BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 1662 - Portantino
Amended: April 7, 2010
Hearing: June 23, 2010 Urgency Fiscal: Yes
SUMMARY: Enacts Three Standard Changes to Tax Law for
Victims of Recent Disasters; Requires the State to Pay
100% of the Non-Federal Costs for Winter Storms in
January and February, 2010
INCOME AND CORPORATION TAXES :
EXISTING STATE AND FEDERAL LAW allows taxpayers to
deduct disaster losses in the year the loss occurs or in
the preceding year by filing an amended return. Disaster
losses result from fires, storms, floods or other natural
events proclaimed a disaster by the President or the
Governor. Disaster losses are the amounts not compensated
for by insurance or other means.
EXISTING FEDERAL LAW, which California conforms to,
only allows loss deductions for personal income taxes that
exceed $100 per taxpayer and 10% of their adjusted gross
income for the year.
EXISTING STATE LAW limits disaster losses for
corporate taxpayers to the amounts set by state law for net
operating losses - 55% for 2000 and 2001, 60% for 2002 and
2003, and 100% for 2004 and thereafter - and the
carry-forward to five years. State law allows a limited
percentage to be carried forward up to 10 years
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Starting with the forest fires in 1985, and
approximately 45 times thereafter for various disasters,
the Legislature enacted measures that allow a 100%
carry-forward of excess disaster losses for up to five
years and a carry-forward of the excess disaster losses
under the above percentages for up to an additional 10
years.
THIS BILL enacts identical allowances for taxpayers
with excess disaster losses resulting from:
Severe winter storms that began in
January 2010 in the Counties of Calaveras,
Imperial, Los Angeles, Orange, San Bernardino,
San Francisco, and Siskiyou.
Wildfires that commenced in August 2009
in the Counties of Los Angeles and Monterey.
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PROPERTY TAXES :
EXISTING LAW allows counties to adopt ordinances
allowing taxpayers to apply for a reassessment of property
destroyed or damaged by "a major misfortune or calamity" if
the Governor proclaims a disaster. Taxes that had
previously been paid are deemed "excess" as a result of a
downward reassessment and are refunded to the taxpayer.
County Assessors must defer the payment of property taxes
when they receive a timely filed application from an
affected taxpayer.
Beginning in 1990, the Legislature provided state
reimbursement of property tax revenue losses to local
governments resulting from the downward-reassessment of
damaged or destroyed properties for most disasters for one
year.
THIS BILL enacts identical provisions that require the
state to backfill first-year local revenue losses resulting
from wildfires that commenced in August 2009 in the
Counties of Los Angeles and Monterey.
THIS BILL requires the above listed counties to
certify to the Director of Finance an estimate of the
amount of reduced 2009-10 property tax revenues resulting
from reassessment by October 30, 2010. The Director of
Finance then verifies and certifies the revenue loss
estimate to the Controller within 30 days, who then sends
the certified amount to affected counties within 10 days.
On or before June 30, 2011, affected county auditors must
remit any overestimated balance to the Controller.
THIS BILL also enacts identical provisions that
require the state to backfill first-year local revenue
losses resulting from severe winter storms that began in
January 2010 in the Counties of Calaveras, Imperial, Los
Angeles, Orange, San Bernardino, San Francisco, and
Siskiyou.
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THIS BILL requires that affected counties certify to
the Director of Finance an estimate of the amount of
reduced 2009-10 property tax revenues resulting from
reassessment by October 30, 2010. The Director of Finance
then verifies and certifies the revenue loss estimate to
the Controller within 30 days, who then sends the certified
amount to affected counties within 10 days. On or before
June 30, 2011, affected county auditors must remit any
overestimated balance to the Controller. If the loss was
underestimated, the Controller must return the difference
to the affected county.
PROPERTY TAXES (HOMEOWNERS' EXEMPTION) :
EXISTING LAW provides a homeowners' exemption from
property taxes equal to $7,000 in assessed value (at a one
percent property tax rate, the exemption reduces property
taxes by roughly $70) for owner-occupied homes. Once
granted, homeowners' exemptions are generally permanent.
However, an Assessor may deny a homeowner's exemption if
the property becomes vacant or is under construction as of
the January 1st lien date.
THIS BILL provides that Assessors may not disqualify
an otherwise qualified residence for a 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:
Severe winter storms that began in
January 2010 in the Counties of Calaveras,
Imperial, Los Angeles, Orange, San Bernardino,
San Francisco, and Siskiyou.
Wildfires that commenced in August 2009
in the Counties of Los Angeles and Monterey.
NATURAL DISASTER ASSISTANCE ACT :
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EXISTING LAW (Natural Disaster Assistance Act)
provides that the state must pay 75% of the non-federal
share of eligible costs for any state-declared emergency.
If the President declares it to be a disaster, then FEMA
covers 75% of costs, and the state covers 75% of the
remaining 25% balance. For some statutorily specified
disasters the state is required to pay 100% of the
non-federal cost.
