BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 816 - Ducheny
Introduced: February 27, 2009
Hearing: April 22, 2009 Fiscal: Yes
SUMMARY: Makes Three Changes to Enhance Enforcement and
Administration of the Documentary Transfer Tax
I. The Documentary Transfer Tax
EXISTING LAW (California Constitution, Article XIIIA,
Section 4) prohibits transaction taxes or sales taxes on
transfers of real property; however, the Revenue and
Taxation Code authorizes counties to approve an ordinance
to impose a documentary transfer tax (DTT), which applies
to deeds of transfer of realty within that jurisdiction and
is based on the value of the transfer. In counties, the
rate is fifty-five cents ($0.55) for each five hundred
dollars ($500) of value. All of California's 58 counties
apply the tax, which is modeled after the repealed Federal
Documentary Stamp Tax.
EXISTING LAW also allows cities to enact ordinances to
impose a DTT:
Noncharter cities within a County that impose a DTT
may apply its tax at half of the rate of the county
and applies as a credit against the county rate.
Charter cities may impose a DTT at a higher rate
under the municipal affairs doctrine in the California
Constitution (Article XI, Section 5). If they do so
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at a higher rate than the non-charter rate, then the
city DTT does not serve as a credit against the county
tax.
EXISTING LAW provides several exemptions to the tax,
including when any public agency acquires land, land
acquired as a result of a plan of reorganization or
adjustment such as bankruptcy, and certain transfers in
lieu of foreclosure, among others.
THIS BILL allows DTT ordinances to include an
administrative appeal process to resolve disputes. The
measure additionally states that the when this
administrative process or a court of law fixes the value of
the property for purposes of applying the DTT, that
determination does not bind the value for property tax
purposes.
II. Assessor Records
EXISTING LAW provides that any information and records
in the Assessor's office are not public documents and shall
not be open to public inspection, unless specifically
exempted by law. Exemptions include information for law
enforcement agencies, county grand jury, or the Board of
Supervisors.
THIS BILL requires the Assessor to disclose
information, furnish abstracts, and permit access to all
records to the County Recorder when conducting an
investigation to determine whether the documentary transfer
tax is due.
II. Change of Ownership Statements
EXISTING LAW requires the person acquiring ownership
or control of a corporation, partnership, limited liability
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company, or other legal entity to submit a change in
ownership statement to the Board of Equalization (BOE),
signed under penalty of perjury, listing all the counties
in which the firm operates. If the person fails to file
the statement within 45 days of a written request from the
BOE, a penalty applies of 10% of the taxes applicable to
the new base year reflecting the change in ownership or
control. However, the penalty is extinguished if the
person files a change in ownership statement within 60 days
of BOE notification of the penalty.
THIS BILL instead provides that the penalty applies if
the person acquiring the corporation, partnership, limited
liability company, or other legal entity does not file the
change of ownership statement within the earlier of 45 days
from the BOE request or 45 days from the date in change of
control or ownership. The bill changes two sections of
law, the first which applies to changes in control of a
firm, the second which applies to changes in ownership.
THIS BILL also deletes the provision requiring the
penalty to be extinguished if the person files the
statement within 60 days of notification of the penalty.
FISCAL EFFECT:
Committee staff estimates that SB 816 will result in
some increased revenue for local agencies as a result of
increased DTT collections due to increased application of
existing penalties.
COMMENTS:
A. Author's Statement
According to the Author, "SB 816 requires that the
existing 10% penalty be applied on taxes due for the year
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when a new business owner fails to file a change in
ownership statement with the BOE within 45 days of a change
of ownership or control. Under current law, the penalty is
only applied after a written request for filing is sent
from the BOE. This has resulted in multi-year delays in
reassessments of business properties and losses of hundreds
of millions in taxes to State and Local Governments."
B. The DTT
The Documentary Transfer Tax, enacted in 1967, allows
cities and counties to enact taxes on documents that serve
to transfer real property. The tax may be used for general
or specific purposes, although all DTTs levied thus far are
general taxes. The tax is administered by county
recorders, who cannot by law record the property transfer
until the tax is paid. Counties collect the tax but remit
the city tax to the appropriate city. Hundreds of
California Cities levy the tax, ranging from the general
law city rate of fifty-five cents per $1000 of value up to
$15.00 in the City of Oakland.
SB 816 provides a firmer deadline to file change of
ownership statements and removes a sixty day grace period,
thereby encouraging taxpayers to file the legally required
forms, which may or may not trigger the DTT. Additionally,
by providing access to assessor information, SB 816 will
help recorders determine whether the DTT applies to certain
changes of ownership.
C. Gears and Wheels
When property or control of a firm changes hands, the
acquiring person must submit one of two reports. When a
new owner acquires property, he or she must attach a
Preliminary Change of Ownership Report (PCOR) to with any
document effecting a change of ownership to the County
Recorder, or pay an additional recording fee of $20;
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however, the recorder must record the property change
documents if the person pays the additional recording fee.
The County Recorder will then share the PCOR information
along with grant deeds with the County Assessor, who then
determines whether to reassess the property. If the PCOR
is not filed, the person must file a Change in Ownership
Statement (COS). However, no penalty applies for failing
to file the COS unless the assessor asks for one, in which
case the person must file the COS within 45 days of the
assessor's written request or face a penalty of the greater
of $100 or 10% of the taxes applicable to the new base year
reflecting the change of ownership, not to exceed $2,500,
unless the failure was willful, in which case the penalty
reflects the full amount of the taxes applicable to the new
base year.
Typically, a person acquiring control or ownership of
the firm notes the change when answering specific questions
on his or her state income tax forms filed with FTB, which
notifies BOE. BOE then notifies the person of the COS
requirement, who must file the form with the BOE at its
office in Sacramento listing all the counties in which the
firm does business. The California Assessors' Association
states that only 9% of COSs are filed voluntarily according
to BOE, showing that persons usually respond only after
prodding from the BOE. After receiving the COS, the BOE
then notifies the affected counties of the change in
control or ownership of the firm, and assessors determine
whether to reassess property owned by that firm as a result
of the change in control or ownership. The Assessors state
that BOE takes an average of five months, and occasionally
up to five years, to inform the person acquiring ownership
or control to file a COS, and SB 816 hastens this process
by placing an affirmative responsibility on the person
acquiring control or ownership of the firm to file the
legally-required forms.
Currently, the penalty of 10% of the taxes applicable
to the new base year reflecting the change in ownership or
control only applies if the person acquiring ownership or
control does not file a COS within 45 days of BOE's
request. SB 816 instead provides that the penalty applies
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from the earlier of 45 days of the BOE's request, or 45
days from the change in control or ownership, meaning that
affected persons must now submit the form or face a penalty
regardless of whether BOE files a request.
D. Suggested Amendments
On Page 3, Line 10, delete "due" and insert "imposed"
to reflect the appropriate verbage of the Documentary
Transfer Tax Act.
Support and Opposition
Support:California Assessors' Association
Oppose: None Received
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Consultant: Colin Grinnell