BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 803


                                                                    Page  1





          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  








                                                                     SB 803


                                                                    Page  2





            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.








                                                                     SB 803


                                                                    Page  3







          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:   








                                                                     SB 803


                                                                    Page  4







          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,  








                                                                     SB 803


                                                                    Page  5





            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.









                                                                     SB 803


                                                                    Page  6






          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  








                                                                     SB 803


                                                                    Page  7





            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  








                                                                     SB 803


                                                                    Page  8





            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  








                                                                     SB 803


                                                                    Page  9





            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  








                                                                     SB 803


                                                                    Page  10





            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  








                                                                     SB 803


                                                                    Page  11





            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








                                                                     SB 803


                                                                    Page  12









          Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)  
          319-2098