BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                        SB 803|
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                                      CONSENT 


          Bill No:  SB 803
          Author:   Committee on Governance and Finance  
          Introduced:3/24/15  
          Vote:     21  

           SENATE GOVERNANCE & FIN. COMMITTEE:  6-0, 4/29/15
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley
           NO VOTE RECORDED:  Moorlach

          SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

           SUBJECT:   Property taxation


          SOURCE:    Board of Equalization
                     California Association of County Treasurer-Tax  
          Collectors


          DIGEST:  This bill makes seven changes to property tax  
          administration law.


          ANALYSIS:   


          Existing law:


          1)Excludes from change of ownership reassessment real property  
            transferred from parents to children upon timely filing a  
            claim, but the exemption usually doesn't apply for changes in  
            legal entities, like corporations or partnerships, except for  
            transfers in legal entities that own any of the below  
            properties.   In these cases, 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:


             a)   Exempts from reassessment parent-child transfers in  
               legal entities for cooperative housing (Revenue and  
               Taxation Code § 63.1).


             b)   Allows tenants to purchase mobile home parks (R&T§62.1)  
               and floating home marinas (R&T §62.5) without reassessment,  
               and additionally allows any other exclusion to apply.


          2)Allows taxpayers who have property taken or purchased by a  
            public agency to transfer their base-year values to a  
            replacement property, starting with the first month after the  
            taxpayer purchases the replacement property.  Taxpayers must  
            request the transfer within four years as part of the  
            implementing statute, but Board of Equalization (BOE) Rules  
            require the taxpayer to identify the replacement property as  
            part of the request for the transfer, and direct the taxpayer  
            to make a timely filed request for the assessor to grant the  
            transfer.


          3)Provides that all property is taxable unless explicitly  
            exempted by the Constitution or federal law.


             a)   Imposes the possessory interest tax on independent,  
               durable, and exclusive real property interests located on  
               publicly-owned land.


             b)   Sets forth a specific methodology for valuing the  
               possessory interests of tenants in buildings owned by the  
               California State Teachers' Retirement System (CALSTRS),  
               valuing 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 applying the appropriate rate.








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             c)   Allows BOE to enact rules, regulations, and other advice  
               for assessors, including regarding the valuation of  
               possessory interests.


          4)Allows counties to choose between several methodologies for  
            assessors to value land enrolled in the California Land  
            Conservation Act, known as the Williamson Act.  


             a)   Under the "percentage of base year value" method,  
               directs assessors 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, as defined in  
               Government Code 16142 (a), 80% for prime commercial  
               rangeland, and 90% for non-prime agricultural land in GC  
               16142 (b).  


             b)   Defines "prime agricultural land," in Government Code  
               16142 (a)(1) and "non-prime agricultural land" in 16142  
               (b)(1).


          5)Requires the tax collector to publish a notice, with specified  
            information regarding the payment of taxes "on or before the  
            date taxes are payable."


          6)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.


             a)   Additionally requires the person challenging the sale 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,  








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               Chapter 288, Statutes of 2011).  


             b)   Provides that a defense can only be maintained for one  
               year after the execution date of the deed as part of the  
               tax sale.


          7)Directs assessors value intercounty pipeline rights-of-way  
            according to a codified assessment valuation methodology.


             a)   States that a value based on the density classification  
               of the pipeline on a per-mile basis is rebuttably presumed  
               to be correct.


             b)   Provides that any unpaid taxes on intercounty pipeline  
               rights-of-way are on the secured roll, and thereby subject  
               to the same penalties and collections provisions for all  
               real property taxes.


             c)   Sunsets the intercounty pipeline rights-of-way  
               methodology on January 1, 2016.


          This bill:


          1)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.


          2)Requires that the assessor apply a base-year value transfer  
            resulting from eminent domain 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.  


             a)   Precludes cancellations of taxes or refunds for  








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               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.  


             b)   Provides that the assessor should adjust the value of  
               the property for inflation, as well as any changes in  
               ownership, after applying the transfer.


          3)Strikes the assessment methodology to value possessory  
            interests in CALSTRS, and instead directs assessors to value  
            these interests in accordance with BOE regulations.


          4)Corrects erroneous cross references for the "percentage of  
            base year value" method for valuing land enrolled in the  
            California Land Conservation Act.


          5)Replaces "before the date taxes are payable" with "November  
            1st" for purposes of the tax collector publishing a notice  
            regarding property tax payments.


          6)Allows tax collectors to maintain a defense to tax sale for  
            challenges initiated for one year after the board of  
            supervisor's rejection of the rescission petition.  


          7)Extends the methodology to value intercounty pipeline  
            rights-of-way until January 1, 2021, and provides that unpaid  
            taxes on the default date plus penalties and costs shall be  
            transferred to the unsecured roll.


          Comments


          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  








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          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, make similar recommendations to improve implementation of  
          property tax law.  SB 803 includes suggestions from both.


          Provision #1 adds exclusions allowed by two other parts of the  
          law into the foundational section on parent-child transfers.


          Provision #2 responds to a recent Fourth District Court of  
          Appeals ruling in Olive Lane Industrial Park, LLC v. County of  
          San Diego (2014, D063337) in the case of 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.  The  
          Court ruled that the assessor wrongfully denied the exemption  
          claim because 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.


          Provision #3 responds to a recent Second District Court of  
          Appeals decision that held unconstitutional the methodology for  
          valuing possessory interests of tenants in CALSTRS-owned  
          buildings 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.








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          Provision #4 corrects an erroneous cross-reference.


          Provision #5 changes the law to account for counties now posting  
          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.


          Provision #6 extends the period of time for tax collectors to  
          maintain a defense to a tax sale to account for AB 261's change  
          that requires a petition first be filed with the county board of  
          supervisors before proceeding to Court.  


          Provision #7 extends the sunset on the methodology assessors use  
          to value intercounty pipeline rights-of-way, first enacted in  
          1996 (AB 1286, Takasugi, Chapter 76, Statutes of 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 before, and it's set to expire again on  
          January 1, 2016. (AB 2612, Brewer, Chapter 206, Statues of 2000,  
          and SB 1494, Committee on Revenue and Taxation, Chapter 654,  
          Statutes of 2010).  


          Additionally, current law provides that any unpaid taxes on  
          intercounty pipeline rights-of-way are subject to the same  








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          penalties and collections provisions for all property taxes.   
          However, 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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes








          SUPPORT:   (Verified5/12/15)


          Board of Equalization (co-source)
          California Association of County Treasurer-Tax Collectors  
          (co-source)


          OPPOSITION:   (Verified5/12/15)


          None received


          ARGUMENTS IN SUPPORT:      According to the author, 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 803 can only contain items with  








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          universal agreement; should anyone object to a provision in the  
          measure, it will be removed.  
           
          Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119
          5/13/15 16:07:03


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