BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 803| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 SB 803 Page 2 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. SB 803 Page 3 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, SB 803 Page 4 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 SB 803 Page 5 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 SB 803 Page 6 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. SB 803 Page 7 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 SB 803 Page 8 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 SB 803 Page 9 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 **** END ****