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California State Board of Equalization,
Legislative and Research Division
LEGISLATIVE BULLETIN
State Capitol Building (from the East) c.1945
Photo courtesy of California State Archives
PROPERTY TAX LEGISLATION
2008
STATE BOARD OF EQUALIZATION
TABLE OF CONTENTS
CHAPTERED LEGISLATION ANALYSES
PAGE
Assembly Bill 550 (Ma) Chapter 297
Mandatory Audits
2
Assembly Bill 1451 (Leno) Chapter 538
New Construction Exclusion
Active Solar Energy Systems
Building for Resale
5
Assembly Bill 3035 (Huffman) Chapter 201
Welfare Exemption – Supplemental Assessment
11
Senate Bill 1064 (Hollingsworth) Chapter 386
Disaster Relief
Homeowners’ Exemption
Revenue Loss Reimbursement
14
Senate Bill 1233 (Harman) Chapter 349
Parent-Child Change In Ownership Exclusion – Processing Fee
20
Senate Bill 1284 (Lowenthal) Chapter 524
Welfare Exemption – Low-Income Housing
24
Senate Bill 1495 (Kehoe) Chapter 594
Disabled Veterans’ Exemption - Disasters
29
Senate Bill 1562 (Hollingsworth) Chapter 356
Grapevines and Trees Damaged by Fires or Strong Winds
34
Senate Constitutional Amendment 4 (Ashburn) Res. Chapter 115
Senate Bill 111 (Ashburn) Chapter 336
New Construction Exclusion – Seismic Safety Improvements
38
TABLE OF SECTIONS AFFECTED
45
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Assembly Bill 550 (Ma) Chapter 297
Mandatory Audits
Effective January 1, 2009. Amends Section 469 of the Revenue and Taxation Code.
BILL SUMMARY
This bill restructures the mandatory audit program and eliminates the requirement that
the assessor audit every taxpayer with trade fixture and business tangible personal
property holdings of $400,000 or more at least once every four years.
Sponsor: California Assessors’ Association
LAW PRIOR TO AMENDMENT
Under existing property tax law, an ad valorem tax is imposed every year on all
assessable personal property used in a trade or business at its current fair market
value. In making this annual assessment, taxpayers typically report the cost of their
property holdings to the local county assessor on the “business property statement” as
provided for Revenue and Taxation Code Section 441. The business property
statement shows all taxable property, both real and personal, owned, claimed,
possessed, controlled, or managed by the person filing the property statement.
Revenue and Taxation Code Section 469 requires county assessors to audit, at least
once every four years, the books and records of any taxpayer engaged in a profession,
trade, or business, if the taxpayer has assessable trade fixtures and business tangible
personal property valued at $400,000 or more. These statutorily required audits are
commonly referred to as “mandatory audits.”
Additionally, the assessor may audit the books and records of taxpayers with holdings
below $400,000 in value under the authority of Revenue and Taxation Code Section
470. These audits are referred to as “nonmandatory audits.” Generally, assessors
perform both mandatory and nonmandatory audits to ensure that their audit program
includes a representative sample of all sizes and types of property taxpayers with
personal property holdings subject to the property tax.
AMENDMENT
This bill deletes the requirement that the assessor audit all taxpayers with trade fixture
and business tangible personal property holdings of $400,000 or more at least once
every four years. Instead, the assessor is required to annually audit a specified fixed
number of taxpayers in the county. Only taxpayers that have the largest assessments
in the county, as defined, would continue to be subject to an audit once every four
years. The number of required audits varies by county. The minimum number of
required audits is equal to 75% of the average number of mandatory audit accounts
required under the prior law for the 2002–03 fiscal year to the 2005–06 fiscal year.
IN GENERAL
Audit Objective. A property tax audit is a means of collecting data relevant to the
determination of taxability, situs, and value of property. It is used to verify an assessee's
reported cost on the required annual property statement and other information which
may influence the assessment of taxable property. An audit program is a system used
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to select and conduct these audits. Both are used to sample property tax assessments
to ensure that taxable property and related information have been accurately reported
by the assessee and have been properly assessed by the assessor.
The primary objective of the property tax audit is to determine that a correct assessment
has been made. The auditor applies generally accepted auditing standards and utilizes
generally accepted accounting and appraisal principles in performing these audits.
Audits, and the audit program as a whole, help to identify problems, correct inaccurate
existing assessments, and increase the likelihood that future assessments will be
accurate through improved reporting by the assessee and improved understanding of
the property by the assessor's office.
Audit Selection. An important part of the audit program is the selection of accounts to
be audited. As previously discussed, some audits are required by law (mandatory)
while additional audits (commonly referred to as nonmandatory) can be selected by the
assessor as a means of sampling the system as a whole.
Mandatory Audits. As required by Section 469 and Property Tax Rules 192 and 193,
for assessees owning, controlling, or possessing tangible business personal property
and fixtures with a full cash value of $400,000 or more, audits must be completed at
least once in each four-year period. However, an in-depth audit is not always required
for each year in the four-year period. The auditor may "sample" one year in the fouryear audit period. If no material discrepancy or irregularity is found, there is no
requirement to audit the remaining years. If a discrepancy is found, the auditor must
continue and audit the remaining years unless (1) the discrepancy or irregularity in the
"sample" year is peculiar to that year and (2) the discrepancy or irregularity did not
result in an escape.
Nonmandatory Audits. These are audits not required by law, but are authorized by
Section 470 and Property Tax Rule 192(e). The Board recommends that these types of
audits should be done in addition to mandatory audits since an audit program would not
be complete unless it includes a representative sample from all sizes and types of
property. Nonmandatory audits are selected at the discretion of the assessor.
Depending on the resources available, it may be difficult for county assessors to
complete a large number of nonmandatory audits. Counties may develop criteria for
selecting these audits rather than making a random selection. Examples of criteria
appropriate for selection may include: identified discrepancies; accounts just below the
mandatory audit cut-off; inconsistent, incomplete, or nonfiled property statements;
taxpayer's request for audit; and/or selection by type of business.
BACKGROUND
The statutory requirement that assessors audit all taxpayers above a certain threshold
was established in 1966. Initially the threshold level was set at $50,000. The level was
increased to $100,000 in 1976, to $200,000 in 1979, to $300,000 in 1991 and to its
present level of $400,000 in 2001.
PROPERTY TAX LEGISLATIVE BULLETIN 2008
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COMMENTS
1. Purpose. According to the author "There are two basic goals of this legislation: (1)
providing assessors more flexibility to maximize their limited audit resources by
reducing the total number of mandatory audits (2) to improve reporting compliance
by expanding the parameters of taxpayers subject to a mandatory audit. AB 550
eliminates the arbitrary $400,000 mandatory audit threshold by County Assessors
giving the Assessors flexibility to more efficiently utilize scarce resources."
2. Audits help to identify problems, correct inaccurate existing assessments, and
increase the likelihood that future assessments will be accurate through
improved reporting by the assessee and improved understanding of the
property by the assessor's office. An audit program is not complete unless it
includes a representative sample from all sizes and types of property. Some
assessors report, however, that fulfilling the statutorily required audits, which are
generally performed on the same group of taxpayers once every four years, leaves
little, if any, resources to perform audits of smaller accounts that have never been
audited. Modifying the audit selection process would give assessors in those
counties that have a large number of businesses with holdings meeting the current
mandatory audit threshold level, greater flexibility in directing some of their existing
resources in auditing smaller accounts that have never been audited.
3. How many audits would be annually required under this bill? In the case of a
county that had 800 taxpayers with trade fixture and business tangible personal
property holdings of $400,000 or more, over a four year period the assessor would
have been required to conduct 200 audits per year to ensure that each taxpayer was
audited once as required by law. This bill would set the minimum number of audits
required to be conducted at 75 percent of that amount or 150 audits. Of the 150
annually required audits, one half, or 75, would be required to be conducted of the
largest taxpayers in the county and the other half would be selected by the assessor
from among any taxpayer in the county.
4. Some of the taxpayers with the largest assessments in the county would
continue to be subject to audit on a four year cycle. To determine the number
of taxpayers that would continue to be audited on a cyclical basis, all of the
taxpayers in the county would be ranked in descending order by assessed value of
trade fixtures and business tangible property. The number of annual audits required
for a particular county under this bill, multiplied by four, serves as the cut-off point for
the set of taxpayers subject to a audit once every four years. In the example above,
if a county previously had 800 taxpayers subject to a mandatory audit, the county
would instead have a pool of 300 (75 x 4) taxpayers they are required to audit on a
four year cycle. If any taxpayer ceases to be in the top 300 assessments, then the
taxpayer would no longer be required to be audited.
5. Flexibility in selecting taxpayers for audit may yield more productive findings.
Most taxpayers who are subject to mandatory audits are routinely audited. Thus,
these taxpayers generally have a higher level of compliance with property tax law
since prior audits have increased their knowledge of such. Consequently, an auditor
may yield more productive findings from auditing taxpayers that were previously not
a part of the routine audit cycle.
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Assembly Bill 1451 (Leno) Chapter 538
New Construction Exclusion
Active Solar Energy Systems
Building for Resale
Effective September 28, 2008. Amends Section 73 of the Revenue and Taxation Code.
BILL SUMMARY
This bill, with respect to the new construction exclusion for active solar energy systems:
•
Extends the sunset date from the 2008-09 fiscal year to the 2015-16 fiscal year; and
•
Allows the value of the exclusion to apply to the initial purchaser of a new building, as
specified.
Sponsor: Solar Alliance
LAW PRIOR TO AMENDMENT
New Construction Exclusion – Active Solar Energy Systems. In general, when real
property is “newly constructed,” it is appraised and assessed for property tax purposes.
(Cal. Const. Art. XIII A, Sec. 2(a)) The California Constitution, Article XIII A, Section
2(c)(1), grants the Legislature the authority to exclude the construction or addition of any
active solar energy system from the definition of “newly constructed.” Section 73 of the
Revenue and Taxation Code is the implementing statute for this new construction
exclusion. The current property tax exclusion for new active solar energy systems is
scheduled to sunset after the 2008-09 fiscal year. However, after the exclusion sunsets,
any solar energy system constructed remains exempt from property tax for so long as the
property does not change ownership.
Change in Ownership Terminates New Construction Exclusion. After a change in
ownership, the entire property, including the portion of the property (or additional value)
previously exempted from taxation under the new construction exclusion, is subject to
reassessment to its current market value. Consequently, in the case of properties
constructed for immediate resale, there is little, if any, tax benefit under the new
construction exclusion.
AMENDMENT
Sunset Date. This bill extends the new construction exclusion to the 2015-16 fiscal
year and provides for an automatic repeal of its provisions on January 1, 2017.
Solar Energy Systems Incorporated into New Buildings – Exclusion Extended to
Initial Purchaser. In the case where a solar energy system is incorporated by an
owner-builder in the initial construction of a new building that the owner-builder does not
intend to occupy or use (i.e., offered for sale, such as new homes in a subdivision), the
exclusion applies to the building’s first buyer if the owner-builder did not request and
receive the exclusion for the same active solar energy system and only if the initial
buyer purchased the new building prior to that building becoming subject to
reassessment to the owner-builder, as described in subdivision (d) of Section 75.12.
This provision of law essentially provides that when the builder’s exclusion from
supplemental assessment for completion of new construction is being claimed, thereby
PROPERTY TAX LEGISLATIVE BULLETIN 2008
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delaying an immediate reassessment of the property as of the actual date of completion
for purposes of the supplemental roll, then any construction deemed to be completed on
the following lien date would be fully assessed for purposes of the regular assessment
roll.
If the exclusion is eligible to be extended to the initial purchaser, then in determining the
base year value to be established as a result of the change in ownership, the base year
value would be reduced by the portion of the purchase price that is attributable to the
active solar energy system. Thereafter, any subsequent change in ownership of the
property would end the exclusion of the value of the active solar energy system from
property tax. If the solar energy system received any rebates, appropriate adjustments
are to be made.
The Board is required to prescribe the claim form, in consultation with the California
Assessors’ Association, to request that the new construction exclusion after the change
in ownership be honored.
Effective Date. The amendments made by this bill are prospective and its provisions
apply beginning with any qualifying improvements completed on or after January 1,
2008.
