BILL ANALYSIS �
AB 1700
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Date of Hearing: April 9, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1700 (Butler) - As Introduced: February 15, 2012
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Property taxation: change in ownership: exclusion.
SUMMARY : Excludes from property tax reassessment a transfer of
co-tenancy interest in a principal residence if the principal
residence was owned by two individuals and was transferred to
one of those individuals upon the death of the other, with the
survivor obtaining sole ownership of that property.
Specifically, this bill :
1)Revises existing property tax law to provide that a transfer
of a co-tenancy interest in real property from one co-tenant
to the other that takes effect upon the death of the
transferor co-tenant does not constitute a "change in
ownership".
2)Specifies that a transfer of a co-tenancy interest in real
property does not constitute a "change in ownership" only if
all of the following requirements are satisfied:
a) The transfer is solely between and by two individuals
who, together, own 100% of the real property in a joint
tenancy or as tenants in common;
b) The deceased co-tenant's interest in the real property
is transferred to the surviving co-tenant, thus,
terminating the co-tenancy;
c) For one year immediately preceding the transfer, the
real property was co-owned by the co-tenants, and both
co-tenants have been the owners of record of that real
property;
d) The real property constituted the principal residence of
both co-tenants immediately preceding the transferor
co-tenant's death;
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e) The co-tenants continuously resided at that residence
for the one-year period immediately preceding the transfer;
and,
f) The transferee has signed, under penalty of perjury, an
affidavit affirming that he/she continuously resided with
the transferor at the residence for the one-year period
immediately preceding the transfer.
3)Provides that a transfer of a co-tenancy interest in real
property takes effect upon the death of the transferor
co-tenant pursuant to the co-tenant's will or trust, through
intestate succession, or by operation of law.
4)Applies to a transfer of real property interests only if the
transfer does not qualify for any other exclusion from a
property tax reassessment under Revenue and Taxation Code
(R&TC), Chapter 2 of Part .5 of Division 1 (Sections
62-69.5).
5)Defines "co-tenancy interest" as an interest in real property
held only as tenants in common or joint tenants.
6)Defines "principal residence" as a dwelling eligible for
either the homeowners' exemption or the disabled veterans'
exemption.
7)Provides that, notwithstanding other provisions of law, the
state is not required to reimburse, and will not reimburse,
local agencies for any property tax revenues lost by them
pursuant to this bill.
8)Applies to transfers that occur on or after January 1, 2013
9)Takes effect immediately as a tax levy.
EXISTING LAW:
1)Provides that all property is taxable unless explicitly
exempted by the California Constitution or federal law.
Limits ad valorem taxes on real property to 1% of the full
cash value of that property as set forth in the California
Constitution. "Full cash value" is defined as the assessor's
valuation of real property as shown on the 1975-76 tax bill
or, thereafter, the appraised value of that real property when
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purchased, newly constructed, or a change in ownership has
occurred.
2)Requires a reassessment of real property to current fair
market value upon a "change of ownership of that property,"
which means that the value of the property, for property tax
purposes, is redetermined based on current market
value. The value of the property established for property tax
purposes initially, or redetermined where appropriate, is
referred to as "base year value", which is subject to annual
increases for inflation, not to exceed 2%.
3)Defines the phrase "a change in ownership" as a transfer of a
present interest in real property, including the beneficial
use thereof, the value of which is substantially equal to the
value of the fee interest. (R&TC Section 60).
4)Provides that a transfer of property due to death results in a
property tax reassessment, unless the transfer qualifies for
one of numerous exemptions available under existing law.
(California Constitution, Article XIIIA, Section 2; RT&C
Sections 60-69.5). For example, a transfer of interests in
real property is exempted from reassessment if that transfer
is between spouses, domestic partners, parents and their
children (Proposition 58), grandparents and grandchildren
(Proposition 193, 1996) or between persons who own property in
a joint tenancy where the surviving joint tenant has the
"original transferor" status. A property transferred under
these circumstances would retain its low Proposition 13 base
year value. The Legislature's authority to create statutory
exemptions from property tax reassessment was affirmed by the
courts �See, e.g., Strong v. Board of Equalization (2007) 155
Cal. App.4th 1182].
