BILL ANALYSIS �
AB 2046
Page A
Date of Hearing: May 14, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2046 (Allen and Huffman) - As Introduced: February 23, 2012
VOTE ONLY
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Property tax: change in ownership: exclusion:
floating homes.
SUMMARY : Revises the definition of a "change in ownership" to
create an exclusion from property reassessment for specified
transfers of a floating home marina. Specifically, this bill :
1)Provides that a purchase of a floating home marina, as
defined, by an eligible entity formed by the marina's tenants,
does not trigger a reassessment of the marina's real property
to current fair market value for property tax purposes.
2)Provides that both of the following requirements must be met
in order for the transfer to qualify for the exclusion from
reassessment:
a) A transfer of a floating home marina is made to a
non-profit corporation, stock cooperative corporation,
limited equity stock cooperative, or other entity formed by
the tenants of a floating home marina for the purpose of
purchasing the marina.
b) The individual tenants who were renting at least 51% of
the berths in the floating home marina prior to the
transfer participate in the transaction through the
ownership of at least 51% of the voting stock of, or other
ownership or membership interest in, the entity that
acquires the floating home marina.
3)Defines "floating home marina," by reference to Civil Code
Section 800.4, as an area where five or more floating home
berths are rented, or held out for rent, to accommodate
floating homes. Excludes from this definition:
a) A marina where 10% or fewer of the berths are leased or
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held out to lease to floating homes;
b) A marina or harbor (i) which is managed by a nonprofit
organization; (ii) the rules and regulations of which are
set by majority vote of the berth holders thereof; and,
(iii) which contains berths for fewer than 25 floating
homes.
4)Specifies that the state will not reimburse any local agency
for any property tax revenues lost by it pursuant to this
bill.
5)Provides that reimbursement to local agencies and school
districts shall be made for the costs, if the Commission on
Mandates determines that this bill contains costs mandated by
the state.
6)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, and
limits the maximum amount of any ad valorem tax on real
property at 1% of full cash value, subject to an annual
increase of the lesser of 2% or the inflation rate. "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 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 re-determined based on current market
value. The value of the property established for property tax
purposes initially, or re-determined where appropriate, is
referred to as "base year value."
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. �Revenue & Taxation Code (R&TC)
Section 60].
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4)A transfer of a mobilehome park, on or after January 1, 1985,
is excluded from a "change in ownership" reassessment,
provided that it is purchased by an entity formed by the
tenants renting at least 51% of the spaces prior to the
transfer. 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)Provides that any transfer in the shares of stock or ownership
interests in the entity that acquired a mobilehome park would
result in a pro-rata reassessment of the park's real property
equal to the portion of ownership interests that have been
transferred. Excludes from pro-rata reassessment transfers
that are undertaken for the purpose of converting the park to
condominium or cooperative ownership.
6)Excludes from reassessment transfers of rental spaces in a
mobilehome part to individual tenants if (a) at least 51% of
the spaces are purchased by individual tenants renting their
spaces prior to purchase, and (b) the individual tenants form,
within one year after the first purchase of a rental space by
a tenant, a resident organization, as defined in Health and
Safety Code Section 50781.
7)Provides that a floating home is not a vessel but is real
property for property tax assessment purposes. (R&TC Section
229).
FISCAL EFFECT : The Board of Equalization (BOE) staff estimates
that this bill would result in an annual loss of $212,000.
COMMENTS :
1)The Purpose of this Bill. According to the author, "the
reassessment of floating home properties upon transfer is much
more similar to that of mobile homes than it is to fixed
structures and should be reflected this way in the law. The
ultimate goal �of this bill] is to give floating homes marinas
the ability to be purchased by a neighborhood association," by
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excluding the transfer of a floating home marina from the
definition of a "change of ownership."
2)Property Taxes: Background. The property tax is one of the
major general revenue sources for local governments in
California. It applies to all classes of property, is imposed
on property owners and is based on the value of the property.