IN GENERAL
Property Tax System. Article XIII, Section 1 of the California Constitution provides that
all property is taxable, at the same percentage of “fair market value,” unless specifically
exempted, or authorized for exemption, within the Constitution. Article XIII A, Section 2
of the California Constitution defines “fair market value” as the assessor's opinion of
value for the 1975-76 tax bill, or, thereafter, the appraised value of property when
purchased, newly constructed, or a change in ownership has occurred. This value is
generally referred to as the “base year value.” Barring actual physical new construction
or a change in ownership, annual adjustments to the base year value are limited to 2%
or the rate of inflation, whichever is less. Article XIII A, Section 2 provides for certain
exclusions from the meaning of “change in ownership” and “newly constructed” as
approved by voters via constitutional amendments.
New Construction. The constitution does not define the terms “new construction" or
“newly constructed.” Revenue and Taxation Section 70 defines these terms, in part, to
mean:
Any addition to real property, whether land or improvements (including fixtures),
since the last lien date.
Any alteration of land or any improvements (including fixtures) since the last lien
date that constitutes a “major rehabilitation” or that converts the property to a
different use.
A major rehabilitation is any rehabilitation, renovation, or modernization that converts
an improvement or fixture to the substantial equivalent of a new improvement or
fixture.
With respect to any new construction, the law requires the assessor to determine the
added value upon completion. The value is established as the base year value for those
specific improvements qualifying as “new construction” and is added to the property’s
existing base year value. When new construction replaces certain types of existing
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improvements, the value attributable to those preexisting improvements is deducted
from the property's existing base year value. (R&T Code §71)
New Construction Exclusions. Certain types of construction activity are excluded
from assessment as “new construction” via constitutional amendment. Consequently,
while these improvements may increase the value of the property, the additional value
is not assessable.
Prop
Election
8
7
23
31
110
127
Nov-78
Nov-80
Jun-84
Nov-84
Jun-90
Nov-90
177
Jun-94
1
Nov-98
Subject
Code
Disaster Reconstruction
Active Solar Energy Systems
Seismic Safety (Unreinforced Masonry)
Fire Safety Systems
Disabled Access Improvements (Homes)
Seismic Safety Retrofitting & Hazard
Mitigation
Disabled
Access
Improvements
(All
Properties)
Environmental Contamination Reconstruction
§70(c)
§73
§70(d)
§74
§74.3
§74.5
§74.6
§74.7
Overview of Solar Energy New Construction Exclusion
An "active solar energy system" is defined in Section 73 as a system that uses solar
devices, which are thermally isolated from living space or any other area where the
energy is used, to provide for the collection, storage, or distribution of solar energy.
Such a system does not include solar swimming pool heaters, hot tub heaters, passive
energy systems, or wind energy systems.
An active solar energy system may be used for any of the following:
•
•
•
•
•
Domestic, recreational, therapeutic, or service water heating.
Space conditioning.
Production of electricity.
Process heat.
Solar mechanical energy.
An active solar energy system includes storage devices, power conditioning equipment,
transfer equipment, and parts related to the functioning of those items. "Parts" includes
spare parts that are owned by the owner of, or maintenance contractor for, an active
solar energy system for which the parts were specifically purchased, designed, or
fabricated for installation in that system. Such a system includes only equipment used
up to, but not including, the stage of transmission or use of the electricity.
An active solar energy system also includes pipes and ducts that are used exclusively
to carry energy derived from solar energy. Pipes and ducts that are used to carry both
energy derived from solar energy and energy derived from other sources may be
considered active solar energy system property only to the extent of 75 percent of their
full cash value.
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An active solar energy system does not include auxiliary equipment, such as furnaces
and hot water heaters, that use a source of power other than solar energy to provide
usable energy. Dual use equipment, such as ducts and hot water tanks, that is used by
both auxiliary equipment and solar energy equipment is considered active solar energy
system property only to the extent of 75 percent of its full cash value.
Legislative History of Solar Energy New Construction Exclusion
Proposition 7 (SCA 28, Alquist) was approved by voters in 1980 and amended the
California Constitution by giving the Legislature the authority to exclude from property
tax assessment the addition of active solar energy systems as assessable new
construction.
SB 1306 (Stats. 1980, Ch. 1245; Alquist) added Section 73 to the Revenue and
Taxation Code to implement Proposition 7. Its provisions were operative for five fiscal
years: 1981-82 through 1985-86.
AB 1412 (Stats. 1985, Ch. 878; Wyman), extended the exclusion for another five fiscal
years: 1986-87 through 1990-91. It also required the Legislative Analysts Office to
report to the Legislature by January 1, 1990 on the fiscal and economic effects of the
exclusion.
SB 1311 (Greene) in 1989 proposed repealing the exclusion on January 1, 1990. SB
1311 was not heard in any committee.
AB 4090 (Wyman, Alquist) in 1990 proposed extending the exclusion through the 199394 fiscal year. AB 4090 passed both houses, but was vetoed by Governor Deukmejian.
The Governor’s veto messages stated that he supported efforts to encourage the
development of solar energy in California, but the bill would have resulted in millions of
dollars of property tax revenue loss to local entities in the high desert region of the state,
and solar energy income tax credits were otherwise available. At that time, a major
commercial project to build solar-electrical generating facilities (SEGS) in the Mojave
Desert near Barstow in San Bernardino County was underway by Luz International Ltd.
SB 103 (Stats. 1991, Ch. 28; Morgan) extended the exclusion for three more fiscal years
- 1991-92 through 1993-94. SB 103 added a new Section 73 to the code, since the prior
Section 73 was repealed by its own provisions on January 1, 1991. However, SB 103
was urgency legislation effective on May 14, 1991 and drafted in a way that the continuity
of the exclusion would not be affected. SB 103 included a provision to automatically
repeal its provisions on January 1, 1995 absent future legislative action. No legislation
was enacted prior to the repeal date so the exclusion was not available for five fiscal
years (1994-95 through 1998-99) until AB 1755 was enacted as noted below.
SB 1553 (Alquist) in 1994 would have, in part, extended the exclusion indefinitely,
however these provisions were amended out of this bill prior to its enactment.
AB 1755 (Stats. 1998, Ch. 855; Keeley) re-established the exclusion for six fiscal years:
1999-2000 through 2004-05. (SB 116 (Peace) in 1998 would have, in part, also reestablished the exclusion. This bill was not enacted.)
AB 1099 (Stats. 2005, Ch. 193; Leno) extended the exclusion to the 2008-09 fiscal year.
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COMMENTS
1. Purpose. The purpose of this bill is to ensure that there is an actual tax benefit for
newly built homes constructed with a solar energy system, ensure investors that the
exclusion will still be in effect for long planned commercial scale solar energy
projects, and extend the exemption to the transmission elements of these projects.
2. Amendments. The August 13, 2008 amendments deleted definitions for “electrical
corporation” and “local publicly owned electric utility” which were related to
provisions deleted from the bill by prior amendments. The January 7, 2008
amendments deleted provisions expanding the exclusion to equipment related to the
transmission and distribution of the electricity produced by the solar energy system
but only if the electricity is transmitted to a utility for inclusion in the utility’s
transmission or distribution network. The August 28, 2007 amendments provided
that the exclusion provided to the initial purchaser will only be allowed if the initial
buyer purchases the new building prior to that building becoming subject to
reassessment to the owner-builder because of completion of new construction on
the regular assessment roll. This amendment was made to reconcile possible
constitutional issues identified by the Legislative Counsel related to extending the
new construction exclusion to a property after a change in ownership of that property
had occurred. The June 6, 2007 amendments (1) prohibited the post-change in
ownership exclusion if the owner-builder claimed the exclusion for the same system
to prevent “double dipping” and (2) make its provisions severable, as some have
questioned the constitutionality of this provision. In addition, in regard to the
provision to extend the exclusion to transmission and distribution related equipment,
if the electricity is being transmitted to a utility, the exclusion is limited to equipment,
poles, towers, and structures other than buildings. The May 16, 2007 amendments
added the provisions of this bill as they relate to rebates, provided that the Board
would consult with the California Assessors’ Association in prescribing the manner,
documentation, and form for claiming the exclusion, and expressly provided that the
amendments made by this bill shall apply prospectively. The May 8, 2007
amendments expanded the provisions of this bill from single family residences to all
buildings and modified the provisions related to transmission and distribution
equipment.
3. Except for a five-year hiatus for fiscal years 1994-95 through 1998-99 the
exclusion has been available since 1981. This bill would ensure the continuity of
the exclusion through 2016.
4. New construction exclusions remain in effect until the property changes
ownership. Generally, new construction exclusions remain in effect until the
property changes ownership, at which point the entire property, including the portion
of the property (or additional value) previously exempted from taxation under the
new construction exclusion, will be reassessed at its current market value pursuant
to the change in ownership provisions of Proposition 13.
5. In the case where a building is built for immediate sale, this bill provides that
the exclusion would continue to apply to the initial purchaser of the building.
Without these provisions, the new construction exclusion is ineffectual for any new
building that is not intended to be occupied or used by the owner-builder. Once a
building is sold (i.e., changes ownership), the entire property must be reassessed to
its current market value for purposes of Proposition 13.
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6. However, if the builder is fully assessed for the property on the lien date
(January 1) following the date of completion of the new construction and the
initial purchaser buys the property after the lien date, then the initial purchaser
would not be eligible for the new construction exclusion. For example, if a
home with an active solar energy system is completed on November 15, 2007, and
thus the new construction of the home is 100% complete on the lien date for
purposes of determining the assessed value of the property for the 2008-09 regular
roll, and the home does not sell until March 15, 2008, then the initial purchaser
would not be eligible for the new construction exclusion for the solar energy system.
However, if the purchase takes place on December 31, 2007, then the initial
purchaser would be eligible for the new construction exclusion on the solar energy
system. This provision was added to address issues raised by opponents of this
measure who argued that such an extension to an initial purchaser would require a
specific constitutional amendment. Proponents state that allowing the exclusion to
be extended only when it was not claimed by the original owner-builder falls within
the spirit of the existing constitutional authorization to exclude from the property tax
the value added by active solar energy systems. This bill and AB 1239 (Garrick) of
this legislative session set a precedent of extending the benefits of the new
construction exclusion after a change in ownership for the first purchaser only. AB
1239 relates to fire sprinkler, fire safety, and fire detection systems.
7. This bill would require an assessor to subtract out the incremental value of
qualified improvements when a new building that incorporates an active solar
energy system is initially constructed. This bill would set a precedent for
excluding the value of particular components of an entirely new property.
Specifically, the new base year value of the building established as a result of the
change in ownership would be reduced to reflect that portion of the value attributable
to the active solar energy system (less the total amount of any rebates received for
the system).
8. The new construction exclusion was created in 1980 via Proposition 7 to
provide that the construction or addition of an active solar energy system to
an existing property, by itself, would not lead to a revaluation of the property
for property tax purposes. At that time, a solar energy system included in the
initial construction of a property was not common. Rather, a property owner would
add a system to an existing property. Today, some residential subdivisions
incorporate active solar energy systems in the initial construction of the home either
as a standard feature or as an optional upgrade.
9. State assessed properties are not eligible for the new construction exclusion
because it is only applicable to locally assessed property. For instance, active
solar energy systems owned by public utilities and subject to assessment by the
Board are not exempt from property taxation; their value would continue to be
captured under the unitary approach to value. This is because Proposition 13’s
(California Constitution Article XIII A) assessment rollback provisions, its 2 percent
limit on annual assessment growth, and its limits on current market value
assessment following only a change in ownership or completion of new construction,
do not apply to state assessed property, but only to locally assessed property.
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Assembly Bill 3035 (Huffman) Chapter 201
Welfare Exemption – Supplemental Assessment
Effective January 1, 2009. Adds Section 75.24 to the Revenue and Taxation Code.
BILL SUMMARY
This bill extends the grace period to qualify for the property tax welfare exemption from
90 days to 180 days on a supplemental assessment.
Sponsor: Sonoma County
LAW PRIOR TO AMENDMENT
Property Tax Exemptions. Existing law exempts from property taxation specified
types of property or property owned by specified taxpayers. Related to this bill, there
are two types of property tax exemptions available to organizations that qualify as
exempt organizations under Section 501(c)(3) of the Internal Revenue Code.
