BILL ANALYSIS Ó
SB 803
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Date of Hearing: July 13, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
SB
803 (Committee on Governance and Finance) - As Amended June 29,
2015
Majority vote. Fiscal committee.
SENATE VOTE: 36-0
SUBJECT: Property taxation.
SUMMARY: Makes technical, noncontroversial changes to property
tax law to improve property tax administration and respond to
recent litigation. Specifically, this bill:
1)Eliminates the existing methodology for assessing the
possessory interest for property owned and leased by the
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California State Teachers' Retirement System (CALSTRS), and
instead directs assessors to value possessory interest in
accordance with regulations adopted by the Board of
Equalization (BOE) for the valuation of taxable possessory
interest.
2)Adds the pro rata interest in resident-owned floating home
marinas and mobile home parks to the list of legal entity
changes eligible for the parent-child transfer.
3)Provides that a request for assessment made four years
following the date the property was acquired by eminent domain
or purchase, or the date of judgment of inverse condemnation
become final, shall apply commencing with the lien date of
assessment year in which the request is made. There shall be
no refund or cancellation of taxes prior to the date that the
request is made. The assessor shall adjust the base year
value of the replacement property acquired in accordance with
this section and make adjustments for inflation and any
subsequent new construction occurring with respect to the
subject real property.
4)Extends the sunset for the codified assessment valuation
methodology used by assessors to value intercounty pipeline
rights-of-way until January 1, 2021.
5)Deletes existing penalties and collections provisions for
unpaid taxes on intercounty pipeline rights-of-way and instead
provides that taxes unpaid on the default date shall be
transferred to the unsecured roll along with any penalty and
costs.
6)Corrects cross-references related to the assessment of
property under the Williamson Act.
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7)Extends change of ownership filing requirements and penalties
to owners of floating homes.
8)Requires an assessor to publish, on or before November 1 of
each year, a notice specifying the dates on when the taxes on
the secured role will be due, the times when these taxes will
be delinquent, the penalties and costs for delinquency, that
all taxes may be paid when the first installment is due, and
the times and places at which payment of taxes may be made.
9)Specifies that a defense based on the alleged invalidity or
irregularity of any proceeding can be maintained only in a
proceeding commenced within one year after the date of
execution of the tax collector's deed or within one year of
the date the board of supervisors determines that a tax deed
sold should not be rescinded, whichever is later.
10)Provides that no reimbursement is required by this act for
certain costs that may be incurred by a local agency or school
district because, in that regard, this act creates a new crime
or infraction, eliminates a crime or infraction, or changes
the penalty for a crime or infraction, or changes the
definition of a crime. However, if the Commission on State
Mandates determines that this act contains other costs
mandated by the state, reimbursement to local agencies and
school districts for those costs shall be made.
11)Provides that no appropriation is made by this act and the
state shall not reimburse any local agency for any property
tax revenues lost by it pursuant to this act.
EXISTING LAW:
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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
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 (R&TC) Section 63.1.)
b) Allows tenants to purchase mobile home parks (R&TC
Section 62.1) and floating home marinas (R&TC Section 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 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.
4)Imposes the possessory interest tax on independent, durable,
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and exclusive real property interests located on
publicly-owned land. Establishes 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. BOE is allowed to enact
rules, regulations, and other advice for assessors, including
regarding the valuation of possessory interests.
5)Allows counties to choose between several methodologies for
assessors to value land enrolled in the California Land
Conservation Act, known as the Williamson Act. 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 (GC) Section
16142(a), 80% for prime commercial rangeland, and 90% for
non-prime agricultural land in GC Section 16142(b).
6)Requires the tax collector to publish a notice, with specified
information regarding the payment of taxes "on or before the
date taxes are payable."
7)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. Additionally, a person challenging the sale
is required 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. A defense
can only be maintained for one year after the execution date
of the deed as part of the tax sale.
