals ruled that denying the transfer based on missing the filing deadline conflicted with the Constitution's exclusion in Olive Lane Industrial Park, LLC v. County of San Diego (2014, D063337). The Court ruled that a taxpayer who had property taken by eminent domain and purchased replacement property within four years of the date of the taking, but didn't file the claim until five and a half years after that date, should've been entitled to apply the transfer after filing the request. The Court reasoned that the Constitutional exclusion doesn't contain any deadlines, the Legislature has allowed taxpayers to obtain relief when taxpayers file request for other Constitutional property tax exclusions filed after the deadline, and the deadline undermines the purpose of the Constitutional exclusion. In response to the Court's decision, SB 803 requires the transfer be applied on the lien date of the assessment year, in which the taxpayer files the request if the taxpayer filed the request after the four-year deadline. However, the measure SB 803 (Committee on Governance and Finance) 3/24/15 Page 3 of ? precludes cancellations of taxes or refunds for taxpayers who do not file the request before the four-year deadline, which assessors can grant to taxpayers who file the request before the deadline. The bill additionally provides that the assessor should adjust the value of the property for inflation, as well as any changes in ownership after applying the transfer. III. Possessory interests in CALSTS properties. The California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law. The possessory interest tax is imposed on real property interests located on public land that are independent, durable, and exclusive, all terms defined by statute and case law. Basically, private interests on federal land, such as a vacation cabin on Forest Service land, are subject to the possessory interest tax, because the taxpayer "possesses" interests in the property despite not owning it. As a public agency, the California State Teachers' Retirement System (CALSTRS) doesn't pay property taxes, so its tenants such as coffee shops and restaurants pay the possessory interest tax instead. In 1992, the Legislature created a different methodology for valuing possessory interests on tenants in buildings owned by CALSTRS (SB 1687, Greene). The assessor determined each tenant's possessory interest tax by calculating each tenant's share of the building on a square footage basis, multiplied that share by the building's full cash value, and then applied the appropriate rate. Recently, a taxpayer challenged this method, and the Second District Court of Appeals deemed it unconstitutional in CALSTRS v. County of Los Angeles (2013, B225245). The Court reasoned that the possessory interest tax applies to the lessee's right to possess the real property for a specified period, but doesn't account for CALSTRS's reversionary interest, or its right to possess the property at a future date, thereby imposing a tax that exceeds the taxpayer's full market value of the possessory interest. Additionally, the court stated that to base the tenant's share of the tax based on the building's full cash value amounted to taxing exempt property owned by a public agency. Senate Bill 803 responds to the case by striking the assessment methodology the Court found constitutionally defective, and instead directs assessors to value possessory interests in CALSTRS in accordance with BOE regulations. SB 803 (Committee on Governance and Finance) 3/24/15 Page 4 of ? IV. Cross references. Currently, counties can choose between several methodologies for assessors to value land enrolled in the California Land Conservation Act, known as the Williamson Act. One method, the "percentage of base year value," directs the assessor to multiply the factored base year value of the property by a percentage to determine its assessed value, with the percentage differing based on the kind of land: 70% for prime agricultural land, 80% for prime commercial rangeland, and 90% for other kinds of land. However, the code section that sets reimbursement amounts doesn't appropriately refer to these land types because the Legislature changed the references when it enacted farmland security zones (SB 649, Costa, 1999). SB 803 updates the cross references. V. Property tax payment date. Information technology has allowed tax collector's offices to publish tax information electronically instead of using paper methods. However, some statutes haven't been updated, leading to inefficiencies. Among these, Revenue and Taxation Code §2609 provides that the tax collector must publish a notice, with specified information regarding the payment of taxes "on or before the date taxes are payable." However, counties now post these notices on the internet, instead of the tax collector, often without coordinating with tax collectors. Some tax collectors have interpreted this section, to mean that they can't accept payments taxpayers remit until the county website administrator posts the notice. Senate Bill 803 replaces the phrase "before the date taxes are payable" with "November 1st," the first day taxes are due and payable, to ensure tax collectors can accept payments starting on November 1st. VI. Maintenance of defense in tax sales. Revenue and Taxation Code §3725 requires persons challenging tax sales in court to do so within one year of the date of the execution of the tax collector's deed. In 2011, the Legislature amended the section to additionally require the person to first petition the board of supervisors to rescind the sale within one year before going to court, and reset the time restriction for a challenge to one year after the date the board rejects the rescission petition (AB 261, Dickinson, 2011). However, §3726 provides that a defense can only be maintained for one year after the execution date of the deed, and doesn't take into account AB 261's changes. SB 803 additionally allows the defense to be maintained for challenges initiated one year after the board's SB 803 (Committee on Governance and Finance) 3/24/15 Page 5 of ? rejection of the rescission petition. VII. Intercounty pipeline rights-of-way. Assessors value intercounty pipeline rights-of-way according to a codified assessment valuation methodology (AB 1286, Takasugi, 1996), which reflected an agreement between assessors and intercounty pipeline right-of-way owners after litigation transferred the assessment duty from BOE to assessors in 1993 in Southern Pacific Pipe Lines, Inc. v. State Board of Equalization,( 14 Cal.App.4th 42). Before the case, BOE assessed the pipelines, necessary operational equipment, land, and rights-of-way, but the Fourth District Court of Appeals held that assessors must value the land and rights-of-way because the Constitution only directs the BOE to assess pipelines. Essentially, assessors determine value based on the density classification of the pipeline on a per-mile basis, and that value is rebuttably presumed to be correct. The Legislature has extended the methodology twice, and it's set to expire again on January 1, 2016. (AB 2612, Brewer, 2000, and SB 1494, Committee on Revenue and Taxation, 2010). Senate Bill 803 extends the methodology five years until January 1, 2021. Additionally, current law provides that any unpaid taxes on intercounty pipeline rights-of-way are subject to the same penalties and collections provisions for all property taxes. Senate Bill 803 deletes that language, instead providing that taxes unpaid on the default date plus penalties and costs shall be transferred to the unsecured roll because rights of way can't be treated like real property for collection purposes, as the tax collector can neither issue liens nor sell them at tax sales, so they shouldn't be treated as such by being on the secured roll. The change would treat these rights-of-way similar to BOE assessed unitary property and oil and gas rights. State Revenue Impact Pending SB 803 (Committee on Governance and Finance) 3/24/15 Page 6 of ? Comment Purpose of the bill: SB 803 consolidates seven technical, noncontroversial changes to property tax law recommended by the State Board of Equalization and the California Association of County Treasurer Tax Collectors to improve property tax administration and respond to recent litigation. Consolidating several consensus items into a single bill conserves legislative resources. Senate Rule 23 requires all members of the Committee to sign Committee Bills prior to introduction, so SB 802 can only contain items with universal agreement; should anyone object to a provision in the measure, it will be removed. Support and Opposition 4/23/15 Support : State Board of Equalization, California Association of County Treasurer-Tax Collectors. Opposition : -- END --