BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 507 HEARING: 4/27/11
AUTHOR: DeSaulnier FISCAL: Yes
VERSION: 3/29/11 TAX LEVY: No
CONSULTANT: Grinnell
PROPERTY TAXATION: CHANGE IN OWNERSHIP STATEMENT
Increases Penalties for Failing to File, and Extends
Deadlines for New Owners to Submit Change in Ownership
Statements
Background and Existing Law
Assessors revalue property at current, full market value
for property tax purposes whenever it changes ownership or
is newly constructed. Whenever ownership changes, the new
owner must file a Change in Ownership Statement. However,
there is no penalty for failure to file the statement
unless the Assessor makes a written request for the
statement and the owner subsequently fails to file the
statement within 45 days. Additionally, persons who
acquire control or ownership of legal entities that own
property must file a change in ownership statement with the
State Board of Equalization (BOE), but again, no penalty
applies for failing to file the statement with BOE. BOE
then makes a written request to the person for the
statement, and assessors may then apply the penalty if the
person does not respond to the BOE written request.
The penalty for failing to file a Change in Ownership
Statement after receiving a request from the Assessor is
10% of the tax, up to a maximum of $2,500, if the violation
was not willful. The County Board of Supervisors may abate
the penalty due to reasonable cause, provided the taxpayer
filed an application for abatement within 60 days after the
Assessor's notification of the penalty.
Alternatively, the new owner may file a Preliminary Change
in Ownership Report (PCOR), which is nearly identical to
the Change in Ownership Statement, at the time the deed for
change in ownership is recorded, thereby generally
satisfying the requirement for filing the Change in
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Ownership Statement. The statute prescribes the details of
the report, but leaves to the BOE the task of determining
the exact form for Change in Ownership Statements.
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Proposed Law
SB 507 increases the penalty for new owners failing to file
a Change in Ownership Statement upon request from the
assessor or the State Board of Equalization (BOE):
From $2,500 to $5,000 for property eligible for the
homeowners' exemption, and
From $5,000 to $20,000 for property not eligible
for the homeowners' exemption.
The measure extends the deadline from 45 days to 90 days
for new owners to file a change of ownership statement with
either the assessor or BOE, and to comply with the request
without penalty. SB 507 applies to statements law requires
new owners file with assessors for locally-assessed
property, or with BOE, which collects the statement when a
legal entity changes ownership or control.
SB 507 provides that the penalty shall be abated if the new
owner notifies the BOE and the Assessor within 60 days of
notice of the penalty that the request was based on
erroneous information. The bill provides that the penalty
also applies if the new owner submits an incomplete form
and does not supply missing information upon a second
request.
The measure requires the assessor to mail the request for
the statement to the new owner at the address specified on
the instrument that records the property ownership change,
the document evidencing the transfer of interest, or on the
PCOR. The assessor must send notice of the penalty to the
address on the PCOR, unless the new owner notifies the
assessor of a change in address, in which case the assessor
shall mail the notice of any penalty to that address. If
none of these documents show an address, the assessor may
use any address he or she reasonably knows for the new
owner to send the request or the notice of the penalty.
SB 507 deems that a change of ownership statement is filed
on the date of the postmark affixed by the United States
Postal Service or the date certified by a bona fide private
courier statement. The bill changes the contents of the
notice to taxpayers on the statement to reflect the higher
penalty amounts, longer deadline, and revised dating
procedures in each section spelling out the contents of the
form (R&T �480, �480.1, and �480.2.) The measure also
states that because this part of Property Tax Law refers
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only to County Boards of Supervisors but many counties have
assessment appeals boards, then references to Boards of
Supervisors also refer to assessment appeals boards.
State Revenue Impact
No Estimate.
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Comments
1. Purpose of the bill . According to the Author, "A
property owner's failure to report changes in ownership,
willful or not, has greatly reduced the ability of county
assessors and the BOE to efficiently process these changes.