ƒ
Church Exemption. Buildings, land on which they are situated, and equipment used
exclusively for religious worship.
ƒ
Welfare Exemption. Property used exclusively for religious, hospital, scientific, or
charitable purposes and owned or held in trust by corporations or other entities that
are organized and operating for those purposes, that are nonprofit, and no part of
whose net earnings inures to the benefit of any private shareholder or individual.
Supplemental Assessments. Existing property tax law requires property to be
reassessed to its current market value whenever there is a change in ownership.
“Supplemental assessments” provide a mechanism to immediately reflect the change in
assessed value (an increase or decrease) as of the date it occurs for property tax
purposes.
Revenue and Taxation Code Section 75.22 provides that a property tax exemption,
such as the welfare exemption, will apply to a supplemental assessment triggered by a
change in ownership if the person claiming the exemption meets the qualifications for
that exemption on that property no later than 90 days after the date of the change in
ownership. These provisions also apply to a supplemental assessment triggered by the
completion of new construction. However, in case of new construction, like constructing
a new building, the entire property becomes eligible for the welfare exemption the
moment construction commences if the intended use of the facilities under construction
would qualify the property for the exemption. Because the welfare exemption is
generally in effect by the time the new construction is completed, the 90 day grace
period to qualify for the welfare exemption in the case of a new construction is generally
irrelevant.
AMENDMENT
This bill adds Section 75.24 to provide that notwithstanding Section 75.22, in the case of
an organization, that qualifies as an exempt organization under Section 501(c)(3) of the
Internal Revenue Code, and that purchases or acquires a property resulting in a
“change in ownership” of the property (which results in reassessment of the property to
current market value), the property will be eligible for exemption from the supplemental
assessment if the organization claiming the exemption is a qualified organization and
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meets the qualifications for the exemption established by this part no later than 180
days after the date of the change in ownership or the completion of new construction.
IN GENERAL
Supplemental Assessments. Existing property tax law requires property to be
reassessed whenever there is a change in ownership or the completion of new
construction. A “supplemental assessment” provides a mechanism for picking up a
change in assessed value as of the date it occurs. The increase (or decrease) in
assessed value is reflected in a prorated assessment (the supplemental assessment)
that covers the portion of the fiscal year (July 1-June 30) remaining after the date of
change in ownership or completion of new construction. For a change in ownership or
completed new construction occurring between January 1 and May 31, two
supplemental assessments are issued. The first covers the portion of the current fiscal
year remaining after the date of the event; the second covers the ensuing fiscal year in
its entirety. An increase in assessed value results in a supplemental tax bill and a
decrease in assessed value results in the issuance of a refund check. These
supplemental assessments are entered into the “supplemental roll” and contain
properties that have changed ownership or had new construction completed, as
opposed to the regular “assessment roll” prepared each fiscal year which contains all
property in the county.
RELATED LEGISLATION
Sale of Tax Exempt Property – Terminates Exemption. In 2005, SB 555 (Ch. 264
Machado) added Section 75.23 to the Revenue and Taxation Code to immediately
terminate a property tax exemption on a property when it is sold if the new property
owner is not otherwise eligible for an exemption via the supplemental assessment
process. In practical application this means that a person who purchases a property
that was previously exempt from property tax, will receive a supplemental assessment
that reflects full taxation of the property as of the date of purchase. The increase in
assessed value resulting from the change in ownership upon which the supplemental
assessment is calculated is the difference of zero (to reflect the prior tax exemption) and
the new assessed value of the property. Previously, the new property owner enjoyed a
windfall since the property continued to hold the prior owner’s tax exempt status for as
long as eighteen months, depending upon the date of acquisition.
Construction Activity Starts the Exemption. In recent years, a number of bills have
been introduced to modify when a property owned by a nonprofit organization can begin
to receive the exemption in the case of vacant land or undeveloped property.
•
AB 3074 (AR&T) in 2004 proposed granting the welfare exemption to properties on a
retroactive basis for the period between the submission of an application for a
building permit and the commencement of actual physical construction.
•
AB 783 (Maddox and Mountjoy) in 2003 proposed granting the welfare exemption to
properties on the date an application for a building permit was filed. As introduced, it
would have started the exemption once various activities such as "seeking" permits,
environmental studies, government entitlements and approvals, financing, and
contractors.
•
AB 2662 (Bogh) in 2002 would have provided that property already in the course of
construction will not be considered “abandoned,” and therefore no longer eligible for
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exemption, if construction is delayed due to financing delays or delays in
governmental approval.
COMMENTS
1. Purpose. This provision is intended to provide nonprofits more time to qualify for
the welfare exemption on newly acquired properties.
2. The income tax exemption does not automatically confer a property tax
exemption to a Section 501(c)(3) nonprofit organization. Property is not eligible
to receive the property tax welfare exemption unless it is owned and operated by a
nonprofit entity for exempt purposes and activities. Under existing law, if a nonprofit
organization purchases a property and begins to use the property for an exempt
activity within 90 days, it is eligible for exemption from supplemental assessment.
3. What is a supplemental assessment? If a property is purchased for $500,000 and
its prior assessed value was $200,000, a supplemental assessment in the amount of
$300,000 would be processed to reflect the increase in assessed value. If the
property purchased is eligible for the welfare exemption, the welfare exemption will
be applied to the supplemental assessment and no taxes would ultimately be owed
related to the increase in assessed value due to the change in ownership.
4. It can take longer than 90 days to obtain a special license necessary to
operate certain types of properties. The proposed changes were triggered by a
situation in Sonoma County in which a nonprofit organization purchased a residential
care facility previously run as a for-profit enterprise. The nonprofit intended to take
over the operation of the care facility. However, to do so it needed a license from a
governmental agency for the specific location which took longer than 90 days to
acquire. To keep the facility in continuous operation it was necessary to lease the
facility back to the former owner. Because the property was unable to qualify for the
welfare exemption within 90 days of acquiring the property, a supplemental
assessment was issued.
5. In the case of vacant land or undeveloped property owned by a nonprofit
organization, a number of bills have been introduced in recent years to modify
the point in time when the property can begin to receive the exemption. This
bill would, in some measure, address the issue giving rise to these bills. With this
bill, an organization would now have up to 180 days from the date of purchase to
begin demolition or construction on property designated for a future exempt use and
qualify for a full exemption. Vacant or unused property held for future construction
does not qualify for the welfare exemption since it is not being “used” for an exempt
purpose and activity. For example, a nonprofit organization may have enough funds
to acquire land, but not enough to commence its construction project.
Consequently, these properties are subject to property tax.
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Senate Bill 1064 (Hollingsworth) Chapter 386
Disaster Relief
Homeowners’ Exemption
Revenue Loss Reimbursement
Effective September 27, 2008. Among its provisions, amends Sections 195.120, 195.122,
and 218 of, and adds Sections 195.128, 195.129, 195.130, 195.131, 195.132, 195.133,
195.134, 195.135, 195.136, 195.137, 195.138, 195.139, 195.140, 195.141, 195.142,
194.143, 194.144, and 194.145 to, the Revenue and Taxation Code.
BILL SUMMARY
This bill, in part:
•
Allows persons whose homes were destroyed in specified disasters to retain the
homeowners' exemption on their property while they are in the process of rebuilding.
§218
•
Provides one-year state reimbursement to backfill property tax revenue loss
resulting from assessment reductions related to these disasters. §§195.128195.139
•
Changes the fiscal year for which reimbursement will be made for state
reimbursement to El Dorado County to backfill property tax revenue loss for the June
2007 fire near Lake Tahoe. §§195.120 and 195.122.
Sponsor: Senator Hollingsworth
LAW PRIOR TO AMENDMENT
Homeowners’ Exemption. Article XIII, Section 3(k) of the California Constitution
exempts from property tax the first $7,000 of the full value of a dwelling when occupied
by an owner as his principal residence. This exemption is commonly referred to as the
“homeowners’ exemption.”
Section 218 of the Revenue and Taxation Code details the qualifications for the
homeowners’ exemption authorized by the constitution.
Eligibility is generally
continuous once granted. However, if a property is no longer owner-occupied, is
vacant, or is under construction on the lien date (January 1), the property is not eligible
for the exemption for the upcoming tax year.
Relevant to this bill, homes that are totally destroyed on the lien date for a particular
fiscal year (that is January 1 for the forthcoming fiscal year that begins July 1) are not
eligible for the homeowners’ exemption. For example, a home destroyed on or before
January 1, 2008 is not eligible for the homeowners’ exemption on the 2008-09 property
tax bill.1
Disaster Relief - Property Reassessment for Property Owners. Section 170 of the
Revenue and Taxation Code provides that property taxes may be reduced following a
1
A home destroyed on or after January 1, 2008, would continue to be eligible for the exemption on the
2008-09 property tax bill. However, if the home has not been rebuilt and occupied by the next lien date,
January 1, 2009, it would not be eligible for the homeowners’ exemption on the 2009-10 property tax bill.
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disaster, misfortune, or calamity in those counties where the board of supervisors has
adopted an ordinance authorizing these provisions. These provisions apply to both
governor-declared disasters and site-specific disasters such as a home fire. Disaster
relief is provided by allowing the county assessor, under specified conditions, to
reassess the property as of the date of the disaster to recognize the loss in a property’s
market value. The loss in value must be at least $10,000. The prior assessed value of
the damaged property is reduced in proportion to the loss in market value; the new
reduced value is used to calculate a pro-rata reduction in taxes. The affected property
retains its lower value, with reduced taxes, until it is restored, repaired, or reconstructed.
Generally, taxpayers have up to 12 months to file a request for reassessment.
Disaster Relief - State Reimbursement for Local Governments. Additionally,
legislation is frequently enacted to fully reimburse local governments for one year’s
property tax revenue loss associated with Section 170 reductions in assessment.
State Reimbursement – El Dorado County Wildfire. Sections 195.120, 195.121, and
195.22 of the Revenue and Taxation Code provide reimbursement to El Dorado County
for wildfires that commenced on June 24, 2007 for the property tax revenue losses
associated with the 2006-07 fiscal year, which is a period of six days.
AMENDMENT
Homeowners’ Exemption. This bill allows persons whose homes were destroyed in
specified disasters in certain counties to retain the homeowners' exemption on their
property while they are in the process of rebuilding. Those are:
Wildfires - 2007. This bill adds subdivision (o) to Section 218 to provide that a
dwelling qualified for the homeowners’ exemption prior to the commencement of the
wildfires listed in the governor’s disaster proclamations of September 15, 2007, and
October 21, 2007, and that was subsequently damaged or destroyed by these
wildfires and any other related casualty in the counties of Los Angeles, Orange,
Riverside, San Bernardino, San Diego, Santa Barbara, and Ventura will continue to
be eligible for the homeowners’ exemption.
Winds - Riverside. This bill adds subdivision (p) to Section 218 to provide that a
dwelling qualified for the homeowners’ exemption prior to October 20, 2007 and
subsequently damaged or destroyed by extremely strong winds and any other
related casualty in Riverside County will continue to be eligible for the homeowners’
exemption.
Wildfires - 2008. This bill adds subdivision (q) to Section 218 to provide that a
dwelling qualified for the homeowners’ exemption prior to the commencement dates
of wildfires for which the Governor issued a proclamation of a state emergency in the
months of May, June, or July and subsequently damaged or destroyed by the fires
and any other related casualty in Butte, Kern, Mariposa, Mendocino, Monterey,
Plumas, Santa Clara, Santa Cruz, Shasta, and Trinity counties will continue to be
eligible for the homeowners’ exemption.
Wildfires – Santa Barbara. This bill adds subdivision (r) to Section 218 to provide
that a dwelling qualified for the homeowners’ exemption prior to July 1, 2008 and
subsequently damaged or destroyed by wildfires and any other related casualty in
Santa Barbara County will continue to be eligible for the homeowners’ exemption.
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State Reimbursement – Wildfires and Winds. This bill also provides state
reimbursement for property tax revenue losses due to Section 170 disaster relief
reassessments. Specifically, it adds provisions to the Revenue and Taxation Code to
outline the process and timeline for the affected counties, the Department of Finance,
and the State Controller to follow for each particular disaster.
