BILL ANALYSIS                                                                                                                                                                                                    Ó



          6SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
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          |Bill No:  |SB 803                           |Hearing    |4/29/15  |
          |          |                                 |Date:      |         |
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          |Author:   |Committee on Governance and      |Tax Levy:  |No       |
          |          |Finance                          |           |         |
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          |Version:  |3/24/15                          |Fiscal:    |Yes      |
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          |Consultant|Grinnell                                              |
          |:         |                                                      |
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                                   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  







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          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  








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          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.









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          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  








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          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


           









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          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  : 



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