It is time to increase the penalty for non-compliance so as
to encourage timely response to requests for information,
should a preliminary change in ownership be incomplete or
should a county assessor or the BOE require additional
information for processing. The purpose of this legislation
is not to generate revenue for assessors' offices; rather
the penalty increase is an attempt to encourage timely
filing of the Change of Ownership Statement (COS).
Taxpayers often view the low penalty as an opportunity to
postpone timely filing of the COS to delay paying
appropriate property taxes. The increase in the penalty is
an attempt to eliminate the financial advantage of late
filing and to facilitate timely payment of property taxes."
2. Uncomfortable questions . Taxpayers generally want to
do the right thing. Most do not intentionally flaunt the
law, and comply with relevant reporting requirements.
Increasing penalties for failing to report property
transfers assumes widespread malfeasance which may or may
not exist. Additionally, assessors may be levying
penalties on notices which never reach the new owners of
the property, who would have complied had they been made
aware of the requirement.
3. On the nature of penalties . Tax enforcement depends on
effective penalties to maintain taxpayer compliance,
thereby promoting equity among taxpayers and preventing
shifting the costs of public services from tax scofflaws to
law-abiding citizens. Taxpayers cannot be expected to
follow the law unless the penalty amounts exceed the
benefit of not following the law. Consider a taxpayer who
purchased an office complex for $5 million with a current
assessed valuation of $1 million. The taxpayer would pay
$40,000 more in property taxes per year if reported and
reassessed (at the 1% rate), but only be subject to a
maximum penalty of $2,500 under current law for failing to
file the statement. A sensible person would not report the
information. SB 507 changes this cost-benefit calculation
to improve compliance with existing law amongst owners of
high-value ($2.5 million or more), non-homeowners' exempt
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properties with a strong incentive not to report given the
cap on penalties in existing law.
4. Look before you LEOP . Often times, assessors are
unaware when ownership changes in a legal entity which can
trigger reassessment of properties owned by that legal
entity, often times relying only on changes in title
information supplied by the County Recorder. To help track
potential reassessments, BOE created the Legal Entity
Ownership Program (LEOP) in 1982 to help find and detect
changes in control and ownership of corporations,
partnerships, and other legal entities, which have no
recorded deed or notice of a transfer of an ownership
interest in a legal entity. Under LEOP, the Franchise Tax
Board sends to the BOE a list of legal entities that have
reported a change in control or change in ownership on
income tax returns, analyzes completed statements to
determine changes in control or ownership, and notifies
county assessors of changes in control and ownership. To
assist these efforts, the Legislature established a penalty
for legal entities failing to self-report a change in
ownership and control to BOE (SB 816, Ducheny, 2009).
5. Have we met before ? SB 507 is very similar to AB 843
(Eng, 2007) and
AB 926 (Chu, 2006), measures approved by the former
Committee on Revenue and Taxation, but vetoed by Governor
Arnold Schwarzenegger. Governor Schwarzenegger stated in
vetoing AB 926 that while a reasonable argument existed for
raising the penalty cap, he was concerned that taxpayers
did not actually receive requests and penalty notices from
Assessors in a timely manner. AB 843 responded to the veto
message and crafted provisions in this bill that extend the
time period from 45 days to 60 days before the Assessor
levies penalties for failing to respond to a request and
clarify taxpayer delivery protocols. However, Governor
Schwarzenegger was not convinced by the changes, stating
his reservation "that the notification procedures in this
measure do not adequately ensure that property owners
actually receive requests from county assessors in a timely
manner." SB 507 allows new owners 90 days to respond to
the request of the assessor and BOE, double the time in
existing law, and 30 days longer than AB 943 offered.
6. Suggested amendments . The Committee should amend SB
507 to delete the specific requirements on the assessor
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from the form to prevent it from becoming too long and
cumbersome for taxpayers (Page 4, lines 37 through 40, Page
5, lines 1 through 3 and 4 up to "assessor.") The
Committee should also amend the measure to clarify that the
assessor determines whether the penalty was based on
erroneous information, abates the penalty, and notifies the
new owner of the abatement.
Support and Opposition (04/21/11)
Support : California Assessors' Association; California
State Association of Counties, California Tax Reform
Association.
Opposition : Unknown.