BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1152 HEARING: 5/14/14
AUTHOR: Anderson FISCAL: Yes
VERSION: 5/7/14 TAX LEVY: Yes
CONSULTANT: Grinnell
PROPERTY TAX EXEMPTIONS FOR VETERANS' ORGANIZATIONS
Expands the application of the veterans' organization
exemption to lodge, fraternal, and social club uses.
Background and Existing Law
Section One of Article XIII of the California Constitution
provides that all property is taxable unless explicitly
exempted by the Constitution or federal law, but allows the
Legislature to exempt property used for religious,
hospital, or charitable purposes, so long as its owned by
nonprofit entities organized and operated for charitable
purposes, none of whose income inures to the benefit of any
private shareholder or individual. The Legislature enacted
this exemption in law, commonly known as the "welfare
exemption." To be eligible, the Legislature required the
owner and property to meet the standards in the
Constitution, in addition to other requirements, such as:
The property is used for the actual operation of
the exempt activity, and does not exceed an amount of
property reasonably necessary to accomplish the
exempt purpose,
The property is not used to benefit the owner or
any other person,
The property is not used for fraternal, lodge, or
social club purposes, except to the extent that the
use is clearly incidental to its charitable purpose,
and
The property is irrevocably dedicated to
charitable purposes, and will not inure to the
benefit of a person upon sale or dissolution, except
in specified circumstances.
Property owned by a veterans' organization chartered by the
United States Congress is eligible for the welfare
exemption, so long as the organization complies with the
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requirements above, is tax-exempt under federal and state
law, and has a "veterans' organization exemption"
certificate of compliance on file with the county assessor.
However, this exemption conflicts with the limitation on
fraternal, lodge, or social club purposes because buildings
owned by Veterans of Foreign Wars (VFW) and the American
Legion often have many uses, some of which are social in
nature. As a result, the application of the veterans'
organization exemption can vary across counties, where
independent, elected assessors enforce property tax law.
Some counties assess the whole property, others exempt just
the office and facilities that directly serve veterans,
while others don't assess the property at all. Veterans'
groups seek clarity that property owned by VFW and American
Legion that serve veterans' unique need should be eligible
for the welfare exemption from property tax.
Proposed Law
Senate Bill 1152 provides that the welfare exemption shall
not be denied to property owned by veterans' organizations
that is used for fraternal, lodge, or social club purposes.
The measure states legislative findings and declarations
regarding the qualitative distinction between the
activities of veterans' organizations and other nonprofit
entities that use property for fraternal, lodge, or social
club purposes, and that in light of this distinction, the
property is central to the organization's exempt purpose
and activities.
The bill additionally states that the veterans'
organization exemption applies to property owned by the
organization that is occasionally made available to the
public as a service to the community. Rental proceeds must
be limited to the amount necessary to reimburse the
organization for its costs of providing the rental, and any
proceeds are exclusively used for the organization's
charitable purposes.
State Revenue Impact
Pending.
SB 1152 - 5/7/14 -- Page 3
Comments
1. Purpose of the bill . According to the author, "Veteran
halls in communities across our country are an invaluable
resource for millions of active military, veterans, and
their families. Due to skyrocketing operation and business
costs, the number of veteran halls has declined and fewer
military families are receiving the much needed services
that they provide. This bill would ensure that as
non-profit organizations, existing property tax exemptions
for veteran halls are preserved so that they can continue
to provide high quality and important services to the
heroes who have served our country."
2. Next best . The Constitution prohibits the Legislature
from enacting changes to the property tax that conflict
with its provisions. SB 1152 stretches the Constitutional
welfare exemption to apply to veterans' organizations
broadly by defining a veterans' organization's lodge,
fraternal, and social uses as central to its
Constitutionally required charitable purpose. Assessors
have disagreed with legislative changes to property tax law
in the past, arguing that they conflict with the
Constitution. State law sets up a specific process for
assessors to challenge the law in Superior Court on an
expedited basis, known as a "538" action. While the
Legislature has some discretion to interpret Constitutional
provisions, statutory changes to the property tax are
always a second best option. The most effective and direct
way to clearly exclude property owned by veterans'
organizations is to amend the Constitution.
3. Precedent . While SB 1152 would help veterans'
organizations, it does create a precedent by applying the
exemption more broadly to veterans' organizations' property
than to other groups. Under the bill, a building owned by
the Elks Club would be taxed differently than the same
building owned by the American Legion. Given this
difference, nonprofit social clubs and lodges that perform
considerable community services may want similar treatment.
The Committee may wish to consider the precedent SB 1152
sets.
4. Technicals . Committee staff recommends removing the
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bill's addition of subdivision (d), as it won't
functionally exempt any more property than the bill does
with its addition of subdivision (c). Additionally, the
bill should be amended to ensure that assessors should
consider bars or other facilities where alcohol is served
as a taxable use of the property.
Support and Opposition (05/07/14)
Support : American Legion-Department of California; AMVETS
- Department of California; California Association of
County Veterans Services Officers; the Military Officers
Association of America, California Council of Chapters;
Vietnam Veterans of America-California State Council.
Opposition : None received.