BILL ANALYSIS Ó SB 1458 Page 1 Date of Hearing: June 20, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Sebastian Ridley-Thomas, Chair SB 1458 (Bates) - As Amended April 6, 2016 Majority vote. Fiscal committee. SENATE VOTE: 39-0 SUBJECT: Property taxation: exemptions: disabled veterans SUMMARY: Expands eligibility for the disabled veterans' exemption from property tax to include a person who has been discharged under "other than dishonorable conditions," as provided. Specifically, this bill: 1)Revises the definition of "veteran," which is used in determining eligibility for the disabled veteran's property tax exemption, to do both of the following: a) Eliminate a cross-reference to Section 3(o) of Article XIII of the California Constitution that requires that a SB 1458 Page 2 "veteran" be discharged under honorable conditions from military service. b) Provide that the term "veteran" includes an otherwise qualified person who has been discharged from military service under "other than dishonorable conditions" and determined by the United States (U.S.) Department of Veterans Affairs to be eligible for federal veterans' health and medical benefits. 2)Specifies that no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to this bill. 3)Takes effect immediately as a tax levy. EXISTING LAW: 1)Exempts from property tax, in whole or in part, the home of a veteran who is totally disabled because of injury or disease incurred in military service, or his/her surviving unmarried spouse. [Article XIII, Section 4, California Constitution; Revenue and Taxation Code (R&TC) Section 205.5.] The disabled veterans' exemption is also available to the surviving spouse of a person who has died as a result of service-connected injuries while on active military duty. The amount of the exemption depends on the claimant's income. The basic exemption amount is $100,000, adjusted annually for inflation. SB 1458 Page 3 For low-income claimants, the exemption amount is $150,000, adjusted annually for inflation, when the veteran's household income does not exceed $40,000, as adjusted. For the fiscal year (FY) 2016-17, the disabled veterans' exemption amount is $191,266 of assessed value for those with a household income below $57,258 (the "low-income" exemption), and $127,510 for all other disabled veterans (the "basic" exemption). 2)Defines a "totally disabled veteran" as a veteran who has a disability rating from the U.S. Department of Veterans Affairs, or the military service from which the veteran was discharged, at 100%, or has a disability compensation rating at 100% because he/she is unable to secure or follow a substantially gainful occupation. 3)Refers to the constitutional definition of "veteran" to determine eligibility for the disabled veterans' exemption from property tax, which includes a person: a) Who is serving in the U.S. Army, Navy, Air Force, Marines, Coast Guard, or Revenue marine Service, or served in one of the listed services and was discharged under honorable conditions; b) Served either in time of war or in time of peace in a campaign or expedition for which a medal has been issued by Congress or in time of peace and because of a service-connected disability was released from active duty; and, c) Resides in the State on the current lien date. [Article XIII, Section 3(o), California Constitution; R&TC Section 205.5.] 4)Requires a disabled veteran to file a claim with the local county assessor to receive the exemption. To receive the basic exemption, a claimant needs to file a claim only once. To receive the larger low-income exemption, the claimant must file a claim each year to verify income eligibility. SB 1458 Page 4 FISCAL EFFECT: The State Board of Equalization (BOE) staff estimates that for every 100 additional qualifying disabled veteran-owned homes, this bill would result in an annual revenue loss of $126,880. COMMENTS: 1)Author's Statement . The author has provided the following statement in support of this bill: "California has the nation's highest number of veterans. Representing Camp Pendleton in San Diego, I see many men and women serve their county with great honor. Often these brave service members do not make it back to their loved ones, whereas some return with significant disabilities. SB 1458 will make California's law consistent with federal law so that any veteran receiving service-connected disability benefits at 100% will be eligible to receive the state's disabled veterans' property tax exemption on their home. When veterans leave active duty with a 100% disability rating (excluding those Dishonorably Discharged or Discharged for Bad Conduct), they should be eligible for California's disabled veteran's property tax exemption. SB 1458 will ensure 100% disabled veterans receive the benefits that they deserve." 2) "Disabled Veterans' Exemption": Background . Existing law authorizes a property tax exemption for the principal residence of a disabled veteran or for the unmarried surviving spouse of a deceased disabled veteran. For purposes of the exemption, the disability rating must be 100%, generally occurring for a veteran who is blind in both eyes, has lost the use of two or more limbs, or is totally disabled. This exemption is commonly referred to as the "disabled veterans' exemption." SB 1458 Page 5 The property tax exemption amount is equal to the assessed value of the property, up to $100,000. If the household income does not exceed $40,000, the maximum property tax exemption is increased to $150,000. The exemption amounts and income limitation are adjusted annually for the change in the California Consumer Price Index for all items, as determined by the California Department of Industrial relations. For the 2016-17 fiscal years, the basic exemption amount is $127,510; the low-income exemption amount is $191,266; and the maximum household income for low-income classification is $57,258. The exemption is only available on a veteran's principal place of residence. The eligible veteran must file a timely claim with the county assessor by the specified deadlines to receive the full amount of the property tax exemption. Since the home may only receive one property exemption, if a homeowners' exemption has been granted on a property and the owner subsequently qualifies for the disabled veterans' exemption, the homeowners' exemption should be cancelled to allow for the disabled veterans' exemption as it provides the greater benefit. 