BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Tom Torlakson, Chairman
114 (Florez)
Hearing Date: 3/19/07 Amended: 3/7/07
Consultant: Mark Mckenzie Policy Vote: Rev/Tax 6-0
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BILL SUMMARY: SB 114, an urgency measure, would provide
disaster assistance and tax relief for losses related to severe
freezing conditions in January, 2007.
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Fiscal Impact (in thousands)
Major Provisions 2006-07 2007-08 2008-09 Fund
Prop.Tax Reimbursement -----------minimal revenue
loss---------- SF*
Homeowner's exemption -----------no revenue loss----------
GF
Disaster loss carryover$180 minor gain minor gainGF
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*Special Fund For Economic Uncertainties (NOTE: this fund is
continuously appropriated, so requiring an allocation for this
purpose constitutes an appropriation)
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Property Tax Reimbursement
Current law provides for a downward reassessment of properties
affected by a disaster. Taxpayers are entitled to a refund of
any "excess" property tax paid on the property. Taxpayers whose
property is damaged are also allowed to defer payment of the
next installment of property taxes pending receipt of a
corrected tax bill for the reassessed property. In recent
years, the Legislature has acted to provide one-year state
reimbursement of property tax losses to local governments
resulting from reductions in assessed values of damaged or
destroyed properties.
This bill would provide for state reimbursement to backfill any
property tax revenue loss resulting from assessment reductions
to counties that the Governor declared to be in a state of
emergency as a result of the severe freezing conditions that
occurred in January 2007. This bill would apply to the Counties
of El Dorado, Fresno, Imperial, Kern, Kings, Madera, Merced,
Monterey, Riverside, San Bernardino, San Diego, San Luis Obispo,
Santa Barbara, Santa Clara, Stanislaus, Tulare, Ventura, and
Yuba. The state would hold local governments harmless for
freeze-related 2006-07 property tax losses, based initially on
an estimate of loss, followed by a corrective adjustment based
on the actual property tax loss.
Homeowners' Exemption
Current law exempts from the property tax the first $7,000 of
the assessed value of an owner-occupied principal place of
residence. However, properties that become vacant or are under
construction on the January 1 lien date are not eligible for
this homeowners' exemption for the upcoming tax year. Local
jurisdictions are reimbursed by the state for property tax
losses due to the homeowners' exemption.
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SB 114 (Florez)
This bill would provide that any dwelling that qualified for the
exemption prior to January 11, 2007 that was damaged or
destroyed as a result of the severe freezing conditions, as
declared by the Governor in January 2007, may not be denied the
exemption solely on the basis that the dwelling was temporarily
damaged or destroyed or was being reconstructed by the owner.
This would apply to 18 counties specified in the
Governor-declared disaster. The Board of Equalization estimates
that this provision would likely result in no revenue loss in
practical application. Given that the freeze occurred after
this year's lien date (January 1, 2007), a home would have to
still be destroyed or damaged and uninhabited due to the freeze
by January 1, 2008. It is likely that any affected homes would
have been repaired by then.
Carry Forward of Casualty Loss Deduction
Current law allows nonbusiness taxpayers to deduct uninsured
losses, less $100, to the extent the loss exceeds 10% of
adjusted gross income. Business taxpayers may deduct losses
against income; a portion of losses may be carried forward to
offset future years' tax liabilities for up to 10 years.
Taxpayers may either claim the losses as an itemized deduction
in the year the loss occurs, or in the preceding year by filing
an amended return for the prior year. For previous disasters,
legislation has allowed both business and non business taxpayers
to carry forward 100% of their excess losses for 5 years.
This bill would apply the special disaster loss carryover
treatment for losses sustained as a result of severe freezing
conditions in January 2007 in the Counties of El Dorado, Fresno,
Imperial, Kern, Kings, Madera, Merced, Monterey, Riverside, San
Bernardino, San Diego, San Luis Obispo, Santa Barbara, Santa
Clara, Stanislaus, Tulare, Ventura, and Yuba. The Franchise Tax
Board estimates a total revenue loss of approximately $180,000
in 2006-07, if 20% of the tax-deductible losses were applied to
the preceding year. To the extent that these deductions would
have been claimed in later years had they not been taken in
2006, there is a minor revenue gain in those later years.