BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 1178 - Torres
Amended: June 16, 2010
Hearing: June 23, 2010 Fiscal: No
SUMMARY: States that Possessory Interest Taxes Do Not
Apply to Residents of Publicly-Owned Low Income
Housing.
EXISTING LAW (California Constitution) provides that
all property is taxable unless explicitly exempted by the
Constitution or federal law. The possessory interest tax
is imposed on real property interests located on public
land. A taxable possessory interest must be independent,
durable, and exclusive, all terms of which are defined by
statute and case law. Private interests on federal land
(e.g., a vacation cabin on Forest Service land) are subject
to the possessory interest tax.
EXISTING LAW defines "independence" as "the ability to
exercise authority and exert control over the management or
operation of the property or improvements, separate and
apart from the policies, statutes, ordinances, rules, and
regulations of the public owner of the property or
improvements. A possession or use is independent if the
possession or operation of the property is sufficiently
autonomous to constitute more than mere agency." Case law
and Property Tax Rule 20 add that the possessor must derive
some "private benefit" to be considered independent,
meaning the use must provide some private economic benefit
to the possessor not shared by the general public.
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EXISTING LAW grants the power to County Assessors to
determine whether a taxable possessory interest exists.
THIS BILL states that for purposes of the independence
test, a lease of publicly owned low-income housing, the
possession of, claim to, or right to the possession of,
land or improvements is not independent if the lessee is a
low-income tenant. The measure defines a low-income tenant
as a low-income household as defined by the Health and
Safety Code. The measure states that its provisions are
declaratory of existing law, and makes legislative findings
and declarations to effectuate its provisions.
FISCAL EFFECT:
BOE estimates that AB 1178 has minimal revenue impact
because only one county levies possessory interests on
occupants of low-income housing.
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COMMENTS:
A. Purpose of the Bill
The author provides the following statement:
AB 1178 makes clear that low-income tenants living in
publicly owned affordable housing are not subject to
the possessory interest tax.
B. Being Possessive
Possessory Interest Tax law is a vibrant, yet slightly
esoteric corner of the tax world. Possessory interest
taxes backstop the property tax when taxpayers enjoy use of
public property for his or her economic benefit, ensuring
that these taxpayers are not unfairly advantaged relative
to taxpayers who own their own property. The tax applies
to the interest, not the land. Possessory interest
taxpayers may end up paying less that their property tax
paying counterparts because the base of the possessory
interest tax is the limited rights the private user enjoys
on public land, and are often considered less valuable than
the exclusive rights property taxpayers enjoy on their own
land. Assessors value interest based on income derived,
comparable sales, or by subtracting accrued depreciation
from replacement cost. Examples of possessory include
docks and slips in public waterways, ski resorts on public
lands, and the classic example of the cabin in a National
Forest.
C. The Wrong Way
The Assembly Housing and Community Development
Committee learned that the Los Angeles County Assessor was
asserting a possessory interest tax on tenants of
low-income housing, despite direction from the BOE that no
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possessory interest exists on publicly-owned tax-exempt
property because taxpayers do not enjoy an independent use
of the land; instead, low-income housing is a public use.
The Committee found that the Los Angeles County Assessor
did not bill possessory interest taxes in a uniform manner.
According to the California Assessors' Association, Los
Angeles County was the only county asserting a possessory
interest in these housing projects, so AB 1178 would
presumably only apply to one county.
D. Is AB 1178 necessary?
The Los Angeles County Assessor states that because
the welfare exemption does not apply to individuals and
that absent state law to the contrary, the interests could
be considered assessable. The Assessor states that he only
assessed five single family homes in Pomona and another
five in Pico Rivera, and will no longer do so. Now that
the Assessor has seen the error of his ways and agreed not
to assess these properties, as well as cancel and refund
the taxes, and that no counties are assessing similar
properties, then what's the point of a bill? The Committee
may wish to consider the efficacy of moving the bill
forward when the problem has worked itself out.
E. I Hear You Knocking
County assessors determine whether possessory
interests exist based on the California Constitution,
statute, case law, and direction from the BOE. The
Legislature has enacted definitions for each of the three
tests that assessors use when determining whether an
assessable possessory interest exists: independence,
durability, and exclusivity. However, assessors have the
exclusive power to make determinations, and the only
recourse for taxpayers is to the Courts, where assessors
have previously argued that only constitutional amendments,
not statutes, can limit the assessor's discretion.
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F. I Do Declare
AB 1178's provisions are declaratory of existing law.
As such, assessors will have to cancel future taxes, and
rebate amounts previously paid. BOE suggests clarifying
this application and amending the measure to provide
specific authority for tax cancellation and refunds.
Support and Opposition
Support:None received.
Oppose:California Assessors' Association (unless
amended)
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Consultant: Colin Grinnell