State Reimbursement – El Dorado County Wildfire. This bill modifies state
reimbursement provisions enacted last year for property tax revenue losses due to
Section 170 disaster relief reassessments for the fire. Specifically, it changes the fiscal
year for which reimbursement will be made from 2006-07 to 2007-08 and makes
corresponding changes to the timeline for El Dorado County, the Department of
Finance, and the State Controller to complete the reimbursement process.
IN GENERAL
Disaster Relief. There are a variety of provisions in property tax law to provide
property tax relief for disaster victims. These provisions address both the short-term
and the long-term consequences of the disaster as it relates to current and future
property tax liabilities. In the short term, property tax liability is redetermined to reflect
the damage to the property and for some the next property tax installment payment may
be deferred. Over the long term, property owners may rebuild or repair the damage to
their property without incurring any increase in property tax liability. Alternatively,
property owners may instead relocate rather than rebuild without being adversely
impacted by the property tax consequences. The various provisions of law in the
Revenue and Taxation Code are noted below.
DISASTER RELIEF REFERENCE CHART
Section
Property Type
170
194 &
194.1
195.1
All property types
Real property and
manufactured homes
Real property and
manufactured homes
194.9
Real property and
manufactured homes
69
69.3
All property types
Principal place of
residence
Principal place of
residence —over 55
or physically disabled
Manufactured homes
69.5
172 &
172.1
70
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Type of Relief
Available
Reassessment
Property tax deferral –
next installment
Property tax deferral –
second consecutive
installment
Property tax deferral –
supplemental
assessment
Base year value transfer
Base year value transfer
Governor-proclaimed
Governor-proclaimed
Base year value transfer
Any disaster or calamity
Base year value transfer
Governor-proclaimed
New construction
exclusion
New construction
exclusion;
Base year value transfer
Any disaster or calamity
A X
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Type of Disaster
Any disaster or calamity
Governor-proclaimed
Governor-proclaimed
Governor-proclaimed
Any disaster or calamity
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BACKGROUND
Special purpose legislation has been enacted in recent years to provide that dwellings
that were destroyed by specific disasters, as noted in the table below, will not be
disqualified as a “dwelling” or be denied the homeowners’ exemption solely on the basis
that the dwelling was temporarily damaged or destroyed or was being reconstructed by
the owner.
Disaster
Year
Legislation
Zaca Fire – Santa Barbara and
Ventura County
Angora Fire – El Dorado
County
2007
Stats. 2007, Ch. 224 (AB 62)
2007
Stats. 2007, Ch. 224 (AB 62)
Freeze
2007
Stats. 2007, Ch. 224 (AB 62)
Day and Shekell Fires - Ventura
County
Northern California Storms,
Floods & Mudslides
Northern California Storms,
Floods & Mudslides
Shasta Wildfires
2006
Stats. 2007, Ch. 224 (AB 62)
2006
Stats. 2006, Ch. 396 (AB 1798)
2006
Stats. 2006, Ch. 897 (AB 2735)
2005
Stats. 2005, Ch. 623 (AB 164)
2005
Stats. 2005, Ch. 624 (AB 18)
Southern California Storms,
Floods & Mudslides
Southern California Storms,
Floods & Mudslides
San Joaquin levee break
2005
Stats. 2005, Ch. 622 (SB 457)
2004
Stats. 2004, Ch. 792 (SB 1147)
San Simeon earthquake
2003
Stats. 2004, Ch. 792 (SB 1147)
Southern California wildfires
2003
Stats. 2004, Ch. 792 (SB 1147)
Oakland/Berkeley Hills fire
1992
Stats. 1992, Ch. 1180 (SB 1639)
Los Angeles civil riots
1991
Stats. 1992, Ch. 17X (AB 38 X)
COMMENTS
1. Purpose. This bill provides some financial relief to persons whose homes were
damaged or destroyed as a result of various disasters and to provide property tax
revenue backfill to affected local governments. The bill also makes corrective
amendments related to legislation enacted last year to provide property tax revenue
backfill to El Dorado County for the Lake Tahoe fire.
2. Amendments. The August 14, 2008 amendments added disaster relief provisions
for Humboldt County for wildfires that started in May. The August 8, 2008
amendments added disaster relief provisions for Inyo County for rainstorms that
started in July. The July 14, 2008 amendments added disaster relief provisions for
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additional counties affected by wildfires occurring in May, June, and July of 2008.
The July 1, 2008 amendments specified the dates of the governor’s proclamations
for the two wildfires of September 15, 2007 for San Bernardino County and October
21, 2007 for the seven Southern California Counties. The May 22, 2008 and March
10, 2008 amendments changed the fiscal year for which reimbursement to El
Dorado County will be made from the 2006-07 fiscal year to the 2007-08 fiscal year.
Because the fire took place at the end of the 2006-07 fiscal year, reimbursement
would be limited to a six day period without these clean up amendments to last
year’s AB 62 (Stats. 2007, Ch. 224). The February 25, 2008 amendments added
co-authors and corrected a typographical error. As introduced, the language adding
subdivision (p) to Section 218 relating to wind damage provided that a dwelling must
be qualified for the homeowners’ exemption prior to October 20, 2006; however, the
year 2007 was intended and the amendment makes this correction.
3. Proclamations. Related to this bill, the following proclamations of a state of
emergency have been issued by the Governor.
Wildfires. On September 15, 2007, a proclamation was issued for the county of
San Bernardino for fires that started on September 14, 2007.
Wildfires. On October 21, 2007, a proclamation was issued for the counties of
Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa
Barbara, and Ventura for more than 11 major wildfires burning in Southern
California at that time. Eventually there were a total of 23 fires that burned
between October 20 and November 9, 2007.
Winds. On November 2, 2007, a proclamation was issued for extremely high
winds and resulting damage for the county of Riverside that began about
October 20, 2007.
Wildfires. On May 24, a proclamation was issued for the county of Santa Clara
for a fire that began burning on May 22, 2008.
Wildfires. On June 11, 2008, a proclamation was issued for the county of Butte
for a fire that began on June 10, 2008.
Wildfires. On June 12, 2008, a proclamation was issued for the county of Santa
Cruz for the Martin Fire that started on June 11, 2008.
Wildfires. On June 23, 2008, a proclamation was issued for the counties of
Monterey and Trinity Counties for various fires that began to burn on June 8 in
the Los Padres National Forest areas and June 21, 2008 in the Big Sur area.
Wildfires. On June 26, 2008, a proclamation was issued for the counties of
Mendocino and Shasta for the many wildfires that stated on June 20, 2008 in
Mendocino and June 21, 2008 in Shasta.
Wildfires. On June 30, 2008, a proclamation was issued for the counties of
Plumas and Kern for the wildfires that began on June 22, 2008 in Plumas and
June 28 in Kern.
Wildfires. On July 1, 2008, a proclamation was issued for the county of
Mariposa for the major fires that started on June 21, 2008.
Wildfires. On July 3, 2008, a proclamation was issued for the county of Santa
Barbara for the fires that began burning on July 1, 2008.
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Storms, Flooding, Mudslides. Only July 15, 2008, a proclamation was issued
for the county of Inyo that for severe thunderstorms that began on July 12, 2008.
Wildfires. On August 6, 2008, a proclamation was issued for the county of
Humboldt for wildfires that erupted on May 22, 2008.
4. Other Fires Occurring in 2007. Legislation enacted last year, AB 62 (Stats. 2007,
Ch. 224) has already addressed the Zaca Fire that occurred in the 2007 calendar
year for Santa Barbara and Ventura Counties.
5. This bill would allow homeowners whose residences were damaged or
destroyed as a result of these disasters to retain the exemption on their
property while they are in the process of rebuilding their homes. Homes that
are uninhabitable on the lien date (January 1) are technically ineligible for the
exemption for the upcoming fiscal year under current law.
6. The Board advises county assessors that damaged homes may keep the
exemption but totally destroyed homes may not. Board staff has opined that a
temporary absence from a dwelling because of a natural disaster, such as a flood or
fire, will not result in the loss of the homeowners’ exemption for those properties
temporarily vacated for repairs. (See Letter To Assessors 82/50, Question G16)
However, when a dwelling has been totally destroyed, staff has opined that because
no dwelling exists there is no occupancy or possibility of occupancy on the lien date
and the property would not be eligible for the exemption even if the property was
under construction.
(See Property Tax Annotation 505.0019 “Homeowners’
Exemption – Disaster Impact”) Referenced documents available at www.boe.ca.gov
select “Property Tax.”
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Senate Bill 1233 (Harman) Chapter 349
Parent-Child Change in Ownership Exclusion – Processing Fee
Effective January 1, 2009. Amends Section 63.1 of the Revenue and Taxation Code.
BILL SUMMARY
Related to the parent-child change in ownership exclusion, this bill allows a county
board of supervisors to authorize a processing fee of up to $175 to recover
administrative costs to reverse a reassessment of a property ultimately eligible for the
exclusion if the owner was previously notified twice, as specified, of the availability of
the exclusion and the need to file a claim.
Sponsor: California Assessors’ Association
LAW PRIOR TO AMENDMENT
Under existing property tax law, property is reassessed to its current fair market value
whenever there is a “change in ownership.” However, a change in ownership exclusion
is available for transfers of property between parents and children under certain
conditions.
Revenue and Taxation Code Section 63.1 details the terms and conditions to receive
the parent-child change in ownership exclusion. Relevant to this bill, one requirement is
that the parties involved must file a claim form with the assessor certifying to the parentchild relationship and providing specified information.
Subdivision (e) of Section 63.1 outlines the periods within which to file a claim. It
requires that the claim be filed within three years after the date of the transfer of real
property or prior to the transfer of the real property to a third party, whichever is earlier.
However, even if a claim is not filed within this stated filing period, a claim is considered
timely if it is filed within six months after the date the assessor mails a notice of
supplemental or escape assessment informing the taxpayer that the property will be
reassessed. If a claim form is made within the above described periods, then the
transfer is excluded from change in ownership as of the initial date the property was
transferred (i.e., property tax refunds would be issued for past years if the property was
previously reassessed).
A claim for the exclusion may still be filed at any time after the periods outlined above;
however, the exclusion will only become effective for the lien date in the assessment
year in which the claim form is filed and the exclusion will not be retroactive to the date
of transfer. That is, if a claim is made after the customary filing periods, then the prereassessment value will be reinstated as of the year the claim form is finally filed (i.e.
property tax refunds are not issued for past years, but future property tax bills will reflect
the lower assessed value).
AMENDMENT
Failure to File Claim after Written Notifications. This bill adds subdivision (j) to
Section 63.1 to allow county board of supervisors, pursuant to the provisions of Chapter
12.5 (commencing with Section 54985) of Part 1 of Division 2 of Title 5 of the
Government Code, to authorize a one-time processing fee of no more than $175, to
recover costs incurred by the assessor for reassessment work done due to the failure of
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an eligible transferee to file a claim for the parent-child change in ownership exclusion
after two written requests by the assessor.
A processing fee may be levied only if an eligible transferee had been previously sent
two notices requesting that a claim be filed to which the transferee did not timely
respond, as follows:
•
First Notice of Potential Eligibility. The assessor must have notified the
transferee in writing of potential eligibility for the parent-child exclusion requesting
that a claim be filed within 45 days of the date of the notice of potential eligibility.
•
Second Notice of Potential Eligibility. If a claim is not subsequently filed within 45
days of the date of the first notice, the assessor must have sent a second notice of
potential eligibility notifying the transferee that a claim has not been received and
that reassessment of the property will commence unless a claim for exclusion is filed
within 60 days of the date of the second notice of potential eligibility. The second
notice must also indicate that if a claim is filed outside the 60-day period, then a
processing fee may apply.
If a transferee files a claim after these time periods, then the processing fee must be
submitted with the claim. However, if the transfer of property is not ultimately eligible for
the parent-child change in ownership exclusion, the processing fee will be refunded to
the transferee.
45 and 60 Day Filing Periods Relate to Potential Processing Fee. The failure of a
transferee to file a claim for exclusion within the 45 and 60 day period specified above
has no effect on the granting of the exclusion. It only impacts whether or not an eligible
transferee that eventually files a claim for the exclusion is subject to the processing fee.
An eligible transferee that files a claim outside of these time periods would still receive
the exclusion either on a retroactive or prospective basis depending upon the timing of
the claim and the filing provisions specified by subdivision (e) of Section 63.1.
