BILL ANALYSIS
SB 114
Page 1
Date of Hearing: July 18, 2007
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mark Leno, Chair
SB 114 (Florez) - As Amended: July 3, 2007
Policy Committee: Revenue and
Taxation Vote: 9-0
Local Government 7-0
Urgency: Yes State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill adds the January 2007 freeze to the list of disasters
eligible for special tax treatment. Specifically, the bill:
1)Requires the state to reimburse local governments for property
tax losses resulting from downward assessments of property
damaged by the freeze.
2)Ensures that owners of homes that became uninhabitable because
of the freeze are eligible to receive the homeowners' property
tax exemption while the damage is being repaired.
3)Permits individuals and businesses affected by the freeze to
carry back unused casualty losses and deduct them against 2006
earnings, then carry forward any remaining losses for up to 15
years into the future. These provisions apply to uninsured
losses in excess of 10% of the taxpayers' income.
4)Applies to the 18 counties for which the governor declared a
state of emergency following the January 2007 freezes.
FISCAL EFFECT
The Board of Equalization estimates minor costs related to
reimbursements for local property tax reassessments. The
Franchise Tax Board estimates the income tax provisions will
result in a one-time loss of $180,000 accrued to 2006-07 and
minor offsetting gains in subsequent years.
COMMENTS
SB 114
Page 2
1)Rationale . This measure extends to victims of the 2007 freeze
the tax relief that has been provided to victims of natural
disasters in California during the past two decades.
2)Background. The freezing conditions that commenced in early
January 2007 resulted in over $1 billion in agricultural
losses in California. In January the governor declared a state
of emergency for 10 counties. In subsequent months, the list
has grown to 18 counties, including: 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
president did not declare the freeze to be a federal disaster.
3)Property Tax Reassessments. State law authorizes local
governments to adopt ordinances allowing taxpayers to apply
for a downward assessment of property destroyed or damaged by
a "major misfortune or calamity," for which the governor
proclaims a disaster. Beginning in 1990, the Legislature
provided state reimbursement of property tax revenue losses to
local governments resulting from the downward-reassessments.
This measure authorizes such reimbursements for the downward
assessments resulting from the January 2007 freeze.
4)Homeowners' Exemption . The California Constitution exempts
from property taxes the first $7,000 of the value of a
dwelling when occupied by an owner as his or her principal
residence. The state reimburses local governments for the
property taxes they cannot collect because of this homeowners'
exemption. Under the Revenue and Taxation Code, property that
becomes vacant, is destroyed, or is no longer owner-occupied
on the lien date (January 1) is generally not eligible for the
exemption in the upcoming year. However, the Board of
Equalization staff has opined that a temporary absence from a
dwelling damaged in a natural disaster will not result in the
loss of the exemption. This bill affirms this staff opinion,
by prohibiting assessors from disqualifying an residence for
homeowners' exemption solely on the basis that the dwelling
was temporarily damaged, destroyed, under reconstruction by
the owner, or temporarily uninhabited as a result of
restricted access to the property due to the January 2007
freeze.
5)Income Tax Provisions . Under federal and state law,
SB 114
Page 3
individuals filing income taxes can deduct casualty losses in
excess of 10% of their adjusted gross income plus $100 in the
year in which the loss occurs. Any remaining losses can then
be carried forward and deducted against income for up to five
years into the future. For federally declared disasters, the
taxpayer may either take the deduction on the current year
return or may file an amended return for the prior year. Any
unused losses may then be carried forward and deducted against
future income for up to 15 years. The prior-year and extended
up-to-15-year provisions are not available for a governor-only
declared disaster on their federal or state returns. However,
the special tax treatment is available on California's state
income tax return if enabling state legislation is enacted.
This bill adds the counties proclaimed by the governor as
disaster areas following the January 2007 freeze to the list
of disasters that qualify for the special state income tax
treatment.
6)Related Legislation. SB 38 (Battin) makes similar changes with
respect to the October 2006 wildfire in Riverside County. AB
62 (Nava) makes similar changes with respect to the wildfires
affecting Riverside and Ventura counties in September,
October, and December 2006.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081