5)Excludes from "change in ownership" the creation of a joint
tenancy or the transfer of joint tenancy interests if, after
the creation or transfer, the transferors are among the joint
tenants. In such a creation or transfer, the
transferors become the "original transferors" and any
subsequent transfer or termination of the joint tenancy
interest will not result in a change of ownership if the
interest vests entirely, or in part, in one or more of the
original transferors. As long as a person who is "original
transferor" remains on the title, the property will not be
reassessed. (R&TC Section 65). The percentage of property
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subject to reassessment depends on whether the property is
held through joint tenancy or tenancy in common and whether
both individuals were added to the title upon property
acquisition or one was added at a subsequent date.
FISCAL EFFECT : The Board of Equalization (BOE) staff estimates
that this bill will result in a revenue loss of $108,000
annually.
COMMENTS :
1)The Author's Statement . The author states that, "AB 1700
protects surviving co-owners from the financial hardship of
property reassessment when a loved one passes away. People
who live and own a home together and are unmarried, whether by
choice or because of the law, should be treated equally to
married couples."
2)Arguments in Support . The proponents state that, as a result
of Proposition 13 and today's inflated real estate market,
property tax reassessments often have the practical impact of
forcing surviving owners to leave their homes. Proponents
argue that this bill is consistent with the intent of
Proposition 13 in that it prevents financial hardship for the
surviving co-owner, regardless of whether the co-owners are
siblings, unregistered domestic partners or senior citizens
sharing the cost of housing. Finally, proponents believe that
this bill would benefit many Californians, including same-sex
couples, seniors and families.
3)"Joint Tenancy" and "Tenancy in Common". Joint Tenancy is a
way for two or more people to share ownership of real estate
or other property. When two or more people own property as
joint tenants and one owner dies, the other owner
automatically become the owner of the deceased owner's share.
For example, if a parent and child own a house as joint
tenants and the parent dies, the child automatically becomes
the full owner of the house. Because of this right of
survivorship, no will is required to transfer the property
because it goes directly to the surviving joint tenants,
without the delay and costs of probate.
Under current law, a transfer of property to the surviving joint
tenant that has "original transferor" status is exempt from
reassessment. (R&TC Section 65). In the case where the
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surviving joint tenant does not have that status, the
percentage of the property subject to reassessment to current
market value is 50%. However, if the surviving joint tenant
had been added to the title of the principal residence after
the decedent had first acquired that property, and the
surviving joint tenant did not thereafter obtain "original
transferor" status, the whole property will be subject to
reassessment. The 100% reassessment is authorized in this
case because the property was not reassessed initially when
the decedent added the survivor to the property's title as a
joint tenant.
As long as a person with "original transferor" status remains on
title, the property will not be reassessed. Co-owners of real
property may become "original transferors" in the following
ways (Property Tax Rule 462.040):
i) A and B take title to property as tenants in common,
then transfer to A and B as joint tenants.
ii) A and B take title to property as joint tenants,
then transfer their interests in the property to their
revocable trusts for the benefit of each other, as joint
tenants.
iii) A transfers title to A and B as joints tenants, and
A, but not B, becomes an "original transferor". If,
however, B transfers his interest in the property to his
revocable trust for the benefit of A, then B becomes an
"original transferor".
Tenancy in common is a way for two or more people to own
property together where each can leave his/her interest upon
death to beneficiaries of his choosing instead of leaving it
to the other owners, as is required with joint tenancy.
Under current law, a transfer of interest between the decedent
and the survivor that had equal ownership interests in the
property would be subject to a 50% reassessment or, in the
case where the tenants did not own equal interests, the
reassessment would be equal to the amount of the decedents'
ownership interest in the property transferred to the
survivor.
4)Property Tax Rule 462.040 . In 2003, the BOE promulgated rules
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that allow certain individuals who jointly hold title to a
home, i.e. seniors or registered domestic partners, to be
excluded from changes in ownership if one of the co-owners
dies. However, according to Betty Yee, a Board Member, these
rules proved to be cumbersome and costly to implement. AB
1700 would provide an alternative to the rule revision by
creating an exclusion for certain specified transfers of
property.
