BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                                    SB 1480


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          Date of Hearing:  June 13, 2016





                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION


                           Sebastian Ridley-Thomas, Chair





          SB  
          1480 (Committee on Governance and Finance) - As Amended June 8,  
          2016


          


          Majority vote.  
          SENATE VOTE:  37-0


          SUBJECT:  Property tax:  local government property:  application


          SUMMARY:  Makes technical amendments to the administrative  
          provisions of the property tax law.  Specifically, this bill:  


          1)Extends the deadline for local governments to file appeals  
            with the State Board of Equalization (BOE) related to taxable  
            government-owned property from July 20 to November 30.  













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          2)Eliminates the requirement to use certain prescribed language  
            in the annual notice used to verify eligibility for the  
            welfare property tax exemption and instead directs the BOE to  
            consult with the California Assessors' Association in  
            designing the notice and prescribing other required  
            information, as provided. 


          3)Restores the authorization for the county auditor to deduct  
            specified costs of a tax sale prior to remitting the proceeds  
            into the county general fund. 


          4)Makes other conforming, non-substantive changes. 


          EXISTING LAW:   


          1)Provides that all property is taxable unless explicitly  
            exempted by the California Constitution or federal law and  
            limits the maximum amount of any ad valorem tax on real  
            property at 1% of full cash value.  



          2)Exempts local government-owned property from the property tax.  
            (Section 3(b), Article XIII, California Constitution).   
            However, the property that is located outside the local  
            government's jurisdictional boundaries is subject to property  
            tax if the property was taxable when acquired.  (Section 11,  
            Article XIII, California Constitution.) 


          3)Provides that any assessment made in the case of the  
            properties owned by local governments (so-called "Section 11"  
            properties) may be reviewed, equalized or adjusted by the BOE,  
            not the local county assessment appeals board.  (Section  
            11(g), Article XIII, California Constitution.) 











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          4)Sets a deadline for local agencies to file Section 11 appeals  
            with BOE of either July 20th, or two weeks from the date the  
            assessor delivers the property tax roll containing the  
            assessment to the auditor, whichever is later. 


          5)Provides an exemption from taxation for property that is  
            irrevocably dedicated to religious, hospital, scientific, or  
            charitable purposes, if the property is used for the actual  
            operation of the exempt activity and is owned by a nonprofit  
            entity qualified as an exempt organization by the Internal  
            Revenue Service, the Franchise Tax Board, or both (the  
            so-called 'welfare exemption') [Article XIII, Section 4, of  
            the California Constitution; Revenue and Taxation Code (RT&C)  
            Section 214].  The entity that owns the property is prohibited  
            from having any earnings that contribute to the benefit of any  
            private shareholder or individual.  This welfare exemption has  
            been expanded over the years to add certain specific types of  
            property that do not otherwise qualify under the general  
            exemption.


          6)Requires the county assessor to mail an annual notice to  
            recipients of the welfare, non-profit cemetery, or religious  
            exemption, along with a card asking if the property will  
            continue to be used for the exempt purpose. 


          7)Provides that, if property taxes are not paid within five  
            years of the notice of impending default, the property becomes  
            subject to sale and will be sold at a public auction.  The tax  
            collector has the power to sell property that has been  
            tax-defaulted for five years or more, or three years or more  
            in the case of nonresidential commercial property.  


          8)Requires that proceeds from the sale of tax-defaulted property  











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            be deposited in the delinquent tax sale fund and then be  
            distributed to the State of California General Fund and the  
            county general fund for the costs incurred in connection with  
            the sale of tax-defaulted property.  Any excess proceeds, not  
            otherwise claimed, may be transferred to the county general  
            fund.  

          FISCAL EFFECT:  Unknown 


          COMMENTS:  


           1)Purpose of the Bill  .  According to the author's office, "SB  
            1480 makes three changes to property tax law recommended by  
            the State Board of Equalization, the California Assessors  
            Association, and the California Association of County  
            Treasurer Tax Collectors to improve property tax  
            administration:  First, the measure changes the deadline for  
            Section 11 appeals to November 30th from the current dual  
            deadline of either July 20th, or two weeks from the date the  
            assessor delivers the property tax roll.  The revised deadline  
            is familiar, as it is the same as those for taxpayers filing  
            appeals.  Additionally, a later deadline will give the local  
            agency more time to decide whether to appeal.  Second, the  
            measure strikes the contents of a card used by assessors to  
            establish eligibility for an exemption, and instead directs  
            BOE to design a general form in consultation with Assessors,  
            thereby allowing electronic filing.  Lastly, the measure  
            restores previously enacted language that was inadvertently  
            deleted that allows tax collectors to recover specific costs  
            from the excess proceeds from tax sales prior to depositing  
            them in the county general fund.   SB 1480 only contains items  
            with universal agreement; should anyone object to a provision  
            in the measure, it will be removed."


           2)Extending the Deadline for Filing Section 11 Appeals  .  Section  
            11 appeals are unique in that they are filed with the BOE  











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            instead of the local county assessment appeals board.   
            According to the BOE staff, in the last 20 years five Section  
            11 appeals have been filed and the BOE has rendered only one  
            decision.<1>  The remaining appeals were withdrawn because the  
            assessor and local government reached an agreement.  



