BILL ANALYSIS
AB 2492
Page 1
Date of Hearing: May 28, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2492 (Ammiano) - As Amended: May 18, 2010
Policy Committee: Revenue and
Taxation Vote: 6-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill provides for a "change-of-ownership" reassessment of
property taxes when 100% of the ownership interest in a
corporation, limited liability company (LLC), partnership, or
other legal entity holding the property is sold or transferred
in a single transaction or in multiple transactions occurring
over a period of up to three-years. Specifically, the bill:
1)States that a "sale or transfer" of ownership interest in a
legal entity includes, among other things, a merger,
acquisition, private equity buyout, or transfer of partnership
shares in a business.
2)Applies to sales or transfers between legal entities or
between legal entities and individuals, but does not apply to
transfers of ownership interests in legal entities between
parents and their children, or grandparents and their
grandchildren.
3)Defines the phrase "ownership interests" as corporate voting
stock, partnership capital and profits interests, limited
liability company membership interests, and other ownership
interests in legal entities.
4)Increases, from 10% to 20% of property taxes owed, the current
penalty for failing to file a change in ownership statement
with the Board of Equalization.
FISCAL EFFECT
1)BOE estimates that the bill would result in
AB 2492
Page 2
change-of-ownership related increases in property taxes
assessments totaling $21 million per year. Over time the
effects would be cumulative, potentially increasing property
tax collections by the low hundreds of millions of dollars per
year.
2)About 40% of added property tax revenues would be allocated to
school districts. Under Proposition 98, increased local
revenues to schools translates into a corresponding reduction
on GF spending for this purpose.
COMMENTS
1)Background . Under Proposition 13, real property (land and
buildings) is subject to taxation at a general rate of 1% of
its acquisition value, as adjusted for the lesser of inflation
or 2% per year. The property is reassessed to market value
when a "change in ownership" occurs. Improvements, such as
additions or alterations, are assessed at market value in the
year in which they are completed, and are subject to the 2%
limitation in subsequent years.
The definition of "change of ownership was not included in
Proposition 13, but rather was left to implementing
legislation. Determining a change-of-ownership is a relatively
straightforward matter for properties that are owned by
individuals - it occurs when legal title to the property
passes from one person to another. However, it becomes more
complex when the property is owned by a legal entity - such as
a corporation, partnership, an LLC, or a trust - which itself
is sold to another legal entity.
Following passage of Proposition 13, a task force developed to
recommend implementing legislation considered the option of
providing for reassessment whenever changes in the control of
the legal entities took place. However that approach was
ultimately rejected due to administrative burden imposed on
county assessors, and instead, legislation was passed that
limited change of ownership to when one person or entity
acquires more than 50% of the ownership interest of the
property.
A concern that has arisen relating to this change of ownership
standard is that a sale or transfer of controlling interests
can be legally structured so that no one entity acquires more
AB 2492
Page 3
than 50% interest in the legal entity - thereby avoiding the
reassessment. Proponents of this bill point to several large
transactions that have resulted in a 100% change in ownership
interest, but no reassessment of property taxes because no one
party controls more than 50% of the transferred property.
2)Purpose . The bill is intended to close the legal loophole
created by the current 50% controlling interest standard by
requiring a reassessment when 100% of ownership interest
changes hands in a single transaction or series of
transactions - regardless of whether any one person owns more
than 50% legal entity acquiring the property. The author
states that, "the current system allows billions of dollars of
valuable business property to be vastly under assessed,
creates great differences in taxes paid among property owners,
resulting in inadequate funding of local governments, schools
and infrastructure projects."
3)Opponents (California Chamber of Commerce, CalTax, and various
other business groups) assert that the bill removes
Proposition 13 protection from business property owners, that
the measure, like other "split role" proposals are based on a
faulty assumption that there has been a shift in tax
businesses to homeowners, and that the increase in the
property taxes paid by the affected entities will result in
higher prices for goods and services and have other negative
impacts on the economy.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081