5)The Proposed Exclusion . The exclusion created by this bill
applies only to transfers of principal residences where the
transfer occurs as the result of the death of one of two
co-tenants. The exclusion does not apply if two people shared
a principal residence but the survivor was not an owner of
record, i.e. his/her name was not on title to the property.
Furthermore, business entities are not eligible for this
exclusion, as it applies only to individuals.
Existing law already protects from property tax increase
transfers of real property between married people, registered
domestic partners, parents and their children, grandparents
and their grandchildren, and also joint tenants who are
"original transferors". This bill creates an exclusion from
property tax reassessment for transfers of interests in
principal residences between any two people who live together,
including unmarried people, persons who are not domestic
registered partners, siblings, friends, companions, or just
roommates who share the cost of housing. In all these cases,
the co-owners could avail themselves of the exclusion if the
transfer is due to death of one of the co-owners. While
cognizant of the principals underlying Proposition 13 and the
tax policy behind this measure, Committee staff is concerned
about creating a precedent for exempting a transfer of real
property from property tax reassessments in the case of
co-tenants who are not family members.
6)Sunset Date . This bill lacks a sunset date to allow periodic
legislative review of the tax exclusion. All prior bills
containing identical language included a 10-year sunset date.
The Committee staff recommends an amendment to add a similar
sunset date.
7)Proposed Technical Amendment .
On p. 2, strike out lines 8 to 12, inclusive, and insert:
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(1) The transfer is solely by and between two individuals who
together own 100% of the real property in joint tenancy or as
tenants in common.
8)Related Legislation .
AB 2735 (De Leon), introduced in the 2009-10 Legislative
Session, was identical to this bill but included a 10-year
sunset provision. AB 2735 was held under submission in the
Assembly Appropriations Committee.
AB 103 (De Leon), introduced in the 2009-10 Legislative Session,
was identical to this bill but included a 10-year sunset
provision. AB 103 was held under submission in the Assembly
Appropriations Committee.
SB 153 (Migden), introduced in the 2007-08 Legislative
Session, was identical to this bill but contained a 10-year
sunset provision. SB 153 was vetoed by the Governor. As
stated in the veto message:
"This bill would exempt real property from reassessment due to
change of ownership when one co-owner dies, leaving his or her
interest in the property to the surviving co-owner.
"Existing law already provides that real property transferred
between spouses and registered domestic partners, or between
parents, grandparents, and children, is exempt from
reassessment. Further, co-owners not covered by any of these
exemptions have the option of changing a real property title
to a joint tenancy, thus ensuring that a reassessment does not
occur upon the death of one joint tenant. Given these
exemptions and options provided under existing law, this bill
is not necessary.
"For these reasons, I am returning this bill without my
signature."
SB 565 (Migden), Chapter 416, Statutes of 2005, exempts from
reassessment to current fair market value a transfer of any
interest in real property between registered domestic
partners.
AB 23 (Nation), introduced in the 2003-04 Legislative Session,
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proposed to clarify existing law related to the creation or
transfer of the joint tenancy interest and declared the
legislative intent to protect or carry out certain estate
planning objectives. AB 23 died in the Senate Appropriations
Committee.
SCA 5 (Speier), introduced in the 2003-04 Legislative Session,
authorized a county board of supervisors to adopt an ordinance
to exclude from the definition of a "change in ownership" or
"purchase" a transfer of an ownership interest in a principal
residence, located in that county, between co-owners who
resided together in that residence for the three years
immediately preceding the transfer. SCA 5 was never heard in
committee.
SCA 9 (Speier), introduced in the 2002-03 Legislative Session,
similarly authorized a county board of supervisors to adopt an
ordinance to exclude from the definition of a "change in
ownership" or "purchase" a transfer of an ownership interest
in a principal residence, located in that county, between
co-owners of that residence if those parties co-owned and
resided in that residence for a period of three years
immediately preceding the transfer. SCA 9 was held under
submission by the Assembly Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Equality California (Sponsor)
Betty Yee, Board of Equalization (BOE) Chairwoman
Congress of California Seniors
Assessor, County of San Luis Obispo
Assessor, County of Santa Clara
Assessor-Recorder, City and County of San Francisco
California Communities United Institute
California National Organization for Women
California Apartment Association
California Association of Realtors
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
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319-2098