BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 1104 |Hearing |5/4/16 |
| | |Date: | |
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|Author: |Stone |Tax Levy: |Yes |
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|Version: |2/17/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Property tax: senior and disabled veterans
Eliminates the inflation adjustment for the principal place of
residence of veteran taxpayer over the age of 65; Expands to a
full exemption the current partial Disabled Veterans' property
tax exemption.
Background
The California Constitution provides that all property is
taxable unless explicitly exempted by the Constitution or
federal law. The Constitution limits the maximum amount of any
ad valorem tax on real property at 1% of full cash value, plus
any locally-authorized bonded indebtedness, and provides that
assessors can only reappraise property whenever it is purchased,
newly constructed, or when ownership changes (Proposition 13,
1978).
Growth limitation. State law implementing Proposition 13
generally sets a property's value as its price when purchased or
when ownership changed, plus an annual inflation factor,
calculated by the Department of Industrial Relations using the
California Consumer Price Index for all items. For example, a
home purchased in 2011 for $300,000, has a maximum taxable base
year value of $306,000 in 2012, $312,200 in 2013, $318,440 in
2014, $325,808 in 2015, and $332,324 in 2016. This base year
value is then multiplied by the appropriate rate (usually 1%,
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but can be slightly more) to determine tax due. Reassessment
limits and capped inflation growth ensure a predictable, slowly
growing tax obligation for the taxpayer, and predictable revenue
for local agencies; however, these limits may also result in a
taxable base year value below the property's fair market value,
which grows in magnitude the longer the assessor hasn't
reassessed the property. In most cases, this system results in
shifting the cost of public services from incumbent homeowners
onto individuals who recently purchased property.
Disabled Veterans' Exemption. The Constitution allows the
Legislature to partially or wholly exempt from property tax the
value of a disabled veteran's principal place of residence if
the veteran has lost one or more limbs, is totally blind, or is
totally disabled, as a result of a service-connected injury.
This is known as the "disabled veterans' exemption." The
Constitution provides that disabled veteran taxpayers, or
unmarried surviving spouses of persons who die while on active
duty, must apply the exemption instead of, but not in
combination with, other real property exemptions.
Unlike the homeowners' exemption, the state does not backfill
property tax revenue losses resulting from taxpayers applying
the exemption. According to the Board of Equalization (BOE),
the number of taxpayers claiming the exemption has increased
from 8,483 to 37,653 between 1990 and 2015, an increase of 344%.
San Diego (5,391), San Bernardino (3,732), and Sacramento
(2,422) are the counties with the most taxpayers claiming the
exemption.
State law implementing the exemption doesn't fully exclude the
property value from property tax, instead it allows a partial
exemption of $100,000 for disabled veteran taxpayers with
household income of more than $40,000, or $150,000 for income
lower than that amount, with each threshold adjusted for
inflation by the Department of Industrial Relations using the
California Consumer Price Index for all items. The current
inflation adjusted value is $127,410 for disabled veterans with
income of more than $57,258, and $191,266 for those with less
than that amount.
The author wants to grant additional property tax benefits by
disconnecting the inflation factor for taxpayers qualifying for
the veterans' exemption in the California Constitution, and
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expand the current partial disabled veterans' exemption
conditioned on income into a full exemption.
Proposed Law
Senate Bill 1104 makes two changes to property tax law:
Growth limitation. SB 1104 disconnects the inflation factor for
the principal place of residence of taxpayers over the age of 65
who were honorably discharged from military service for any
assessment year on or after either January 1, 2017, or the
taxpayer's 65th birthday, whichever is later. As such, the
measure would freeze the veteran taxpayer's base year value at
its current amount until newly construction or a change in
ownership occurs.
Disabled veterans' exemption. SB 1104 enacts a full exemption
from property tax for the principal place of residence of
qualifying disabled veterans to replace the current partial
exemption, commencing with lien date for the 2017-18 fiscal
year.
The bill also makes technical and conforming changes.
State Revenue Impact
According to BOE, the measure's growth limitation provisions
result in annual property tax revenue losses of $9.7 million,
while its disabled veteran exemption expansion results in
potential annual property tax revenue losses of $65.9 million.
Comments
1. Purpose of the bill . According to the author, "An issue that
is currently plaguing California is the issue of veterans who
are homeless. Veterans have sacrificed much for their country,
and in return, local, state and federal governments need to do
everything in their power to help them succeed. According to
the National Coalition for Homeless Veterans, homeless veterans
are younger on average than the total veteran population.
Approximately 9% are between the ages of 18 and 30, and 41% are
between the ages of 31 and 50. On top of that, about 1.4
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million other veterans are considered at risk of homelessness.