IN GENERAL
Under existing property tax law, real property is reassessed to its current fair market
value whenever there is a “change in ownership.” (California Constitution Article XIIIA,
Sec. 2; Revenue and Taxation Code Sections 60 - 69.5)
Proposition 58, which was approved by the voters of California in 1986, added
subdivision (h) to Section 2 of Article XIII A of the California Constitution, and provides,
in part, that the term "change in ownership" shall not include the purchase or transfer
between parents and their children of:
•
a principal residence, and
•
the first $1 million of the full cash value of all other real property.
This “change in ownership exclusion” avoids reassessment of the property to its current
market value. Consequently, children who acquire real property from their parents (or
vice versa) can preserve their parent’s Proposition 13 protected value since the
exclusion allows the property taxes on the property to remain the same after the
transfer. There is no value limitation on property that qualifies as a principal residence
and the value of the principal place of residence does not count towards the $1 million
cap on transfers of all other real property transferred between parents and their
children. However, any real property transferred after the $1 million assessed value
ceiling is reached is subject to reassessment at current market value.
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Proposition 193, approved by voters in 1996, amended Section 2 of the Constitution to
apply the exclusion to transfers of real property from grandparents to grandchildren
when all the parents of the grandchildren who qualify as children of the grandparents
are deceased as of the date of transfer.
Revenue and Taxation Code Section 63.1 provides the statutory implementation for
both Propositions 58 and 193.
BACKGROUND
As originally enacted, Section 63.1 required that a claim form be filed to receive the
change in ownership exclusion, but it did not place any time limitations on filing the
claim. Assembly Bill 3020 (Ch. 769, Statutes of 1988) was enacted to require that a
claim be filed within three years of the date of transfer. Subsequently, at the request of
Stanislaus County, Assembly Bill 3843 (Ch. 1494, Stats. 1990) added a provision that
claims must be filed prior to the transfer of the property to a third party. The purpose of
this amendment was to eliminate the county’s cost of preparing retroactive assessment
roll corrections in this type of situation. Inevitably, the establishment of these filing
periods led to some taxpayers being denied the reassessment exclusion because the
claim was not filed "timely." This, in turn, led to the enactment of Senate Bill 675 (Ch.
709, Stats. 1993) to provide an additional six month period for the taxpayer to file a
claim at the time he or she is notified of a supplemental or escape assessment issued
as a result of a purchase or transfer of the property.
Notwithstanding the various changes of law intending to make the filing period for the
exclusion more generous, some taxpayers continued to miss the filing periods. As a
result Senate Bill 542 (Senate Revenue and Taxation Committee, Ch. 941, Statutes of
1997) was enacted to allow the parent-child exclusion to be granted on a prospective
basis at any time once a claim was eventually filed. This was intended to ensure that
taxpayers were not permanently barred from receiving a constitutionally authorized
benefit due to a statutory requirement. It was reasoned that establishing liberal time
periods for filing a claim for the exclusion would prevent future challenges that such time
limitations on filing a claim are unconstitutional. Article XIII A, Section 2, subdivision (h),
of the California Constitution is a self-executing change in ownership exclusion for
parent-child transfers of real property and does not expressly authorize the Legislature
to establish filing requirements. By providing prospective but not retroactive relief, it
was further reasoned that SB 542 would conform to Section 6 of Article XIII of the
California Constitution, which states: “The failure in any year to claim, in a manner
required by the laws in effect at the time the claim is required to be made, an exemption
or classification which reduces a property tax shall be deemed a waiver of the
exemption or classification for that year.” With SB 542, any person that had been
previously denied the exclusion due to a late-filed claim was able to file another claim
and receive the change in ownership exclusion on a prospective basis.
COMMENTS
1. Purpose. The purpose of establishing a processing fee is to create an incentive for
property owners to timely respond to requests by the assessor to file a claim for the
parent-child change in ownership exclusion so that property will not be reassessed
to its current market value. The processing fee further serves to recover the
administrative costs the county incurs in reassessing and later reversing the
reassessment in those cases where an eligible taxpayer eventually files a claim for
the parent-child exclusion, but only after the property was reassessed.
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2. Amendments. The July 1, 2008 amendments deleted a provision that specified
that any fees collected would be retained by the assessor, which had been added by
the June 10 amendments. The June 10, 2008 amendments (1) expressly provide
that the county board of supervisors must authorize the fee, (2) specify that the fee
will be collected at the time claim is submitted, (3) provide that the fee will be
refunded if the transfer is not eligible for the exclusion, and (4) provide that fees
collected are to be retained by the assessor.
3. Reassessment of property to current fair market values can result in a
significant increase in property taxes. Change in Ownership Statements (COS)
and Preliminary Change in Ownership Reports (PCORs) filed with grant deeds
transferring ownership of a property ask property owners whether the transfer was
between parents and children. This question serves to inform property owners of
the exclusion and the need to file a claim to receive the exclusion, thereby, avoiding
reassessment of the property. Taxpayers that check this box on the COS or PCOR
which have not yet filed for the exclusion are mailed a claim form to complete and
file. Additionally, if the assessor has any reason to believe that parties may have a
parent-child relationship such as the same last name on a deed or a property
transferred without financial consideration, a claim will generally be mailed to the
new property owner. Despite repeated inquiries, some taxpayers do not take action
until they are faced with the financial impact of various tax bills reflecting the
reassessment of the property which can be significant.
4. Confusion over filing deadlines? There may be some taxpayer confusion with the
apparent contradiction of the 45 and 60 day filing periods listed on the two proposed
notices of potential eligibility with the filing deadlines noted on claim form which
would likely accompany the notice. The failure of a transferee to file a claim for
exclusion within the 45 and 60 day periods specified would have no effect on a
taxpayer’s eligibility for the exclusion. Rather it solely determines whether or not an
eligible transferee that eventually files a claim for the exclusion would be subject to
the processing fee. An eligible transferee that files a claim would receive the
exclusion either on a retroactive or prospective basis depending on the timing and
filing provisions specified by subdivision (e) of Section 63.1.
5. Establishing the Fee is County Optional. The proposed processing fee must be
authorized by the county board of supervisors.
6. Imposing the Established Fee is Assessor Optional. The fee would only apply if
the assessor sends the two required notices. And neither notice is mandatory.
Thus, the assessor may send none, one, or both notices to a taxpayer.
7. Related Bills. Similar provisions are included in SB 1541 (Harman) which was
referred to the Senate Revenue and Taxation Committee but not heard.
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Senate Bill 1284 (Lowenthal) Chapter 524
Welfare Exemption – Low-Income Housing
Effective September 28, 2008. Amends Section 214 of, and adds Section 214.16 to, the
Revenue and Taxation Code.
BILL SUMMARY
This bill extends the welfare exemption to “consent decree” low-income rental housing
properties, as specified, that are not receiving government financing or income tax
credits. This bill also cancels any outstanding property tax, including interest and
penalties, due on qualifying properties.
Sponsor: Long Beach Affordable Housing Coalition (LBAHC)
LAW PRIOR TO AMENDMENT
Unlimited Exemption. Existing law provides that a low-income housing project owned
and operated by a qualifying nonprofit organization may be exempt from property tax
under the welfare exemption provided various conditions and requirements are met.
Generally, a particular low-income housing property may qualify for the welfare
exemption provided that:
•
Funding Source. The nonprofit organization receives low-income housing tax
credits or government financing for the property. §214(g)(1)(A) and §214(g)(1)(B)
•
Use Restriction. The property is subject to a recorded deed restriction, regulatory
agreement, or other legal document restricting its use for low-income housing
purposes. For purposes of the welfare exemption, the property has low-income
housing tax credits or government financing for the period of time that a regulatory
agreement or recorded deed restriction restricts the use of all or any portion of the
property for rental to lower income households even if the initial government
financing has been refinanced or has been paid in full, or the allocation of the lowincome housing tax credits has terminated or expired, provided that the government
agency that is a party to the regulatory agreement continues to monitor and enforce
compliance with the terms of the regulatory agreement. §214(g)(2)(A)(i) and
Property Tax Rule 140
•
Property Tax Savings. Savings are used to maintain affordability of, or reduce
rents of units occupied by, the lower income households. §214(g)(2)(B)
•
Pro Rata Exemption. If any of the individual units are not rented to low-income
persons, then a partial exemption is available equal to the percentage of units
serving lower-income households. §214(g)(1)
•
Limited Partnerships. More strict provisions apply when a limited partnership owns
the property in which a nonprofit organization is the managing general partner.
§214(g)(2)(A)(ii)
Capped Exemption. When a nonprofit organization owns and operates a low-income
housing property that does not receive any government financing or low-income
housing tax credits, an exemption may be available but it is limited. The exemption is
limited to the first $20,000 of property tax – which at a 1% tax rate equates to
$2,000,000 of assessed value. The $20,000 exemption cap is not per property. It
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applies to all properties owned by the nonprofit organization. Provided the exemption
cap has not been exceeded, a particular low-income housing property may qualify for
the welfare exemption provided that:
•
Funding Source. Not relevant.
•
Occupancy. Ninety percent or more of the occupants of the property are lower
income residents as specified. §214(g)(1)(C)
•
Use Restriction. The property is subject to a recorded deed restriction, regulatory
agreement, or other legal document restricting the property’s use to low-income
housing. §214(g)(2)(A)(i) and Property Tax Rule 140
•
Property Tax Savings. Savings are used to maintain affordability of, or reduce
rents of units occupied by, the lower income households. §214(g)(2)(B)
•
Pro Rata Exemption. The remaining 10% could be rented to persons that are not
low-income in which case the exemption would not apply to those units. §214(g)(1)
AMENDMENT
This bill amends Section 214(g)(1) to add new subparagraph (D) to provide that the
welfare exemption may be granted to property used exclusively for low-income rental
housing that “was previously purchased and owned by the Department of
Transportation pursuant to a consent decree requiring housing mitigation measures
relating to the construction of a freeway and is now solely owned by an organization that
qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue
Code.”
Creating a specific category for “consent decree” properties eliminates the requirement
that the nonprofit organization receive low-income housing tax credits or government
financing on the property. This, in turn, effectively removes the $20,000 exemption cap
for a nonprofit organization that owns consent decree properties in its portfolio of
projects.
A “consent decree” low-income housing property may qualify for the welfare exemption
provided that:
•
Property History. It was once owned by the Department of Transportation and was
related to the Keith v. Volpe consent decree and the Century Freeway Housing
Program and its successors.
•
Funding Source. Not relevant.
•
Use Restriction. The property is subject to a recorded deed restriction, regulatory
agreement, or other legal document. §214(g)(2)(A)(i) and Property Tax Rule 140
•
Property Tax Savings. Funds not used to pay property taxes are used to maintain
affordability of, or reduce rents of, units occupied by the lower income households.
§214(g)(2)(B)
•
Pro Rata Exemption. If any of the individual units are not rented to low-income
persons, then a partial exemption is available equal to the percentage of units
serving lower-income households. §214(g)(1)
•
Limited Partnerships. Not allowed. Limited partnerships with a nonprofit
organization serving as a managing general partner are not eligible under this
provision. The property must be solely owned by the nonprofit organization.
§214(g)(1)(D)(ii)
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Cancels Outstanding Taxes. This bill also adds Section 214.16 to provide that any
outstanding tax, interest, or penalty levied or imposed on a “consent decree” lowincome property between January 1, 2002 and January 1, 2009 will be cancelled
provided that the owner of the property certifies that certain conditions were met at the
time the taxes were levied.
BACKGROUND
Prior to January 1, 2000, there were three possible ways to qualify for a property tax
exemption on a low-income rental housing project owned by a nonprofit organization via
the welfare exemption. These were:
1. At least 20% of the occupants were persons with low income.
2. The project was financed with tax-exempt bonds, government loans or grants.
3. The nonprofit organization was eligible for and received low-income housing
income tax credits.
Assembly Bill 1559 (Stats. 1999, Ch. 927, Wiggins), operative January 1, 2000, deleted
mere “occupancy” by persons with low income as a qualifying condition for the welfare
exemption. This meant that to receive a property tax exemption, the low-income
housing project must either be financed with government funds or qualify for income tax
credits.
