BILL ANALYSIS
SB 816
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Date of Hearing: June 22, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
SB 816 (Ducheny) - As Amended: April 28, 2009
Majority vote. Fiscal committee.
SENATE VOTE : 32-2
SUBJECT : Property taxation.
SUMMARY : Implements various changes to the Revenue & Taxation
Code (R&TC) sponsored by the California Assessors' Association.
Specifically, this bill :
1)Requires the county assessor to disclose information, furnish
abstracts, or permit access to all records in his/her office
to the county recorder when conducting an investigation to
determine whether a documentary transfer tax is imposed.
2)Modifies the trigger for imposing an existing penalty for the
failure to file a change in ownership statement.
Specifically, the penalty shall be imposed for the failure to
file a change in ownership statement within 45 days from the
earlier of:
a) The date of the change in control (or ownership) of the
corporation, partnership, or limited liability company
(LLC); or,
b) The date of a written request by the Board of
Equalization (BOE).
3)Deletes statutory language providing that the penalty shall be
automatically extinguished if the relevant party files a
complete statement no later than 60 days after the date on
which the party is notified of the penalty.
4)Provides that any ordinance adopted pursuant to the
Documentary Transfer Tax Act may include an administrative
appeal process for resolution of disputes related to the
documentary transfer tax.
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5)Specifies that, whether the amount of documentary transfer tax
is determined by an administrative appeal process or
established by a court, the value of the property established
for purposes of determining the amount of documentary transfer
tax due shall not be binding on the determination of the value
of that property for property tax purposes.
6)Specifies that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts shall be
made.
EXISTING LAW :
1)Requires the county assessor to disclose information, furnish
abstracts, or permit access to all records in his/her office
to law enforcement agencies, the county grand jury, and other
specified entities.
2)Provides that, whenever there is a change in control of any
corporation, partnership, LLC, or other legal entity, the
party acquiring ownership control must file a signed change in
ownership statement with the BOE at its office in Sacramento.
Similarly, whenever there is a change in ownership of any
corporation, partnership, or LLC, a signed change in ownership
statement must be filed.
3)Imposes a penalty for the failure to file a change in
ownership statement within 45 days from the date of a written
request by BOE. The penalty is equal to 10% of the taxes
applicable to the new base year value reflecting the change in
control (or ownership) of the real property owned by the
business (or 10% of the current year's taxes on that real
property if no change in control or ownership occurred).
FISCAL EFFECT : BOE notes that this bill has no direct revenue
impact. However, establishing a penalty for not self-reporting
and filing a change in ownership statement with BOE may be an
incentive for legal entities to properly file a change in
ownership statement when a change in ownership occurs.
COMMENTS :
1)The author states, "SB 816 requires that the existing 10%
penalty be applied on taxes due for the year when a new
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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."
2)Supporters note, "Under Proposition 13, changes in ownership
typically result in higher assessments and therefore increased
property taxes. The 10% penalty provision of this bill can be
expected to accomplish two things. First, it will improve the
discovery of reappraisable changes in ownership, reducing the
number of escape assessments. Second, the time between a
change in ownership and discovery of unrecorded transfers will
be reduced, resulting in more timely receipt of increased
property taxes."
3)BOE notes the following in its staff analysis of this bill:
a) "Under current law, a penalty is incurred only if a
legal entity does not respond to a written request by the
Board to file a statement. Legal entities are given two
opportunities to provide the information before a penalty
is levied. This bill would impose a penalty on those legal
entities that do not initiate filing a change in ownership
statement within the required time period."
b) "As an aid in discovering change in control or change in
ownership of property owned by legal entities, the Board
routinely sends statements to legal entities based on
information from the property tax question on the state
income tax return and from monitoring various business
publications. This bill would not modify the requirement
to file a statement upon Board request and the penalty for
failure to respond to the Board request for information.
These penalties can apply whether or not a change in
ownership actually occurred. However, this bill does
eliminate the automatic penalty extinguishment provisions."
4)Committee Staff Comments
a) Discovering a change in ownership :
i) R&TC Section 255.7 provides that, whenever a change
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of ownership is recorded in the county recorder's office,
the county recorder must provide the assessor with a copy
of the transfer of ownership document as soon as
possible. BOE notes that county assessors discover most
changes in real property ownership through grant deeds or
other recorded documents. However, with respect to
property owned by a legal entity, the property may
"change ownership" under the law, but no grant deed or
other document is recorded to alert the assessor to the
need for reassessment. Thus, discovery of these
ownership changes is largely dependent on self-reporting
by the legal entities.
ii) Existing law provides that, whenever there is a
change in control of any corporation, partnership, LLC,
or other legal entity, the party acquiring ownership
control must file a signed change in ownership statement
with BOE. Similarly, whenever there is a change in
ownership of any corporation, partnership, or LLC, a
signed change in ownership statement must be filed.
However, no penalty is imposed if the statement is not
filed within the 45 day period specified in law. Rather,
the penalty applies only if a legal entity does not
timely respond to a direct BOE request to file a change
in ownership statement.
iii) BOE notes that, while there is no penalty for
failing to notify property tax administrators within the
required 45 day period, there is, nevertheless, a
long-term consequence to not reporting "reassessable
events" promptly. This is because existing law provides
that when it is eventually discovered that a property
should have been reassessed and it was not reported, then
the property must be reassessed as of the date of that
event and all the back taxes (plus interest and a
potential fraud penalty) must be repaid. Specifically,
so-called "escape assessments" are levied for every tax
year in which the property owned by the legal entity was
not assessed at the proper amount to reflect the change
in ownership.
iv) This bill would amend existing law to provide for
the imposition of a penalty if a change in ownership
statement is not filed within 45 days of the earlier of:
(1) The date of the event triggering the reassessment,
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or, (2) the date BOE makes a written request to file a
statement. Thus, when there is a change in control or
ownership of a business entity, the business must file a
change in ownership statement within 45 days of the
event, with or without a written request from BOE, or a
penalty will be imposed.
b) Penalty abatement : R&TC Section 482(b) provides that
the penalty for failing to file a statement will be
automatically extinguished if the responsible party files a
complete statement with BOE no later than 60 days after the
date on which the party is notified of the penalty. This
bill would amend R&TC Section 482(b) to delete the
automatic extinguishment provisions. However, BOE notes
that a legal entity could continue to seek penalty
abatement for reasonable cause under existing law.
c) The documentary transfer tax :
i) Existing law requires county assessors to keep
certain information confidential. R&TC Section 408(b)
provides an exception to this general rule of
confidentiality for certain governmental agencies or
representatives. Specifically, it requires the assessor
to disclose information, furnish abstracts, or permit
access to all records in his/her office to specified
entities.
ii) This bill would amend R&TC Section 408(b) to add the
county recorder to the list of entities that may have
access to all records in the assessor's office for
purposes of determining whether a documentary transfer
tax is to be imposed. The documentary transfer tax is
administered at the local level by the county recorder.
iii) This bill would also expressly provide for an
administrative appeal process to resolve documentary
transfer tax disputes.
d) Technical amendments : BOE has suggested technical
amendments referenced in its staff analysis of this bill.
REGISTERED SUPPORT / OPPOSITION :
Support
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California Assessors' Association
Los Angeles County Board of Supervisors
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098