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8)Directs assessors to value intercounty pipeline rights-of-way
according to a codified assessment valuation methodology. A
value based on the density classification of the pipeline on a
per-mile basis is rebuttably presumed to be correct. 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. The
intercounty pipeline rights-of-way methodology sunset on
January 1, 2016.
FISCAL EFFECT: The BOE estimates no revenue impact.
COMMENTS:
1)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 CALSTRS does not 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
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the building's full cash value, and then applied the
appropriate rate. Recently, a taxpayer challenged the method
of calculation and the Court found the method of calculation
to be unconstitutional. (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 does not 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. This bill
eliminates the assessment methodology the Court found
unconstitutional, and instead directs assessors to value
possessory interests in CALSTRS in accordance with BOE
regulations. Unfortunately, as currently drafted, this bill
may provide an unconstitutional delegation of legislative
authority. In order to prevent such a delegation, the
Committee may wish to specify the specific regulation which
provides the method of valuation.
2)Code Maintenance : Real property transferred from parents to
children is generally excluded from change of ownership
reassessment upon timely filing a claim, but the exemption
usually does not apply for changes in legal entities, such as
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
interest in the project that a parent transfers to a child is
not reassessed. While existing law allows for parent-child
transfers in legal entities for cooperative housing, mobile
home parks and floating home marinas are not explicitly
listed. The exclusion is allowed by more general language in
the code sections that allow tenants to purchase mobile home
parks and floating home marinas without reassessment. This
bill explicitly adds to the list of legal entity changes
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eligible for the parent-child transfer in under R&TC Section
63.1, the pro rata ownership interest in resident-owned
floating home marinas and mobile home parks. Additionally,
this bill extends change of ownership filing requirements and
penalties to owners of floating homes.
3)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's 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, in Olive Lane Industrial Park, LLC v.
County of San Diego (2014, D063337), the Court ruled that
denying the transfer based on missing the filing deadline
conflicted with the Constitution's exclusion. 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 and did not file the claim until five- and
one-half years after that date is entitled to apply the
transfer after filing the request. The Court reasoned that
the constitutional exclusion does not 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, this bill 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
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request after the four-year deadline. However, this bill
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.
As currently drafted, a homeowner who purchases a replacement
property two months after the original property was taken and
waits an additional four years to file a request for
reassessment is barred from receiving a refund or cancellation
of taxes prior to the date that the request is made. Late
requests for assessments may occur for several reasons but
many individuals may simply not be made aware or understand
that their replacement properties are eligible for a base-year
value transfer. As such, this bill provides a serious penalty
for property owners who request a reassessment years after
purchasing a replacement property. As a way of mitigating the
financial penalty, the Committee may wish to apply a
four-year, look-back period from the date the filing for
reassessment is made.
4)Intercounty pipeline rights-of-way : Assessors value
intercounty pipeline rights-of-way according to a codified
assessment valuation methodology, 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 Court 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
extended the methodology twice, and is currently set to expire
on January 1, 2016. This bill extends the methodology five
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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.
This bill deletes that language and instead provides that
taxes unpaid on the default date, plus penalties and costs,
shall be transferred to the unsecured roll because rights of
way cannot be treated like real property for collection
purposes. The change would treat these rights-of-way similar
to BOE assessed unitary property and oil and gas rights.
5)Cross Reference : 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 does not appropriately refer
to these land types because the Legislature changed the
references when it enacted SB 649 (Costa), Chapter 1019,
Statutes of 1999, relating to farmland security zones. This
bill updates the cross-references.
6)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 have not been updated, leading to inefficiencies.
Specifically, R&TC Section 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
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coordinating with tax collectors. Some tax collectors have
interpreted this section to mean that they are unable accept
payments taxpayers remit until the county Web site
administrator posts the notice. This bill 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.
7)Maintenance of Defense in Tax Sales : Existing law 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. However,
existing law provides that a defense can only be maintained
for one year after the execution date of the deed, and does
not take into account subsequent changes. This bill allows
the defense to be maintained for challenges initiated one year
after the board's rejection of the rescission petition
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
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Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)
319-2098