Much of the law pertaining to property taxation is prescribed
by Articles XIII and XIII A (commonly known as Proposition 13)
of the California Constitution. Proposition 13 was added to
the California Constitution in June 1978 and was most recently
amended by Proposition 26 in 2010. It was designed to provide
real property tax relief by imposing a set of interlocking
limitations upon the assessment and taxing powers of state and
local governments.<1>
Section 1 of Article XIII A of the California Constitute
states that, as a general rule, the maximum amount of any ad
valorem tax on real property may not exceed 1% of the
property's full cash value, as adjusted for the lesser of
inflation or 2% per year. The term "full cash value" means
the "county assessor's valuation of real property as shown on
the 1975-1976 tax bill" or, thereafter, "the appraised value
of real property when purchased, newly constructed, or a
change in ownership has occurred after the 1975 assessment"
(emphasis added) �California Constitution, Article XIII A,
Sections 1 and 2]. In other words, the California
Constitution requires that real property be reassessed to its
current fair market value whenever a "change in ownership" has
occurred.
3)What is a "Change in Ownership"? The definition of a "change
in ownership" was not included in Proposition 13, but rather,
was left to implementing legislation. Shortly after the
passage of Proposition 13, the Assembly Committee on Revenue
and Taxation appointed a special Task Force - a broad-based
35-member panel that included legislative and State BOE staff,
county assessors, attorneys in the public and private sectors,
---------------------------
<1> Since any tax savings resulting from the real property tax
limitations provided in Sections 1 and 2 of Article XIII A could
be effectively eliminated through the imposition of additional
state and local taxes, Sections 3 and 4 place additional
restrictions upon the imposition of any such taxes. See Amador
Valley Joint Union High Sch. Dist. v. State Bd. of Equalization ,
(1978) 22 Cal.3d 208.
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and trade associations - to suggest a statutory scheme for
implementing Proposition 13, including applicable "change in
ownership" provisions. Following the Task Force's
recommendations, the Legislature defined the term 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).
For policy reasons, the Legislature has, over the years,
exempted various transfers from the "change in ownership"
definition. The exempted transfers, such as, for example, a
transfer of real property between spouses or a purchase of a
mobilehome park by its residents, among others, do not trigger
a reassessment of property to current fair market value.
Instead, the property retains its prior base year value.
4)The Mobilehome Park Resident Occupancy Program (MPROP). In
1984, the Legislature enacted MPROP in order "to facilitate
conversions of mobilehome parks to tenant ownership, thereby
maintaining affordable housing for the tenants." �Strong v.
Board of Equalization (2007) 155 Cal. App.4th 1194]. The
program allows mobilehome park residents to apply for
low-interest loans to finance the conversion of mobilehome
parks to resident ownership. It is funded through a $5 fee
that certain mobilehome owners pay along with their annual
registration fee, as well as through loan repayment. The
Department of Housing and Community Development (HCD) states
on its website that, currently, approximately $8 million is
available under MPROP.
As part of the MPROP, the Legislature excluded a direct or
indirect transfer of a mobilehome park to an entity formed by
the tenants from the definition of a "change of ownership,"
provided that 51% of the entity is owned by the tenants
renting at least 51% of the spaces in the park prior to the
transfer. As a result, the tenants retain the prior base-year
value in the mobilehome park, since the transfer does not
trigger a reassessment of the property. Once the park has
been purchased by the residents and the purchase was not
subject to reassessment, any subsequent pro-rata change of
ownership in resident-owned mobilehome parks issubject to
reassessment. In other words, when a resident who
participated in the original purchase of the park sells or
otherwise transfers his/her ownership interest in the park, a
pro-rata share of the park's real property would be reassessed
to its current fair market value.
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According to the Senate Select Committee on Mobile and
Manufactured Homes (Select Committee), there are approximately
4,822 mobilehome parks and manufactured communities in the
California, with an estimated 700,000 residents living in
them. In the vast majority of parks, mobilehome residents own
their homes but rent the spaces on which their homes are
installed from the park on a month-to-month or long-term lease
agreement. According to the Select Committee, of the 4,822
parks, most are privately owned by investor groups or
owner/operators and an estimated 150 are owned by resident
organizations or non-profit organizations. Contrary to their
name, mobilehomes generally are not mobile. Once installed in
a park, they are rarely ever moved. Between 1985 and 2001,
MPROP provided loans to assist with conversion in 66
mobilehome parks around the state. Since 2002, new loan
activity under the program has slowed and activity continues
to decline. The program had no successful applications in 2010
and only two in 2011. The HCD indicates that the increasing
cost and complexity of park conversions are two of the primary
reasons for the reduction in the number of loan applications.
