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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