The purpose of AB 1559 was to revoke the property tax exemption from properties
owned by certain owners of substandard housing. The bill was sponsored by the Los
Angeles Housing Project, which had, in the course of investigating various substandard
housing projects, discovered that some properties were receiving a property tax
exemption under a provision which permits the property to qualify solely on the basis
that the rents were low and the residents were low-income households. Presumably,
the rationale for limiting the exemption to properties that had been financed with taxexempt bonds, government loans or grants was that such properties would be subject to
some level of government overview, and thus, ensure quality housing for the tenants.
However, the changes made by AB 1559 also resulted in some quality housing projects
losing their property tax exempt status because they did not have government financing
or tax credits. Consequently, follow up legislation, Assembly Bill 659 (Stats. 2000, Ch.
601, Wiggins), was enacted the next year to reinstate the exemption based on
“occupancy” but with three changes:
1. The 20% occupancy threshold was raised to 90%.
2. An exemption cap of $20,000 of "tax" was created.
3. The property must be solely owned by a nonprofit organization -- limited
partnerships in which the managing general partner is an eligible nonprofit
corporation were specifically excluded.
COMMENTS
1. Purpose. This measure would ensure the continued affordability of a portion of the
Century Freeway affordable housing portfolio without the need for additional public
subsidies. According to the author, LBAHC purchased 12 developments in 2004
that had always been exempt from property taxes. However, due to the fact that
LBAHC was able to purchase them without a public subsidy, they do not qualify for a
continued exemption under current law. The author states that if LBAHC is required
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to pay property taxes on this portfolio, the properties will operate in the red, and
LBAHC’s only option will be to sell the properties or refinance them with new public
subsidy funds, in which case, ironically, the properties will qualify for a tax exemption
again. This bill allows LBAHC to maintain ownership and the affordability of the
units without having to use scarce affordable housing resources and without
incurring large transaction costs to regain the exemption.
2. Amendments. The August 8, 2008 amendments expressly provided that any
interest or penalty associated with any outstanding taxes will also be cancelled. The
July 1, 2008 amendments expressly provided that the welfare exemption provisions
for consent decree properties are not applicable to a property owned by a limited
partnership in which a nonprofit organization is the managing partner. The June 9,
2008 amendments effectively made the exemption retroactive to the date LBAHC
purchased the properties by cancelling the outstanding taxes. The LBAHC, which
had understood that the properties would continue to remain exempt from property
tax under the welfare exemption, have not paid property taxes on these properties,
which is currently delinquent.
3. This bill would exempt the property from the ad valorem property tax, but not
other special taxes or assessments. Property eligible for various exemptions may
still receive a property tax bill for other taxes, assessments, fees, or charges, related
to the property that are imposed by local governments and collected via the property
tax bill as direct levies. Thus, with respect to the provisions to cancel outstanding
taxes, any outstanding direct levies on these properties would not be cancelled and
payment would be required.
4. The Consent Decree. In 1972, a lawsuit, Keith v. Volpe, was filed in the United
States District Court related to the then planned construction of the Century Freeway
(I-105) in Los Angles County which was completed and opened to traffic in 1993.
The lawsuit was eventually settled and a consent decree was issued in 1979 that, in
part, required affordable housing be created to replace the housing that would need
to be demolished to build the freeway. The Department of Transportation (CalTrans)
was a party to the consent decree. The “Century Freeway Housing Program” was a
state run program under the Department of Housing and Community Development
(HCD) until 1995 when it was privatized and its assets transferred to the non-profit
Century Housing Corporation.
5. Consent Decree Properties. The practical effect of creating a special category for
qualified “consent decree” properties makes the funding source irrelevant by
effectively eliminating the requirement that the nonprofit organization receive lowincome housing tax credits or government financing on the property. All other
conditions of the welfare exemption as it relates to low-income rental housing owned
and operated by a nonprofit organization would continue to apply.
6. The exemption cap has only been in place since 2000 and since then few
nonprofit organizations that own low-income rental housing have exceeded
the cap. Most projects use government financing or tax credits and thus are not
affected by the cap. The purpose of making public financing a key condition of
receiving a property tax exemption was to prevent the owners of blighted and
deteriorated housing for persons of limited means from receiving the welfare
exemption by using a nonprofit organization as a front for the property owners in a
limited partnership or by creating a non-profit organization on its own. The purpose
of imposing a cap when public financing was not obtained was to ensure that if such
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owners were still able to qualify for the exemption by creating a nonprofit
organization, the extent of the exemption would be limited to no more than $20,000
in tax.
7. These properties were purchased with conventional financing from a bank.
Proponents note that the ability of a nonprofit organization to use conventional
financing is rare. In the case of LBAHC, it was possible because the properties were
acquired at a relatively low cost due to the unique circumstances of these properties.
They were a product of the consent decree and as such the chain of ownership has
been from Caltrans to subsequent nonprofit organizations each committed to
providing affordable low-income housing to the public.
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Senate Bill 1495 (Kehoe) Chapter 594
Disabled Veterans’ Exemption – Disasters
Effective January 1, 2009. Amend Sections 279 of the Revenue and Taxation Code.
BILL SUMMARY
This Board-sponsored bill, for purposes of the disabled veterans’ property tax
exemption, provides that a dwelling not occupied because of a misfortune or calamity or
a home totally destroyed in a governor-declared disaster will continue to receive the
exemption while the home is being reconstructed.
Sponsor: Board of Equalization
LAW PRIOR TO AMENDMENT
Existing law provides for a disabled veterans’ property tax exemption in the amount of
$111,276 or $166,944, depending on income. Section 279 of the Revenue and
Taxation Code provides that, once the disabled veterans’ property tax exemption is
granted, it is to remain in continuous effect unless certain specified events occur.
Relevant to this bill, one terminating event is that the owner does not occupy the
dwelling as his or her principal place of residence on the property tax lien date (January
1). Another terminating event is when the property has been so altered that it is “no
longer a dwelling.”
Existing law is silent with respect to the continuity of the disabled veterans’ exemption
after an event that damages or destroys a home to the point that it becomes
uninhabitable. Given the lack of express statutory direction, the Board has issued
administrative guidance to assessors in which the continuity of the exemption depends
upon the extent of damage to the dwelling, as noted in the explanation and table below.
Partial Damage. In the case of a home that has been partially damaged and is
uninhabitable on the lien date, staff has opined that the exemption need not be
cancelled pursuant to Section 279 on the basis that the home is no longer the “principal
place of residence.” Rather, staff has opined that if the homeowner intends to return to
the home as soon as he or she is able to do so, the situation could be viewed as a
temporary absence from the home and still be considered the homeowner’s principal
place of residence. This is so even though the owner might be renting a house or
apartment in the interim.
Total Destruction. In the case of a home that has been completely destroyed, such as
in a wildfire where homes are burned to the foundation, staff has opined that the
exemption must be cancelled pursuant to Section 279 because a dwelling no longer
exists on the property, and thus, it could not possibly be occupied as a principal place of
residence. However, as soon as a home is rebuilt and occupied, the exemption can be
restored.
EXTENT OF DAMAGE
Partial
Total Destruction
EXEMPTION ELIGIBILITY
Continue
Cancel, restore when home replaced and occupied.
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AMENDMENT
Homes Destroyed in Governor-Declared Disasters. This bill amends Section 279 to
allow a person who had been receiving the disabled veterans’ exemption, and who
subsequently suffers the complete loss of his or her home in a major disaster for which
the governor issues a proclamation of a state of emergency, to retain the exemption,
provided the person:
•
•
•
continues to own the property,
intends to rebuild a home on the property, and
intends to occupy the home as his or her principal place of residence.
In practical application, this means that the exemption is to be applied to the remaining
land portion of the assessment. §279(a)(2)(C)
Homes Destroyed in Non-Governor-Declared Disasters. This bill amends Section
279 to codify the Board’s administrative recommendation to assessors when a home
has been destroyed, and thus, on the lien date no dwelling exists. In this case, the
property would not be eligible for the exemption until the structure has been replaced
and occupied. §279(a)(2)(B)
Homes Partially Damaged in Any Type of Event. This bill amends Section 279 to
codify the Board’s administrative recommendation to assessors in the situation where a
home is not occupied on the lien date due to partial damage related to a misfortune or
calamity (including damage incurred in a major disaster for which the governor issues a
proclamation of a state of emergency). In this case, the dwelling will be deemed to
continue to be the person’s principal place of residence provided that the absence is
temporary and the person intends to return to the home when able to do so.
§279(a)(2)(B)
The table below summarizes exemption eligibility after a home receiving the disabled
veterans’ exemption suffers damage. This bill codifies the Board’s administrative
recommendations, with the exception of allowing the exemption to be retained on a
home totally destroyed in a governor-declared disaster.
EVENT
EXTENT OF DAMAGE
Governor Declared
Non-Governor Declared
Total
Total
Any
Partial
EXEMPTION ELIGIBILITY
Continue
Cancel, restore when home
replaced and occupied.
Continue
IN GENERAL
Disabled Veterans’ Exemption. Existing law provides for a “disabled veterans’
exemption” which reduces the property tax assessed value of homes owned by qualified
disabled veterans and, after their death, to the persons’ surviving unmarried spouses.
The disabled veterans' exemption is also provided to surviving spouses of persons who
died on active duty.
The amount of exemption, which is automatically indexed each year, depends upon the
claimant’s income. For those with a household income below $49,969 (the “low income
exemption”), the amount will be $166,944 in 2008-09. For all others (the “basic
exemption”), the amount will be $111,296.
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Disaster Relief - Property Reassessment for Property Owners. Section 170 of the
Revenue and Taxation Code provides that property taxes may be reduced following a
disaster, misfortune, or calamity in those counties where the board of supervisors has
adopted an ordinance authorizing these provisions. These provisions apply to both
governor-declared disasters and site-specific disasters such as a home fire. Disaster
relief is provided by allowing the county assessor, under specified conditions, to
reassess the property as of the date of the disaster to recognize the loss in a property’s
market value. The loss in value must be at least $10,000. The prior assessed value of
the damaged property is reduced in proportion to the loss in market value; the new
reduced value is used to calculate a pro-rata reduction in taxes. The affected property
retains its lower value, with reduced taxes, until it is restored, repaired, or reconstructed.
BACKGROUND
Special purpose legislation has been enacted in recent years to provide that dwellings
that were destroyed by specific disasters, as noted in the table below, will not be
disqualified as a “dwelling” or be denied the homeowners’ exemption solely on the basis
that the dwelling was temporarily damaged or destroyed or was being reconstructed by
the owner.
Disaster
Year
Legislation
Zaca Fire – Santa Barbara and
Ventura County
Angora Fire – El Dorado County
2007
Stats. 2007, Ch. 224 (AB 62)
2007
Stats. 2007, Ch. 224 (AB 62)
Freeze
Day and Shekell Fires - Ventura
County
Northern California Storms,
Floods & Mudslides
Northern California Storms,
Floods & Mudslides
Shasta Wildfires
Southern California Storms,
Floods & Mudslides
Southern California Storms,
Floods & Mudslides
San Joaquin Levee Break
San Simeon Earthquake
Southern California Wildfires
Oakland/Berkeley Hills Fire
Los Angeles Civil Riots
2007
2006
Stats. 2007, Ch. 224 (AB 62)
Stats. 2007, Ch. 224 (AB 62)
2006
Stats. 2006, Ch. 396 (AB 1798)
2006
Stats. 2006, Ch. 897 (AB 2735)
2005
2005
Stats. 2005, Ch. 623 (AB 164)
Stats. 2005, Ch. 624 (AB 18)
2005
Stats. 2005, Ch. 622 (SB 457)
2004
2003
2003
1992
1991
Stats. 2004, Ch. 792 (SB 1147)
Stats. 2004, Ch. 792 (SB 1147)
Stats. 2004, Ch. 792 (SB 1147)
Stats. 1992, Ch. 1180 (SB 1639)
Stats. 1992, Ch. 17X (AB 38 X)
Other Related Legislation. In 2003, AB 322 (Stats. 2003, Ch. 278, Parra) was
sponsored by the California Association of County Veteran’s Services Officers to
provide that property is deemed to be the principal place of residence of a disabled
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veteran who is confined to a hospital or other care facility, if that property would be that
veteran's principal place of residence were it not for his or her confinement to a hospital
or other care facility, provided the residence is not being rented out to a third party. This
legislation codified the existing practices of many, but not all, counties in the situation
where a disabled veteran enters a rest home and a spouse continues to reside in the
home. Many counties allowed the exemption to remain on the property under the
rationale that the absence from the home is temporary. However, a few counties
considered the home to be ineligible for the exemption because it was no longer "the
principal place of residence" of the veteran even when a spouse remained living in the
home. Oddly, as soon as the veteran died, the home then re-qualified for the exemption
since unmarried surviving spouses are eligible for the disabled veterans' exemption.
