Senate Bill No. 996

Introduced by Senator Hill

February 10, 2016

An act to amend Section 214 of, and to add Section 214.17 to, the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

SB 996, as introduced, Hill. Property taxation: welfare exemption.

The California Constitution authorizes the Legislature to exempt from taxation property that is used exclusively for religious, hospital, or charitable purposes, and is owned or held in trust by a nonprofit entity. Pursuant to this constitutional authority, existing law partially exempts from property taxation property used exclusively for rental housing and related facilities, if specified criteria are met, including, except in the case of a limited partnership in which the managing general partner is a nonprofit corporation eligible for the exemption, that 90% or more of the occupants of the property are lower income households whose rents do not exceed the rent limits prescribed by a specified law. Existing law limits the total exemption amount allowed to a taxpayer, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of this criterion, to $20,000 of tax.

This bill would increase that total exemption amount allowed to $100,000 of tax, with respect to lien dates occurring on and after January 1, 2017.

This bill would require any outstanding qualified ad valorem tax in excess of the $20,000 limitation, and related interest or penalty, which was levied or imposed on and after January 1, 2013, and before January 1, 2017, with respect to qualified property for which a qualified claim was filed, to be canceled, and any such qualified ad valorem tax, and related interest or penalty levied or imposed that was paid on or before January 1, 2017, to be refunded, to the extent that the amount canceled or refunded does not result in a total exemption amount in excess of $100,000 of tax being allowed to a qualified taxpayer with respect to a single property or multiple properties for any fiscal year. The bill would, on and after January 1, 2017, prohibit an escape assessment from being levied on qualified property if that amount would be subject to cancellation or refund pursuant to this bill.

This bill would make legislative findings and declarations regarding the public purpose served by the bill.

By imposing new duties upon county tax officials with respect to the refund of these property tax payments, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

Section 2229 of the Revenue and Taxation Code requires the Legislature to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.

This bill would provide that, notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 214 of the Revenue and Taxation Code
is amended to read:

214.  

(a) Property used exclusively for religious, hospital,
scientific, or charitable purposes owned and operated by
community chests, funds, foundations, limited liability companies,
or corporations organized and operated for religious, hospital,
scientific, or charitable purposes is exempt from taxation, including
ad valorem taxes to pay the interest and redemption charges on
any indebtedness approved by the voters prior to July 1, 1978, or
any bonded indebtedness for the acquisition or improvement of
real property approved on or after July 1, 1978, by two-thirds of
the votes cast by the voters voting on the proposition, if:

(1) The owner is not organized or operated for profit. However,
in the case of hospitals, the organization shall not be deemed to
be organized or operated for profit if, during the immediately
preceding fiscal year, operating revenues, exclusive of gifts,
endowments and grants-in-aid, did not exceed operating expenses
by an amount equivalent to 10 percent of those operating expenses.
As used herein, operating expenses include depreciation based on
cost of replacement and amortization of, and interest on,
indebtedness.

(2) No part of the net earnings of the owner inures to the benefit
of any private shareholder or individual.

(3) The property is used for the actual operation of the exempt
activity, and does not exceed an amount of property reasonably
necessary to the accomplishment of the exempt purpose.

(A) For the purposes of determining whether the property is
used for the actual operation of the exempt activity, consideration
shall not be given to use of the property for either or both of the
following described activities if that use is occasional:

(i) The owner conducts fundraising activities on the property
and the proceeds derived from those activities are not unrelated
business taxable income, as defined in Section 512 of the Internal
Revenue Code, of the owner and are used to further the exempt
activity of the owner.

(ii) The owner permits any other organization that meets all of
the requirements of this subdivision, other than ownership of the
property, to conduct fundraising activities on the property and the
proceeds derived from those activities are not unrelated business
taxable income, as defined in Section 512 of the Internal Revenue
Code, of the organization, are not subject to the tax on unrelated
business taxable income that is imposed by Section 511 of the
Internal Revenue Code, and are used to further the exempt activity
of the organization.

(B) For purposes of subparagraph (A):

(i) “Occasional use” means use of the property on an irregular
or intermittent basis by the qualifying owner or any other qualifying
organization described in clause (ii) of subparagraph (A) that is
incidental to the primary activities of the owner or the other
organization.