3)What is the Problem ? In order to qualify for the property tax exemption, a veteran must receive a disability certification from either the United States Department of Veterans' Affairs (USDVA) or the military service from which the veteran was discharged. Currently, existing law applies only to veterans honorably discharged. Thus, many veterans who were discharged under conditions other than honorable served with sufficient distinction to be eligible for benefits but are unable to obtain the exemption. 4)Types of Military Discharges . According to the Senate Committee on Veterans Affairs, the military separates its personnel from active service by formally discharging them. The types of discharges fall under one of two categories: SB 1458 Page 6 either "administrative" or "punitive" (which are reserved for the most negative cases). Each of the five different categories of discharge is determined by the characterization of an individual's service, ranging from "honorable" at the high end to "dishonorable" at the low end. a) Administrative discharges include the following three categories of discharge: i) Honorable. This is the most common discharge status, which presumes creditable service and good behavior. All service members will earn an Honorable Discharge unless they experience significant problems and receive a lower type of discharge. ii) General (under honorable conditions). This type of discharge is sometimes referred to as a "General Discharge" and is granted if an individual's commander determines that the service has been generally honest and faithful. General Discharges are given for a variety of reasons, including failure to progress in training; failure to maintain military standards in appearance, weight, or fitness; or for disciplinary infractions, including drug or alcohol abuse. iii) Other than Honorable (OTH). An "OTH" discharge usually is given when an individual's service represents a broader pattern of departure from the conduct and performance expected of all military members. OTH can result from notable drug or alcohol problems, but also can be based on other misconduct, such as abuse of authority, fraternization, or a pattern of continued misconduct. OTH discharges bar the individual from reenlisting into any component of the Armed Forces, including the Federal Reserves and National Guard. SB 1458 Page 7 b) Punitive discharges are authorized punishments of courts-martial and can only be imposed as an approved court-martial sentence following an individual's conviction for violating the Uniform Code of Military Justice. There are two types of punitive discharges: i) Bad Conduct Discharge. This discharge may be imposed by both special and general courts-martial and is usually given for convictions of crimes, such as absent without leave, drunk on duty, driving while under the influence, adultery, writing bad checks, and disorderly conduct. ii) Dishonorable Discharge. This type of discharge is the worst type of military discharge a service member can receive and may be imposed only by a general court-martial. In most cases, a Dishonorable Discharge also involves being sentenced to serve time in a military prison. 5)Proposed Solution . This bill revises the eligibility standard from a discharge under "honorable conditions" to a discharge under "other than dishonorable conditions," provided other applicable criteria are met. Thus, disabled veterans who received OTH and Bad Conduct discharges would be eligible for the disabled veterans' exemption so long as they qualify for federal veterans' health and medical benefits. According to the Senate Committee on Veterans' Affairs, basic eligibility for federal veterans' benefits depends upon the type of military service performed, duration of service, and character of discharge or separation. The discharging military branch makes those determinations. The USDVA reviews the military's description of the "character of discharge" to determine whether a person meets the basic eligibility SB 1458 Page 8 requirements for receipt of VA benefits under Title 38 of the United States Code. A discharge characterized by a military service as "under honorable conditions" is binding on the USDVA and requires the USDVA to provide benefits if other eligibility requirements are met. A Dishonorable Discharge explicitly bars the USDVA from providing benefits. The OTH and Bad Conduct discharges bar an individual from presumptive eligibility for federal benefits. However, in these cases, the USDVA, as administering agency of benefits, may be asked to make an independent assessment of the character of service. The USDVA will review facts and circumstances surrounding the incident(s) that led to the discharge, as reported by the military, as well as any supporting evidence from the claimant or third parties. On a case-by-case basis, the USDVA will determine whether the incidents that led to the OTH or Bad Conduct discharge may be found to have been "under conditions other than dishonorable," and thus whether basic eligibility for USDVA benefits can be established. This bill would align state and federal benefits for disabled veterans by allowing veterans with a 100% disability rating to receive the state's property tax exemption, provided they qualify for federal health and medical benefits and were discharged under "other than dishonorable conditions." 6)Operative Date. As noted by the BOE staff in its analysis, this bill will go into effect immediately as a tax levy. For ease of administration, the Committee may wish to consider delaying the operative date to coincide with the 2017-18 lien date. The Committee may also wish to consider whether this bill's provisions relating to the change in eligibility for the disabled veterans' exemption from property tax should apply only prospectively. 7)Double-Referral . This bill was referred to both Assembly Committee on Veterans Affairs and this Committee. This bill SB 1458 Page 9 passed the Assembly Committee on Veterans Affairs on June 14, 2016, on a 7-0 vote. REGISTERED SUPPORT / OPPOSITION: Support Member George Runner, State Board of Equalization (sponsor) State Board of Equalizations California Assessors' Association American G.I Forum of California American Legion-Department of California AMVETS-Department of California California Association of County Veterans Service Officers California State Commanders Veterans Council Military officers Association of America California Council of Chapters SB 1458 Page 10 VFW-Department of California Vietnam Veterans of America-California State Council Opposition None on file Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098