There is no single solution that will solve this crisis.
Reasons for the large number of homeless veterans are complex
and numerous. Two of the biggest factors are the extreme
shortage of affordable housing and livable income. SB 1104
attempts to address the affordable housing issue for veterans by
capping the property taxes on any primary residence of an
honorably discharged veteran over the age of 65, and exempting
the property tax of all disabled veterans living in their
primary residence. By making these two changes, it will go a
long way to helping veterans stay in their homes by making their
living situation more affordable."
2. Too many benefits ? Proposition 13 provided property owners
in California with substantial protections from higher property
tax rates and annual reassessments. However, California already
has the lowest property tax rates and most taxpayer-friendly
reassessment triggers of almost any state in the nation, thereby
providing significant benefits to property owners, especially
those that have been in their homes for many years. SB 1104
expands those benefits to freeze their base year values at their
current amounts for qualifying veterans currently over the age
of 65, and in the future for veterans when they turn 65. The
Committee may wish to consider whether this tax benefit is
necessary given those already afforded under current law
3. No income test . Generally, property tax exemptions don't
depend on the taxpayer's income; however, the different disabled
veterans exemption amounts were first enacted by the Legislature
when it allowed a greater exemption ($15,000 at the time), for
disabled veterans with income that qualified him or her for the
Property Tax Postponement program (AB 955, Mangers, 1978). The
Legislature maintained the distinction when it fixed the current
exemption amounts (SB 320, Royce, 1989), and applied the
inflation adjustment (SB 1362, Poochigian, 2000). SB 1104 would
end this distinction by granting a full exemption for all
taxpayers regardless of income. Increasing the disabled
veterans' exemption reduces taxes for those who have sacrificed
greatly for their country, and would be easier for assessors to
administer, as they would no longer have to verify the
taxpayer's income. However, SB 1104 would grant both a full
exemption from property tax to all disabled veterans, thereby
potentially providing a benefit for individuals who have income
sufficient to meet current tax obligations. Additionally, the
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measure also freezes base year values for all veterans when they
turn 65, regardless of income. The Committee may wish to
consider whether the bill's tax benefits should depend on the
taxpayer's income.
4. Different treatment . Proposition 13's cap on assessed value
growth currently benefits all taxpayers regardless of age,
income, or other variable. SB 1104 sets a precedent by freezing
a veteran over the age of 65's property tax base at its amount
today, as well as for other qualifying veterans when they turn
65, while all other taxpayers would be subject to annual
inflation adjustments.
5. Related legislation, part one . SB 1104's expansion of the
disabled veterans' exemption to a full exemption is also found
in SB 1138 (Bates), which the Committee approved unanimously on
April 27, 2016. Additionally, SB 1104's disconnection of
inflation adjustment for veterans over the age of 65 is similar
to provisions found in SB 1126 (Stone), which provides the same
treatment for income-eligible taxpayers over the age of 65. The
Committee also approved that bill unanimously on April 27, 2016.
6. Related legislation, part two . SB 1104 freezes base year
values for veteran taxpayers over the age of 65 who were
honorably discharged, consistent with the California
Constitution's definition for the veterans' exemption, and state
law that determines eligibility for the disabled veterans'
property tax exemption. However, the Committee unanimously
approved SB 1458 (Bates) at its April 27, 2016, hearing, which
allows disabled veterans who were discharged under other than
dishonorable conditions, so long as they qualify for benefits
provided by the United States Department of Veterans Affairs.
7. Mandate . The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because SB 1104 changes the
manner in which assessors value real property, Legislative
Counsel says that it imposes a new state mandate. The measure
provides that the state shall not reimburse local agencies for
property tax revenue losses, instead stating that should the
Commission on State Mandates determine that the bill imposes a
reimbursable mandate, reimbursement must be made pursuant to
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existing statutory provisions.
8. Technicals . BOE and Committee Staff recommend the following
amendment:
On page 3, line 24, after "law," insert "for any
assessment year commencing on or after January 1, 2017;" on
line 27, after "older," insert "on the lien date;" on line
28, strike out "for any assessment year," strike out line
29, and on line 30, strike out "65th birthday, whichever
occurs later."
Specify filing requirements and deadlines for taxpayers
to claim the benefit, as assessors do not currently possess
age information for potentially eligible taxpayers.
Apply the bill's enhanced benefits for owners of mobile
homes by amending Revenue and Taxation Code §5813.
Clarify whether the measure's benefits apply to as much
land surrounding the principal place of residence as is
reasonably necessary to use the dwelling as a home, similar
to other exemptions.
Support and
Opposition (4/28/16)
Support : California Commission on Aging.
Opposition : California Tax Reform Association.
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