(ii) “Fundraising activities” means both activities involving the
direct solicitation of money or other property and the anticipated
exchange of goods or services for money between the soliciting
organization and the organization or person solicited.

(C) Subparagraph (A) shall have no application in determining
whether paragraph (3) has been satisfied unless the owner of the
property and any other organization using the property as provided
in subparagraph (A) have filed with the assessor a valid
organizational clearance certificate issued pursuant to Section
254.6.

(D) For the purposes of determining whether the property is
used for the actual operation of the exempt activity, consideration
shall not be given to the use of the property for meetings conducted
by any other organization if the meetings are incidental to the other
organization’s primary activities, are not fundraising meetings or
activities as defined in subparagraph (B), are held no more than
once per week, and the other organization and its use of the
property meet all other requirements of paragraphs (1) to (5),
inclusive, of this subdivision. The owner or the other organization
also shall file with the assessor a copy of a valid, unrevoked letter
or ruling from the Internal Revenue Service or the Franchise Tax
Board stating that the other organization, or the national
organization of which it is a local chapter or affiliate, qualifies as
an exempt organization under Section 501(c)(3) or 501(c)(4) of
the Internal Revenue Code or Section 23701d, 23701f, or 23701w.

(E) Nothing in subparagraph (A), (B), (C), or (D) shall be
construed to either enlarge or restrict the exemption provided for
in subdivision (b) of Section 4 and Section 5 of Article XIII of the
California Constitution and this section.

(4) The property is not used or operated by the owner or by any
other person so as to benefit any officer, trustee, director,
shareholder, member, employee, contributor, or bondholder of the
owner or operator, or any other person, through the distribution
of profits, payment of excessive charges or compensations, or the
more advantageous pursuit of their business or profession.

(5) The property is not used by the owner or members thereof
for fraternal or lodge purposes, or for social club purposes except
where that use is clearly incidental to a primary religious, hospital,
scientific, or charitable purpose.

(6) The property is irrevocably dedicated to religious, charitable,
scientific, or hospital purposes and upon the liquidation,
dissolution, or abandonment of the owner will not inure to the
benefit of any private person except a fund, foundation, or
corporation organized and operated for religious, hospital,
scientific, or charitable purposes.

(7) The property, if used exclusively for scientific purposes, is
used by a foundation or institution that, in addition to complying
with the foregoing requirements for the exemption of charitable
organizations in general, has been chartered by the Congress of
the United States (except that this requirement shall not apply
when the scientific purposes are medical research), and whose
objects are the encouragement or conduct of scientific
investigation, research, and discovery for the benefit of the
community at large.

The exemption provided for herein shall be known as the
“welfare exemption.” This exemption shall be in addition to any
other exemption now provided by law, and the existence of the
exemption provision in paragraph (2) of subdivision (a) of Section
202 shall not preclude the exemption under this section for museum
or library property. Except as provided in subdivision (e), this
section shall not be construed to enlarge the college exemption.

(b) Property used exclusively for school purposes of less than
collegiate grade and owned and operated by religious, hospital, or
charitable funds, foundations, limited liability companies, or
corporations, which property and funds, foundations, limited
liability companies, or corporations meet all of the requirements
of subdivision (a), shall be deemed to be within the exemption
provided for in subdivision (b) of Section 4 and Section 5 of Article
XIII of the California Constitution and this section.

(c) Property used exclusively for nursery school purposes and
owned and operated by religious, hospital, or charitable funds,
foundations, limited liability companies, or corporations, which
property and funds, foundations, limited liability companies, or
corporations meet all the requirements of subdivision (a), shall be
deemed to be within the exemption provided for in subdivision
(b) of Section 4 and Section 5 of Article XIII of the California
Constitution and this section.

(d) Property used exclusively for a noncommercial educational
FM broadcast station or an educational television station, and
owned and operated by religious, hospital, scientific, or charitable
funds, foundations, limited liability companies, or corporations
meeting all of the requirements of subdivision (a), shall be deemed
to be within the exemption provided for in subdivision (b) of
Section 4 and Section 5 of Article XIII of the California
Constitution and this section.