          Existing law designates July 20th as the deadline for filing a  
            Section 11 appeal and extends that deadline by two weeks from  
            the date the county assessor completes and delivers the roll  
            to the county auditor (which is typically two weeks after July  
            31st).   In contrast, the deadline that applies to filing  
            other locally assessed property appeals is generally November  
            30th (although nine counties have an earlier deadline of  
            September 15th).  This bill proposes to create uniformity for  
            filing appeals for locally assessed property by designating  
            November 30th as the deadline for both Section 11 appeals and  
            appeals with the local assessment appeals boards.  Arguably,  
            this uniform deadline, regardless of the county in which the  
            property is located, would ease administration of property tax  
            laws and would afford local governments the maximum amount of  
            time to file an appeal with the BOE. 
           3)"Welfare Exemption":  Revising the Annual Notice of  
            Eligibility  .  The California Constitution provides that all  
            property is taxable unless explicitly exempt 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.  The California Constitution allows the  
            Legislature to establish a property tax exemption for property  
            exclusively used for charitable purposes and owned by  
            nonprofit entities organized and operated for charitable  
            purposes.  [California Constitution, Article XIII, Section  
          ---------------------------


          <1>


           East Bay Municipal Utility District v. County of Calaveras  
          (2003). 








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            (4)(b).]  The California Constitution also exempts from  
            property tax government-owned property; property used  
            exclusively for educational purposes by a nonprofit  
            institution of higher education; property used exclusively for  
            religious workshop, cemeteries, and growing crops; property  
            owned by veterans; property used for libraries and museums;  
            and property used by public schools, among others.  



          In 1954, the Legislature enacted the exemption, more commonly  
            known as the "welfare exemption."  Once qualified for the  
            exemption, the recipients must annually verify their  
            eligibility.  Existing law requires county assessors to send  
            an annual notice to recipients of the welfare, non-profit  
            cemetery, or religious exemption, along with a card that  
            contains specific questions relating to the property's exempt  
            purpose.   The questions and the contents of the card are  
            prescribed by the state statute - Revenue and Taxation Code  
            Section 254.5.   The California Assessors' Association (CAA)  
            asserts that this statutory prescribed form is inefficient.   
            The majority of the forms related to property tax  
            administration are developed by the BOE, after consultation  
            with the CAA.  Furthermore, the use of that card is  
            unnecessary as taxpayers may file with the county assessor  
            electronically.  This bill would delete the statutorily  
            prescribed questions that must be included in the card,  
            eliminate the requirement for the county assessor to mail the  
            card, and direct the BOE to designe the contents of the  
            notice, in consultation with the CAA.  
           4)Sale of Tax-Defaulted Property and Distribution of Tax Sale  
            Proceeds  .  Property is deemed in default if property taxes are  
            not paid when due and is subject to penalties and costs.  Once  
            the real property is declared tax-defaulted, the county tax  
            collector publishes the information on the defaulted roll.  If  
            the owner fails to redeem the property within five years (or  
            three years if the property is also subject to a nuisance  
            abatement lien) by full payment of the defaulted taxes,  
            interest and penalties, then the property may be sold to the  











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            highest bidder at a public sale.  Once the property becomes  
            subject to sale, the county tax collector must attempt to sell  
            the property in order to collect the defaulted taxes.  The  
            property may be offered for sale at public auction, a sealed  
            bid sale, or a negotiated sale to a public agency or qualified  
            non-profit organization.  Public auctions are the most common  
            way of selling tax-defaulted property, and the property is  
            sold to the highest bidder.  Generally, if no bid was received  
            when the property was last offered for sale at public auction,  
            the tax collector may re-offer property at a reduced price at  
            the same or next scheduled sale.  





            Once a tax-defaulted property is sold, tax sale proceeds must  
            be distributed to the State, the county and taxing agencies to  
            reimburse them for costs incurred and for the amount of  
            defaulted taxes.  Following these distributions, lienholders  
            and the former owner may claim proceeds in excess of the taxes  
            and cost of the sale.  Finally, any remaining amounts not  
            otherwise claimed may be transferred to the county general  
            fund.  These amounts are known as "excess proceeds."   Prior  
            to 2014, "excess proceeds" were dispersed in the final round  
            of distributions to the local taxing agencies entitled to  
            share in the proceeds.  However, the county was authorized to  
            deduct the costs of maintaining the redemption and  
            tax-defaulted property files as well as the costs of  
            administering and processing the claims for "excess proceeds"  
            prior to the final distribution.  

            The law was changed in 2014 to allow the county auditor to  
            transfer excess proceeds to the county general fund instead of  
            dispersing the funds to the taxing agencies.  (AB 2257  
            (Cooley), Chapter 501, Statutes of 2014.)   Inadvertently, the  
            language authorizing the counties to recover the costs of  
            administering "excess proceeds" was deleted from the statute.   
            This bill proposes to restore this authority.  This bill would  











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            maintain the county auditor's ability to transfer excess  
            proceeds to the county general fund, but only after the tax  
            collector is allowed to deduct specified costs relating to the  
            tax sale from the excess proceeds. 
          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Assessors' Association




          Opposition


          None on file




          Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916)  
          319-2098