COMMENTS
1. Purpose.
This measure is intended to codify the Board’s administrative
recommendations related to exemption eligibility for the disabled veterans’
exemption after a misfortune or disaster. In addition, in order to provide parity
between the homeowners’ and disabled veterans’ exemption following a disaster for
which the governor issues a proclamation of a state of emergency, this bill will allow
disaster victims that suffer the total destruction of their home to continue to receive
the disabled veterans’ exemption while they rebuild.
2. Existing law is silent. The Board’s current advice to county assessors, with
respect to both the homeowners’ exemption and the disabled veterans’ exemption,
is that damaged homes may keep the exemption but totally destroyed homes may
not. This written advice, found in Letter to Assessors 82/50, is specific to the
homeowners’ exemption, but can be extended to the administration of the disabled
veterans’ exemption.
3. Rationale: A Temporary Absence. When a home has been damaged to the point
that it must be vacated for repairs but it is still standing, then under the rationale that
the absence from the home is temporary, the home could still be considered the
person’s principal place of residence. However, when a dwelling has been totally
destroyed, such as a home razed in a wild fire, the property can not be eligible for
the exemption as a principal place of residence.
4. Beginning in 2003, legislation specific to the homeowners’ exemption has
been enacted for every governor-declared disaster. More than 4,000 homes
were damaged or destroyed in the 2003 Southern California fires. And, of those,
more than 60% were owner-occupied homes receiving the homeowners’ exemption.
Given that so many homes were totally destroyed in the fires, special legislation was
enacted regarding the homeowners’ exemption that applied to both damaged homes
and totally destroyed homes. However, since then, legislation has become a
standard practice and is enacted for every governor-declared disaster whether or not
it is necessary to the case at hand.
5. So what about the disabled veterans’ exemption? Given recent legislative
activity in this area, tax practitioners have questioned the correctness of the
longstanding administrative practice to allow the exemption to continue on a
damaged home receiving the disabled veterans’ exemption without similar
authorizing legislation. Further, with respect to a home that is totally destroyed,
disabled veterans would lose their special exemption and would have to pay
property taxes on the full assessed value of the property after the disaster – which
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even after a reassessment to reflect the damage – could result in a net increase in
property tax at a moment of personal and financial distress.
6. This bill would provide parity with provisions provided for the homeowners’
exemption but uses general purpose language so that legislation is not
necessary for each time a major disaster occurs. While there are more than five
million persons receiving the homeowners’ exemption, there are fewer than 30,000
persons receiving the disabled veterans’ exemption. Because of the few times a
disabled veteran might be affected, it would not be prudent to amend the disabled
veterans’ exemption laws for each individual governor-declared disaster.
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Senate Bill 1562 (Hollingsworth) Chapter 356
Grapevines and Trees Damaged by Fires or Strong Winds
Effective September 26, 2008. Amend Section 211 of the Revenue and Taxation Code.
BILL SUMMARY
This bill restarts the four-year property tax exemption period for newly planted fruit and
nut bearing trees and three year exemption for grapevines currently in their exemption
phase that must be pruned back as a result of specified disasters.
Sponsor: Senators Hollingsworth and Ducheny
LAW PRIOR TO AMENDMENT
Orchards and Vineyards. Fruit and nut bearing trees and grapevines are subject to
property tax as “living improvements” but they are exempt from tax during a portion of
their immature life. Article XIII, Section 3(i) of the California Constitution exempts from
property tax fruit and nut trees planted in orchard form until four years after the season
first planted. Grapevines planted in vineyard form are exempt for three years. The land
in which the trees and grapevines are planted remains subject to tax.
Revenue and Taxation Code Section 211 restates the exemption provisions of the
constitution. It additionally provides that, if a tree currently exempt from tax as a “new
planting” is so damaged as a result of freezes occurring in December 1990, December
1998, and January 2007 that it must be pruned to the trunk or bud union to establish a
new shoot, the pruning of the tree will be considered a “new planting” which restarts the
exemption period for that tree. With respect to grapevines, these provisions are only
applicable to the December 1990 freeze.
In addition to the exemption for newly planted orchards and vineyards provided by
Section 211, Property Tax Rule 131 provides that the exemption period will also apply
to individual trees or vines when a tree or vine is newly planted within an existing
orchard or vineyard (i.e., a replacement tree or vine). It also provides that a new
exemption period will be allowed when a tree or vine that has reached commercial
production is grafted to the extent that it causes another non-producing period before
the tree or vine will bear fruit, nuts, or grapes.
Once the exemption period expires and the trees or vines are subject to tax, Section 53
provides the initial base year value of the trees or vines for purposes of Proposition 13
will be the full cash value of the trees or vines as of January 1 on the first year they are
taxable.
AMENDMENT
Orchards and Vineyards. This bill amends Section 211 to restart the four- and threeyear exemption period for fruit and nut trees and grapevines that, while they were still in
their exemption period, were so severely damaged by wildfires and strong winds that
they required pruning to the trunk or bud union to establish a new shoot.
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Revenue and
Taxation Code
Section 211(a)(4)
Section 211(a)(5)
Governor’s
Proclamation
Wind
Wildfires
Counties
Affected
1
7
Event Commencing
October 20, 2007
October 21, 2007
IN GENERAL
Disaster Relief. There are a variety of provisions in property tax law to provide
property tax relief for disaster victims. These provisions address both the short term
and the long term consequences of the disaster as it relates to current and future
property tax liabilities. In the short term, property tax liability is redetermined to reflect
the damage to the property and for some the next property tax installment payment may
be deferred. Over the long term, property owners may rebuild or repair the damage to
their property without incurring any increase in property tax liability. Alternatively,
property owners may instead relocate rather than rebuild without being adversely
impacted by the property tax consequences. The various provisions of law in the
Revenue and Taxation Code are noted below.
Section
Property Type
170
194 &
194.1
195.1
All property types
Real property and
manufactured homes
Real property and
manufactured homes
194.9
Real property and
manufactured homes
69
69.3
All property types
Principal place of
residence
Principal place of
residence —over 55
or physically disabled
Manufactured home
69.5
172 &
172.1
70
5825
Real property only
Manufactured home
Type of Relief
Available
Reassessment
Property tax deferral –
next installment
Property tax deferral –
second consecutive
installment
Property tax deferral –
supplemental
assessment
Base year value transfer
Base year value transfer
Type of Disaster
Governor-proclaimed
Governor-proclaimed
Base year value transfer
Any disaster or calamity
Base year value transfer
Governor-proclaimed
New construction
exclusion
New construction
exclusion;
Base year value transfer
Any disaster or calamity
Any disaster or calamity
Governor-proclaimed
Governor-proclaimed
Governor-proclaimed
Any disaster or calamity
Property Taxation of Non-Williamson Act Land. Agricultural property is subject to
the assessment rules of Proposition 13, in that it retains its base year value until new
construction or a change in ownership takes place.
Inflationary increases in
assessment are limited to no more than two percent a year. Trees and vines are subject
to property tax as “living improvements” and a base year value is established for them
once the exemption period for new plantings ends. In addition to the typical costs of
land preparation and planting, an investment in an orchard or vineyard is a long-term
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venture with a period of several years before any cash flow is realized. Both types of
crops require several years to reach maturity, and the land is committed to that specific
use with little flexibility to other uses. In recognition of this fact, the law exempts fruit
and nut bearing trees and grapevines from taxation during a portion of their immature
life. The taxation of the trees and vines is synchronized with their ability to produce a
sellable crop. (The land on which the trees and vines are planted remains subject to
taxation; it is only the trees and vines that are temporarily exempt.)
Property Taxation: California Land Conservation Act (Williamson Act). Under the
Williamson Act, landowners may enter into contracts with participating cities and
counties to restrict their lands to agricultural or open-space uses. The contract must be
for a minimum term of 10 years, and are automatically renewed each year unless other
action is taken. In exchange for entering into these contracts, the land and any living
improvements (such as trees and vines) are valued according to their income earning
ability. The valuation of land and improvements under these contracts is based on a
statutory formula that capitalizes the income that the land is capable of producing from
its agricultural use. The law also provides that each year, the property will be assessed
at the lowest of the factored base year value, the Williamson Act value, or the current
fair market value. In this way, landowners participating in the Williamson Act program
are guaranteed that their land value will never be assessed at a greater value than
noncontracted land.
BACKGROUND
Freeze Damage Related Pruning. Similar special purpose legislation was enacted for
three severe freezes occurring in December 1990, December 1998 and January 2007.
Freezes
December-1990
December-1998
January-2007
Type
Bill Number
Trees & Grapevines
Trees
Trees
AB 1771 (Harvey) Stats. 1991, Ch.1034
SB 1014 (Poochigian) Stats. 1999, Ch. 291
AB 297 (Maze) Stats. 2007, Ch. 225
AB 1771 was the first bill to start a new exemption period for fruit or nut bearing trees or
grapevines, damaged by the December 1990 freeze. AB 1771 was sponsored by the
Kern County Assessor in an effort to provide relief to farmers who had vineyards and
orchards still within the initial exemption period for newly planted vines and trees when
the December 1990 freeze hit. SB 1014 was sponsored by the California Citrus Mutual.
Grapevines were not included in this bill because they were not damaged by the 1998
freeze. AB 297 was sponsored by the author and similarly did not include grapevines.
COMMENTS
1. Purpose. The purpose of this bill is to restart the exemption period for young trees
and grapevines damaged by specified wildfires and windstorms occurring in 2007.
2. Amendments. The June 25, 2008 amendments extended the provisions of this bill
to grapevines. The May 27, 2008 amendments deleted provisions which would
have allowed counties to enact an ordinance permitting taxpayers engaged in
certain farming activities that were significantly impacted by specified disasters to
defer their next property tax installment payment for one year without interest or
penalty. The May 19, 2008 amendments, which were related to the subsequently
deleted provisions for property tax deferral, specified that: (1) the applications for
deferral are to be made with the assessor, (2) the property owner is to estimate the
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percentage revenue loss, and (3) the assessor may request additional information
necessary to verify the revenue loss.
3. Proclamations. Related to this bill, the governor has issued two proclamations of a
state of emergency for various counties as noted below:
Wildfires. In October 2007, a proclamation was issued for more than 11 major
wildfires burning in seven counties in Southern California at that time. Eventually
there were a total of 23 fires that burned between October 20 and November 9,
2007.
Date
October 21, 2007
County
Los Angeles, Orange, Riverside, San Bernardino, San
Diego, Santa Barbara, and Ventura
Winds. On November 2, 2007, a proclamation was issued for extremely high winds
and resulting damage that began about October 20, 2007.
Date
November 2, 2007
County
Riverside
4. To avoid the need to introduce legislation for each specific disaster in the
future, should general purpose provisions be considered instead? The pruning
provisions apply to a narrow class of trees and vines – those currently in an
exemption period. Existing law already restarts the exemption period for trees and
vines that must be pulled and replaced and for those that are grafted and no longer
can produce a crop. Given the narrow scope of these provisions in practical
application it may be preferable to make these provisions automatic whenever the
governor issues a proclamation of a state of emergency for a county where the
disaster affects trees or grapevines.
5. Related Legislation. Property tax backfill legislation for assessment reductions
under Section 170 for the wildfires and wind storms was enacted through SB 1064
(Ch. 386, Hollingsworth).
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Senate Constitutional Amendment 4 (Ashburn) Res. Chapter 115
Senate Bill 111 (Ashburn) Chapter 336
New Construction Exclusion – Seismic Safety Improvements
Operative only if voters approve Constitutional Amendment at the June 8, 2010 Primary
Election. Amends Section 2 of Article XIIIA of the California Constitution and Section 70 and
74.5 of the Revenue and Taxation Code.