(e) Property used exclusively for religious, charitable, scientific,
or hospital purposes and owned and operated by religious, hospital,
scientific, or charitable funds, foundations, limited liability
companies, or corporations or educational institutions of collegiate
grade, as defined in Section 203, which property and funds,
foundations, limited liability companies, corporations, or
educational institutions meet all of the requirements of subdivision
(a), shall be deemed to be within the exemption provided for in
subdivision (b) of Section 4 and Section 5 of Article XIII of the
California Constitution and this section. As to educational
institutions of collegiate grade, as defined in Section 203, the
requirements of paragraph (6) of subdivision (a) shall be deemed
to be met if both of the following are met:

(1) The property of the educational institution is irrevocably
dedicated in its articles of incorporation to charitable and
educational purposes, to religious and educational purposes, or to
educational purposes.

(2) The articles of incorporation of the educational institution
provide for distribution of its property upon its liquidation,
dissolution, or abandonment to a fund, foundation, or corporation
organized and operated for religious, hospital, scientific, charitable,
or educational purposes meeting the requirements for exemption
provided by Section 203 or this section.

(f) Property used exclusively for housing and related facilities
for elderly or handicapped families and financed by, including,
but not limited to, the federal government pursuant to Section 202
of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section
231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of
Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of
Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and
operated by religious, hospital, scientific, or charitable funds,
foundations, limited liability companies, or corporations meeting
all of the requirements of this section shall be deemed to be within
the exemption provided for in subdivision (b) of Section 4 and
Section 5 of Article XIII of the California Constitution and this
section.

The amendment of this paragraph made by Chapter 1102 of the
Statutes of 1984 does not constitute a change in, but is declaratory
of, existing law. However, no refund of property taxes shall be
required as a result of this amendment for any fiscal year prior to
the fiscal year in which the amendment takes effect.

Property used exclusively for housing and related facilities for
elderly or handicapped families at which supplemental care or
services designed to meet the special needs of elderly or
handicapped residents are not provided, or that is not financed by
the federal government pursuant to Section 202 of Public Law
86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public
Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law
90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law
101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption
pursuant to this subdivision unless the property is used for housing
and related facilities for low- and moderate-income elderly or
handicapped families. Property that would otherwise be exempt
pursuant to this subdivision, except that it includes some housing
and related facilities for other than low- or moderate-income elderly
or handicapped families, shall be entitled to a partial exemption.
The partial exemption shall be equal to that percentage of the value
of the property that is equal to the percentage that the number of
low- and moderate-income elderly and handicapped families
represents of the total number of families occupying the property.

As used in this subdivision, “low and moderate income” has the
same meaning as the term “persons and families of low or moderate
income” as defined by Section 50093 of the Health and Safety
Code.

(g) (1) Property used exclusively for rental housing and related
facilities and owned and operated by religious, hospital, scientific,
or charitable funds, foundations, limited liability companies, or
corporations, including limited partnerships in which the managing
general partner is an eligible nonprofit corporation or eligible
limited liability company, meeting all of the requirements of this
section, or by veterans’ organizations, as described in Section
215.1, meeting all the requirements of paragraphs (1) to (7),
inclusive, of subdivision (a), shall be deemed to be within the
exemption provided for in subdivision (b) of Section 4 and Section
5 of Article XIII of the California Constitution and this section
and shall be entitled to a partial exemption equal to that percentage
of the value of the property that is equal to the percentage that the
number of units serving lower income households represents of
the total number of residential units in any year in which any of
the following criteria applies:

(A) The acquisition, rehabilitation, development, or operation
of the property, or any combination of these factors, is financed
with tax-exempt mortgage revenue bonds or general obligation
bonds, or is financed by local, state, or federal loans or grants and
the rents of the occupants who are lower income households do
not exceed those prescribed by deed restrictions or regulatory
agreements pursuant to the terms of the financing or financial
assistance.

(B) The owner of the property is eligible for and receives
low-income housing tax credits pursuant to Section 42 of the
Internal Revenue Code of 1986, as added by Public Law 99-514.

