BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1700 (Butler) - Property taxation: change in ownership
exclusion for cotenancy interests.
Amended: April 17, 2012 Policy Vote: G&F 8-1
Urgency: No Mandate: Yes
Hearing Date: July 2, 2012 Consultant: Mark McKenzie
This bill may meet the criteria for referral to the Suspense
File.
Bill Summary: AB 1700 would establish a new exclusion from
change in ownership provisions that would otherwise require a
reassessment for property transfers between cotenants when one
of the owners dies.
Fiscal Impact:
The Board of Equalization (BOE) estimates that the bill would
result in a statewide reduction in property tax revenues of
approximately $108,000 annually. Assuming 50 percent of the
statewide property tax revenues offset General Fund
obligations to schools pursuant to Proposition 98, the State
General Fund impact would be approximately $54,000 due to
increased state backfill provided to schools. Actual costs
would depend upon the difference between the factored base
year value and current market value of homes subject to the
new exclusion, and the number of exclusions claimed as a
result of the bill.
Likely minor reimbursable mandate costs related to the
imposition of new duties on local tax officials related to the
new change in ownership exclusion. (General Fund)
Background: Existing law generally requires a reassessment of
real property to current fair market value when there is a
change in ownership. Subject to specified limitations, the
State Constitution and statutory provisions allow exceptions to
change in ownership requirements for property transfers between
spouses, domestic partners, parents and children, grandparents
and grandchildren, and persons that own property in joint
tenancy, if one of the joint tenants dies and the surviving
joint tenant has "original transferor status," as specified.
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Apart from joint tenancy circumstances, when more than one
unrelated persons owns a property as tenants in common, and one
of the owners dies, that owner's share of the property is
generally reassessed to fair market value under current law.
Proposed Law: AB 1700 would exempt transfers of a cotenancy
ownership interest between two owners of a property from a
"change in ownership" requiring reassessment beginning on
January 1, 2013, when one of the owners dies and all of the
following conditions are met:
The co-owners together own 100% of the property in joint
tenancy, or as tenants in common,
As a result of the death of one co-owner, the surviving
owner holds 100% interest in the property,
Both tenants were co-owners of record and continuously
resided at the property for the one-year period prior to
the death,
The property was the principal place of residence for
both co-owners immediately prior to the death, and
The surviving tenant signs an affidavit under penalty of
perjury certifying that the co-owners continuously resided
at the property for the one-year period prior to the death.
The transfer takes place upon death of the co-owner pursuant to
a will or trust, intestate succession, or by operation of law.
The measure specifies that its exclusion shall not apply to any
transfer for which a separate exclusion applies, and provides
definitions for "cotenancy interest" and "principal residence."
Related Legislation: Similar legislation in prior years includes
AB 2735 (De Leon, 2010), which would have applied to transfers
between the dates of January 1, 2011 and January 1, 2021, and AB
103 (De Leon, 2009) which would have applied to transfers
between the dates of January 1, 2010 and January 1, 2020. Both
bills were held on the Suspense File in the Assembly
Appropriations Committee. Another similar bill, SB 153 (Migden,
2008), was vetoed by Governor Schwarzenegger.
Staff Comments: Existing law provides for an exclusion from
change in ownership requirements for transfers between persons
that own property in joint tenancy, if one of the joint tenants
dies and the surviving joint tenant has "original transferor
status," as specified. Property Tax Rule 462.040 prescribes
ways in which co-owners may become original transferors under
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current law and protect against reassessment that would be
triggered by the death of one of the owners. This bill would
essentially extend the same rights for exclusion of change in
ownership for persons who are tenants in common, under specified
circumstances.
BOE estimates that fewer than 105 transfers of ownership would
occur each year for which a surviving co-owner that meets the
conditions of the bill and chooses to file a claim for the
exclusion. This estimate accounts for the fact that the
narrowly defined cotenancy change in ownership exclusion created
by the bill can be accomplished under existing law (Property Tax
Rule 462.020). In addition, the downturn in the housing market
has mitigated the advantage of claiming a change in ownership
exclusion in cases where the factored base year value is higher
than the current market value. Under current market conditions,
BOE's revenue estimate assumes 105 exclusions would be claimed
each year as a result of the bill at a median home price of
$286,000, and the value difference between the factored base
year value and current market value is $103,000. Staff notes
that the revenue impacts would increase as housing prices
recover, fewer homes have a factored base year value that is
higher than market value, and there is more of an incentive to
claim a change in ownership exclusion.