THIS BILL would require the state to pay 100% of the
non-federal cost of the severe winter storms, flooding, and
debris and mud flows that occurred in Northern, Central,
and Southern California during the period from January 17,
2010 and February 6, 2010, inclusive, as specified in
agreements between this state and the United States for
federal financial assistance.
FISCAL EFFECT:
According to FTB, AB 1662 results in revenue losses of
$17,000 in 2009-10, and gains of $8 million of 2010-11, and
$9 million of 2011-12. BOE estimates one-time property tax
losses of $45,000.
COMMENTS:
A. Purpose of the Bill
The author provided the following statement:
"AB 1662 provides a mechanism for reimbursing the
counties for property tax losses resulting from the
reassessment of properties damaged by the 2009 Station Fire
and resulting 2010 mudslides.
Provides that any dwelling that qualified for a
homeowners' property tax exemption before the commencement
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dates of the 2009 Station Fire, that was damaged or
destroyed by the 2009 Wildfires, or the 2010 mudslides and
that has not changed ownership since the commencement dates
of these disasters, shall not be denied a homeowners'
exemption solely because that dwelling was temporarily
damaged or destroyed, or was being reconstructed by the
owner, or was temporarily uninhabited as a result of
restricted access.
Provides that any taxpayer's excess disaster loss
resulting from the 2009 Station Wildfire or the 2010
mudslides shall be carried forward to each of the five
taxable years following the taxable year for which the loss
is claimed. However, if there is any excess disaster loss
remaining after this five year period, them the applicable
percentage of that excess disaster loss shall be carried
forward to each of the next ten taxable years.
Requires counties, as a condition of eligibility for
reimbursement of property tax losses associated with
downward reassessments of properties affected by a fire
disaster occurring after January 1, 2010, to demonstrate
that the county (a) provides adequate structural fire
protection for each state responsibility area in its
jurisdiction, (b) was in compliance with specified
requirements to take preventive measures in very high fire
hazard severity zones, and (c) has implemented a fire risk
reduction public education program."
B. A Better Way
Through last year, the Legislature has amended Revenue
and Taxation Code 218 25 times for separate disasters to
ensure that Assessors may not deny homeowners' exemptions
for disaster-related reasons, added 45 code sections to
allow for excess disaster losses for both the Personal
Income Tax Law and the Corporation Tax Law, and enacted
more than 100 sections providing for the first year
backfill of local property tax losses and procedures
therein resulting from disaster reassessments. The
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Legislature always litters the code with these provisions
when disaster strikes, so why not enact a statute which
triggers these tax benefits whenever the Governor declares
a disaster?
Efforts to mandate consistency have stalled. In
2005-06, AB 3039 (Houston) and SB 1607 (Machado) attempted
to change this statute to provide statewide protection,
thereby ensuring that future disaster-specific measures
were not necessary. The Assembly Revenue and Taxation
Committee held AB 3039, and deleted the relevant provision
from SB 1607, which was subsequently enacted.
Additionally, the Governor directed the Office of Emergency
Services and the Office of Planning and Research to work
with the Legislature to enact standard purpose legislation
when he signed a disaster-specific bill (AB 18, La Malfa,
2005). The Legislature has previously enacted statewide
legislation in response to a flurry of local
jurisdiction-specific bills, notably in the areas of
transaction and use taxes (SB 566, Scott, 2003), and
disputes over property tax allocation errors (AB 169,
Wiggins, 2001). However, SB 1494 (Committee on Revenue and
Taxation) would automatically enact the preclusion of
assessors revoking a homeowners' exemption for
disaster-affected property, hopefully bringing some sanity
to these annual rituals.
C. Danger Ahead
While the Committee has approved all Disaster Relief
Bills in recent years, the Senate Appropriations Committee
last year insisted on amendments to AB 50 (Nava), a
disaster relief bill approved by the Committee, requiring
counties to demonstrate that the county does the following
to receive reimbursement for reassessing properties
downward as a result of a disaster:
Provides adequate structural fire
protection in state responsibility areas in its
jurisdiction
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Was in compliance with specified
requirements to take preventative measures in
very high fire hazards severity zone
Has implemented a fire risk reduction
public education program.
While these amendments are not before the Committee
today, the Author and the Committee should be aware that
the Appropriations Committee may request similar amendments
as a condition of receiving the state reimbursements to
ensure that the state pocketbook won't have to be opened
again to cover costs when local agencies don't take
adequate steps to prevent fires.
D. When Disaster Strikes
The Committee will also hear AB 1690 (Chesbro), AB
1766 (Gaines), and AB 2136 (V.M. Perez) at its June 23,
2010 hearing, which enacts disaster tax relief provisions
for wildfires for other natural disasters.
Support and Opposition
Support:Los Angeles County Board of Supervisors;
Regional Council of Rural Counties; California State
Association of Counties; California Professional
Firefighters
Oppose:None received.
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Consultant: Colin Grinnell
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