(C) In the case of a claim, other than a claim with respect to
property owned by a limited partnership in which the managing
general partner is an eligible nonprofit corporation, that is filed
for the 2000-01 fiscal year or any fiscal year thereafter, 90 percent
or more of the occupants of the property are lower income
households whose rent does not exceed the rent prescribed by
Section 50053 of the Health and Safety Code. The total exemption
amount allowed under this subdivision to a taxpayer, with respect
to a single property or multiple properties for any fiscal year on
the sole basis of the application of this subparagraph, may not
exceed begin delete twenty end delete begin insert one hundred end insert thousand dollars begin delete ($20,000) end delete begin insert ($100,000) end insert
of tax.

(D) (i) The property was previously purchased and owned by
the Department of Transportation pursuant to a consent decree
requiring housing mitigation measures relating to the construction
of a freeway and is now solely owned by an organization that
qualifies as an exempt organization under Section 501(c)(3) of the
Internal Revenue Code.

(ii) This subparagraph shall not apply to property owned by a
limited partnership in which the managing partner is an eligible
nonprofit corporation.

(2) In order to be eligible for the exemption provided by this
subdivision, the owner of the property shall do both of the
following:

(A) (i) For any claim filed for the 2000-01 fiscal year or any
fiscal year thereafter, certify and ensure, subject to the limitation
in clause (ii), that there is an enforceable and verifiable agreement
with a public agency, a recorded deed restriction, or other legal
document that restricts the project’s usage and that provides that
the units designated for use by lower income households are
continuously available to or occupied by lower income households
at rents that do not exceed those prescribed by Section 50053 of
the Health and Safety Code, or, to the extent that the terms of
federal, state, or local financing or financial assistance conflicts
with Section 50053, rents that do not exceed those prescribed by
the terms of the financing or financial assistance.

(ii) In the case of a limited partnership in which the managing
general partner is an eligible nonprofit corporation, the restriction
and provision specified in clause (i) shall be contained in an
enforceable and verifiable agreement with a public agency, or in
a recorded deed restriction to which the limited partnership
certifies.

(B) Certify that the funds that would have been necessary to
pay property taxes are used to maintain the affordability of, or
reduce rents otherwise necessary for, the units occupied by lower
income households.

(3) As used in this subdivision:

(A) “Lower income households” has the same meaning as the
term “lower income households” as defined by Section 50079.5
of the Health and Safety Code.

(B) “Related facilities” means any manager’s units and any and
all common area spaces that are included within the physical
boundaries of the rental housing development, including, but not
limited to, common area space, walkways, balconies, patios,
clubhouse space, meeting rooms, laundry facilities and parking
areas, except any portions of the overall development that are
nonexempt commercial space.

(C) “Units serving lower income households” shall mean units
that are occupied by lower income households at an affordable
rent, as defined in Section 50053 of the Health and Safety Code
or, to the extent that the terms of federal, state, or local financing
or financial assistance conflicts with Section 50053, rents that do
not exceed those prescribed by the terms of the financing or
financial assistance. Units reserved for lower income households
at an affordable rent that are temporarily vacant due to tenant
turnover or repairs shall be counted as occupied.

(h) Property used exclusively for an emergency or temporary
shelter and related facilities for homeless persons and families and
owned and operated by religious, hospital, scientific, or charitable
funds, foundations, limited liability companies, or corporations
meeting all of the requirements of this section shall be deemed to
be within the exemption provided for in subdivision (b) of Section
4 and Section 5 of Article XIII of the California Constitution and
this section. Property that otherwise would be exempt pursuant to
this subdivision, except that it includes housing and related
facilities for other than an emergency or temporary shelter, shall
be entitled to a partial exemption.

As used in this subdivision, “emergency or temporary shelter”
means a facility that would be eligible for funding pursuant to
Chapter 11 (commencing with Section 50800) of Part 2 of Division
31 of the Health and Safety Code.

(i) Property used exclusively for housing and related facilities
for employees of religious, charitable, scientific, or hospital
organizations that meet all the requirements of subdivision (a) and
owned and operated by funds, foundations, limited liability
companies, or corporations that meet all the requirements of
subdivision (a) shall be deemed to be within the exemption
provided for in subdivision (b) of Section 4 and Section 5 of Article
XIII of the California Constitution and this section to the extent
the residential use of the property is institutionally necessary for
the operation of the organization.