5)What Does This Bill Do? AB 2046 allows tenants of a floating
home marina to purchase the marina without triggering a
potential reassessment of the marina for property tax
purposes. Similarly to the exclusion for purchases of
mobilehome parks, the marina's tenants must form a non-profit
corporation, stock cooperative corporation, limited equity
stock cooperative, or other entity to purchase the marina.
This bill further limits the availability of the proposed
exclusion by requiring individual tenants who were renting at
least 51% of the berths in the floating home marina prior to
the transfer to participate in the transaction and own at
least 51% of the voting stock or membership interests of the
entity that acquires the floating home marina.
6)Should a Transfer of a Floating Home Marina Be Treated the
Same as a Transfer of a
MobileHome Park for Property Tax Purposes ? Generally, the
residents of a mobilehome park, like the tenants of a floating
home marina, do not own the land underneath their homes where
they reside. Instead, they rent a space in a mobilehome park
from the owner or operator of the park, or, in the case of a
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floating home, a berth from the marina's owner or operator.
Functionally, the ownership structure of a mobile home is
comparable to that of a floating home. But the tax benefit -
an exclusion from reassessment for property tax purposes - is
only available for purchases of mobilehome parks, and not
floating home marinas, by the tenants. Should this benefit be
extended to the tenants of a floating home marina?
A floating home is considered to be real property, not a
vessel. It stays in a permanent location, just like a regular
home, except the location is on the water. A floating home is
subject to property tax and usually is connected to utilities
and other services, such as cable or satellite TV, and
Internet. Many people use floating homes as their principal
residences, just like owners of mobile homes. Proposition 13
provides protection from a reassessment of property until a
"change in ownership" has occurred. Arguably, it is unfair,
or excessively burdensome, to treat a purchase of a floating
home marina by the tenants as a "change in ownership," since
the tenants presently use and occupy the marina as renters.
Furthermore, the "underlying purpose and chief aim of
Proposition 13 was real property tax relief" �Board of
Supervisors v. Lonergan (1980) 27 Cal.3d 855, 863], ensuring
that people are protected from being "taxed" out of their
homes because of increasing property taxes. Finally, owners
of mobile homes - who are similarly situated - are allowed to
purchase the mobilehome park in which they reside without
triggering an increase in the amount of property tax
associated with the park.
It is important, however, to look at the legislative intent
underlying the creation of the exclusion for conversions of a
mobilehome park into resident-owned, in order to determine if
the same rationale would apply in the case of floating home
marina conversions. In the mid-1980s, as a result of
increasing park rents for low- and moderate-income residents
and the closure of some parks and displacement of residents,
the concept of resident-owned parks, where residents form a
homeowners association to purchase a park and convert it to a
mobilehome subdivision, condominium, stock co-operative, or
non-profit ownership, gained popularity. In response, the
Legislature enacted a number of laws, including the MPROP, to
assist mobilehome residents with the conversion costs in order
to provide the residents with an opportunity to obtain
management and financial control over the park. A price of a
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mobilehome park is not cheap, and, for the most part,
residents of those parks tend to be low- or moderate-income
people. The low-interest loan program and the exemption from
reassessment for property tax purposes were envisioned as a
subsidy, part of financing for conversions of mobilehome parks
into resident-owned parks. In fact, most of those conversions
would not have taken place in the absence of these subsidies,
including the tax benefit, provided by the state.
On average, a price of a manufactured home tends to be lower
than that of a floating home. An average price of a
mobilehome park is also lower than the price of a floating
home marina. It may be argued that an average owner of a
floating home is better off financially than an average owner
of a mobile home. The Committee may wish to consider whether
the rationale for creating a tax benefit for mobilehome park
purchases by its residents, i.e. a need to provide financial
assistance to residents in order to effectuate those
conversions, would apply in the case of floating home marinas.
7)Subsequent Reassessment of Pro Rata Transfers . The exclusion
for qualifying mobilehome park transfers does not apply to
subsequent sales or transfers of pro-rata share in
resident-owned mobilehome parks. AB 2046 does not contain a
similar provision with respect to the treatment of a pro rata
change in ownership after the conversion of a floating home
marina into tenant-owned, thus potentially creating a
permanent exclusion from reassessment for any subsequent
transfers of ownership in the marina. The Committee may wish
to consider including a similar provision to require a
reassessment of subsequent pro rata changes in ownership of
the floating home marina.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
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319-2098