BILL ANALYSIS Ó SB 1480 Page A 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. SB 1480 Page B 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.) SB 1480 Page C 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 SB 1480 Page D 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 SB 1480 Page E 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). SB 1480 Page F (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 SB 1480 Page G 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 SB 1480 Page H 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