(j) For purposes of this section, charitable purposes include
educational purposes. For purposes of this subdivision,
“educational purposes” means those educational purposes and
activities for the benefit of the community as a whole or an
unascertainable and indefinite portion thereof, and do not include
those educational purposes and activities that are primarily for the
benefit of an organization’s shareholders. Educational activities
include the study of relevant information, the dissemination of that
information to interested members of the general public, and the
participation of interested members of the general public.

(k) In the case of property used exclusively for the exempt
purposes specified in this section, owned and operated by limited
liability companies that are organized and operated for those
purposes, the State Board of Equalization shall adopt regulations
to specify the ownership, organizational, and operational
requirements for those companies to qualify for the exemption
provided by this section.

(l) The amendments made by Chapter 354 of the Statutes of
2004 shall apply with respect to lien dates occurring on and after
January 1, 2005.

begin insert

(m) The amendments made by the act adding this subdivision
shall apply with respect to lien dates occurring on and after
January 1, 2017.

end insert

SEC. 2.  

Section 214.17 is added to the Revenue and Taxation
Code, to read:

214.17.  

(a) For purposes of this section:

(1) “Total exemption amount limitation” means the exemption
amount limitation with respect to a single property or multiple
properties that is specified in subparagraph (C) of paragraph (1)
of subdivision (g) of Section 214, as that section read before
January 1, 2017.

(2) (A) “Qualified property” means property used exclusively
for rental housing and related facilities where 90 percent or more
of the occupants of the property are lower income households
whose rent does not exceed the rent prescribed by Section 50053
of the Health and Safety Code and that qualifies for exemption
under Section 214 on the sole basis of this criteria as specified in
subparagraph (C) of paragraph (1) of subdivision (g) of Section
214.

(B) “Qualified property” does not include property owned by
a limited partnership in which the managing general partner is an
eligible nonprofit organization, as described in subparagraph (C)
of paragraph (1) of subdivision (g) of Section 214.

(3) “Qualified taxpayer” means a taxpayer subject to the total
exemption amount limitation.

(4) “Qualified claim” means a claim for exemption that was
filed for a qualified property with the assessor on and after January
1, 2013, and before January 1, 2017, for which the assessor granted
a partial exemption.

(5) “Qualified ad valorem tax, and related interest, or penalty”
means that portion of ad valorem tax levied to a qualified taxpayer
on qualified property with respect to a single property or multiple
properties that does not exceed one hundred thousand dollars
($100,000) of tax, and any interest or penalty imposed with regard
to that portion of tax.

(b) (1) To the extent that the amount canceled or refunded does
not result in a total exemption amount in excess of one hundred
thousand dollars ($100,000) of tax being allowed to a qualified
taxpayer with respect to a single property or multiple properties
that are qualified property for any fiscal year, each of the following
shall be canceled or refunded as provided:

(A) Any outstanding qualified ad valorem tax in excess of the
total exemption amount limitation, and related interest or penalty,
which was levied or imposed on and after January 1, 2013, and
before January 1, 2017, with respect to a qualified property for
which a qualified claim was filed, shall be canceled.

(B) Any qualified ad valorem tax in excess of the total
exemption amount limitation, and related interest or penalty, which
was levied or imposed on and after January 1, 2013, and before
January 1, 2017, with respect to a qualified property for which a
qualified claim was filed, and paid on or before January 1, 2017,
shall be refunded.

(2) On or after January 1, 2017, an escape assessment shall not
be levied on qualified property if that amount would be subject to
cancellation or refund under paragraph (1).

SEC. 3.  

The Legislature finds and declares that Section 2 of
this act fulfills a statewide public purpose because it addresses
California’s serious shortage of affordable, decent, safe, and
sanitary housing for persons and families of low or moderate
income, including the elderly and handicapped, by providing
necessary property tax relief for certain tax-exempt organizations
so that these tax-exempt organizations can provide this affordable
housing for persons and families of low or moderate income.

SEC. 4.  

If the Commission on State Mandates determines that
this act contains costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to Part 7 (commencing with Section 17500) of Division
4 of Title 2 of the Government Code.

SEC. 5.  

Notwithstanding Section 2229 of the Revenue and
Taxation Code, 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.