BILL SUMMARY
These bills, for purposes of the two seismic safety new construction exclusions,
eliminates any distinction between the exclusions thereby deleting the 15 year time limit
that applies to unreinforced masonry buildings.
Sponsor: California Assessors’ Association
LAW PRIOR TO AMENDMENT
Two constitutional amendments, Proposition 23 in 1984 and Proposition 127 in 1990,
provide a new construction exclusion for certain improvements made for seismic safety
purposes.
•
Proposition 23 amended Section 2(a) of Article XIII A of the California Constitution
and Section 70(d) of the Revenue and Taxation Code is the implementing statute.
•
Proposition 127 amended Section 2(c)(4) of Article XIII A of the California
Constitution and Section 74.5 of the Revenue and Taxation Code is the
implementing statute.
Section 70(d) applies only to buildings with “unreinforced masonry bearing walls.” These
are walls that are built with bricks, cement blocks, or other types of masonry material,
which do not have steel reinforcing bars. This section only applies if the building must be
improved to comply with a local ordinance, such as a county or city mandatory
strengthening program. This exclusion applies to qualifying construction completed on or
after January 1, 1984 and is limited to the first 15 years after the work is completed.
Section 74.5 applies to any qualifying construction other than work that would fall under
the 15 year new construction exemption for unreinforced masonry structures provided
under Section 70(d).
Qualifying construction includes (1) seismic retrofitting
improvements, as defined, and (2) improvements utilizing earthquake hazard mitigation
technologies, as defined. Unlike Section 70(d), it is not necessary that the qualifying
construction be mandated by a local government. In addition, this exclusion applies to
qualifying construction completed on or after January 1, 1991 and the exclusion is not
subject to any time limit.
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Comparison of Seismic Safety Exclusions
PROPOSITION 23
PROPOSITION 127
Year Approved
1984
1990
Constitutional Amendment
Art. XIII A, Sec. 2(a)
Article XIII A, Sec. 2(c)(4)
Revenue &Taxation Code
Section 70(d)
Section 74.5
Time Limit
15 years
None
(unless there is a change in (until there is a change in
ownership before 15 years) ownership)
Building Type
Unreinforced masonry
Any - except a masonry
building qualifying under
§70(d)
Mandated Improvements
Yes
No
Qualifying Improvements
Those necessary to comply Seismic retrofitting
with local ordinance
improvements
Improvements utilizing
earthquake hazard mitigation
technologies (Applies to
buildings identified by local
government as unsafe in an
earthquake)
Assessor Assistance in
Identifying
Certificate of Compliance
from local government
requiring improvements
Building Department reports
value
Improvements Expressly
Not Covered
Anything not necessary to
comply with the ordinance
Alterations, such as new
plumbing, electrical, or other
added finishing materials
Board Prescribed Claim
Form
No
Yes
Claiming
Certificate of compliance
from local entity within 6
months of completion
Property Owner notify intent
to claim within 30 days of
completion
Six months to provide all
documentation
AMENDMENT
Senate Constitutional Amendment. Senate Constitutional Amendment (SCA) 4
proposes to delete the current provisions of Section 2(a) and Section 2(c)(4) of Article
XIII A of the California Constitution and instead provide in new Section 2(a) that the
term “newly constructed” does not include that portion of an existing structure that
consists of the construction or reconstruction of seismic retrofitting components, as
defined by the Legislature.
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Companion Implementing Statutory Amendments to the Revenue and Taxation
Code. If SCA 4 is approved by voters in 2010, then the provisions of SB 111 would
become operative. The statutory amendments delete from Section 70 the provisions
related to the seismic safety new construction exclusion for unreinforced masonry
buildings and amend Section 74.5 to allow its provisions to apply to unreinforced
masonry buildings. Subdivision (e) of Section 74.5, which this bill deletes, provides that
Section 74.5 is not applicable to any property that qualifies for the exclusion under
Section 70.
The practical effect of these amendments is to eliminate the 15 year time limit on the
exclusion for unreinforced masonry buildings and provide an exclusion that parallels the
one currently provided to all other property types under the provisions of Section 74.5.
The table below summarizes the proposed changes.
Changes to Exclusion for Unreinforced Masonry Buildings
CURRENT LAW
PROPOSED LAW
Time Limit
15 years
Removed
Mandated
Improvements
Yes
Requirement Deleted
Qualifying
Improvements
That necessary to comply with New Definitions
the local ordinance
“Seismic Retrofitting Components”
• Seismic retrofitting improvements
• Improvements utilizing earthquake
hazard mitigation technologies
Assessor
assistance in
identifying
Certificate of Compliance from Building Department (after
local government requiring
certification from property owner)
improvements
Improvements
Expressly Not
Covered
Anything not necessary to
comply with the ordinance
Alterations, such as new plumbing,
electrical, or other added finishing
materials
Claiming
File certificate of compliance
within 6 months of completion
Reduced from six months to within
30 days of completion with six
months to provide all documentation
This bill also amends Section 74.5 to provide a more precise definition of qualifying
improvements. That definition is “that portion or an existing structure that consists of
the construction or reconstruction of seismic retrofitting components, as defined in
this section.”
The statutory definition for the new phrase “seismic safety components” used in the
constitution would be based on the existing definitions of the phrases “seismic
retrofitting improvements” and “improvements utilizing earthquake hazard mitigation
technologies.” This bill would make corresponding amendments to substitute the
phrase “seismic retrofitting components” for “seismic retrofitting improvements or
improvements utilizing earthquake hazard mitigation technologies” throughout the text
of the section.
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In addition, it clarifies that the Building Department reports the costs, rather than the
value, of these components to the assessor.
The changes to Section 74.5 are summarized in the table below.
Changes to Exclusion Under Section 74.5
CURRENT LAW
Qualifying
Improvements
“Improvements”
Seismic Retrofitting
Improvements
PROPOSED LAW
Specific portion of construction or
reconstruction of “seismic
retrofitting components”
Improvements utilizing
earthquake hazard mitigation
technologies
No Change
No Change
Property Owner
Certifies to
Building
Department
Those portions of the project
that are “qualifying
improvements”
Those portions of the project that are
“seismic retrofitting components”
Building
Department
Reports To
Assessor
“Value” of those portions of
the project that are qualifying
improvements.
“Costs” of the portions of the project
that are seismic retrofitting
components
Definition of
Qualifying
Improvements
Seismic
Retrofitting
Improvements
Improvements
utilizing
earthquake hazard
mitigation
technologies
Legislative Declarations. Subdivision (e) is added to Section 74.5 to expressly specify
that buildings currently receiving the 15 year exclusion under Section 70(d) will not be
reassessed after the 15 year time period expires and that they will continue to receive
the exclusion beyond the 15 year period, unless the property changes ownership.
IN GENERAL
Property Tax System. Article XIII, Section 1 of the California Constitution provides that
all property is taxable, at the same percentage of “fair market value,” unless specifically
exempted, or authorized for exemption, within the Constitution. Article XIII A, Section 2
of the California Constitution defines “fair market value” as the assessor's opinion of
value for the 1975-76 tax bill, or, thereafter, the appraised value of property when
purchased, newly constructed, or a change in ownership has occurred. This value is
generally referred to as the “base year value.” Barring actual physical new construction
or a change in ownership, annual adjustments to the base year value are limited to 2
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percent or the rate of inflation, whichever is less. Article XIII A, Section 2 of the
California Constitution provides for certain exclusions from the meaning of “change in
ownership” and “newly constructed” as approved by voters via constitutional
amendments.
New Construction. The California Constitution does not define the term “new
construction." Revenue and Taxation Section 70 defines it, in part, to mean:
Any addition to real property, whether land or improvements (including fixtures),
since the last lien date.
Any alteration of land or improvements (including fixtures) since the lien date that
constitutes a “major rehabilitation” or that converts the property to a different use.
A major rehabilitation is any rehabilitation, renovation, or modernization that
converts an improvement or fixture to the substantial equivalent of a new
improvement or fixture.
With respect to any new construction, the law requires the assessor to determine the
added value upon completion. The value is established as the base year value for those
specific improvements qualifying as “new construction” and is added to the property’s
existing base year value. When new construction replaces certain types of existing
improvements, the value attributable to those preexisting improvements is deducted
from the property's existing base year value. (Section 71)
New Construction Exclusions. Over the years, Article XIII A, Section 2 of the
California Constitution has been amended to specifically exclude certain types of
construction activity from assessment as “new construction.” Consequently, while these
improvements may increase the value of the property, the additional value is not
assessable.
Prop
Year
8
7
23
31
110
127
1978
1980
1984
1984
1990
1990
177
1
1994
1998
Subject
Code
Time
Limit
Disaster Reconstruction
Active Solar Energy Systems
Seismic Safety (Unreinforced Masonry)
Fire Safety Systems
Disabled Access Improvements (Homes)
Seismic Safety Retrofitting & Hazard
Mitigation
Disabled Access Improvements (All Properties)
Environmental Contamination Reconstruction
§70(c)
§73
§70(d)
§74
§74.3
§74.5
No
No
Yes
No
No
No
§74.6
§74.7
No
No
Seismic Safety New Construction Exclusions. Section 70(d) implements Proposition
23, approved by voters in 1984, and Section 74.5 implements Proposition 127,
approved by voters in 1990. These propositions amended Section 2 of Article XIII A of
the California Constitution to provide a new construction exclusion for certain seismic
safety improvements.
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BACKGROUND
These bills are similar to SB 1633 (Ashburn) and SCA 28 (Ashburn) of 2006 which
passed the Senate but were not heard in the Assembly.
COMMENTS
1. Purpose. This measure provides for the deletion of the 15 year time limitation for
qualified improvements made to unreinforced masonry buildings.
2. Amendments. The April 17, 2007 amendments added Senator Migden as a coauthor and identified SCA 4 as the companion constitutional measure.
3. This bill would ensure equal treatment of property owners who incorporate
seismic safety improvements when they remodel an existing building
regardless of the type of building. Currently, two property owners that install the
same types of seismic safety improvements would be treated differently for property
tax purposes depending upon whether or not the building is a masonry structure.
One receives a permanent exclusion from reassessment, and the other, the owner
of an un-reinforced masonry building, which is most likely an older, potentially
historic building, would only receive a 15-year temporary exclusion.
4. Except for the provisions for unreinforced masonry buildings, all other new
construction exclusions remain in effect until the property changes
ownership. Generally, new construction exclusions remain in effect until the
property changes ownership, at which point the entire property, including the portion
of the property (or additional value) previously excluded from taxation via the new
construction exclusion, is subject to reassessment to current market value pursuant
to the change in ownership provisions of Proposition 13.
5. This bill would allow homeowners whose residences were damaged or
destroyed as a result of severe freezing conditions and any other related
casualty to retain the exemption on their property while they are in the
process of rebuilding their homes. Homes that are uninhabitable on the lien date
(January 1) are technically ineligible for the exemption for the upcoming fiscal year
under current law. This disaster occurred after the lien date. A home damaged or
destroyed after January 1, 2007, such as any home damaged or destroyed by the
freeze which commenced on January 11, would continue to be eligible for the
exemption on the 2007-08 regular property tax bill. However, if such a home is not
rebuilt and occupied by the next lien date, January 1, 2008, then it is not eligible for
the exemption on the 2008-09 regular property tax bill.
6. Why the 15 year time limit? Supporters note that there is no sound policy reason to
limit the exclusion to 15 years for unreinforced masonry buildings given the unlimited
exclusion for other types of seismic safety improvements. Proposition 23 was one of
the very first new construction exclusions ever enacted after Proposition 13. No
other constitutional amendment since then has ever imposed a time limit on the
exclusion. Removing the time limit would make these provisions consistent with all
other exclusions.
7. In practical application, few masonry buildings are reassessed after the 15
year period expires. The 15-year time limit creates a 15 year administrative burden
for taxing officials. Based on responses to a Board survey on new construction
issues, many counties do not track 15-year new construction exclusion claims.
Additionally, several counties do not assign a value to seismic retrofits, and many
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treat retrofit as a maintenance item which is not assessable as new construction.
Furthermore, in some cases the property changes ownership before the 15 year limit
has been reached, thus requiring a full reassessment of the property.
8. Masonry buildings currently in the 15 year time window. Buildings currently
receiving a 15 year exclusion would continue to receive the exclusion as provided in
Section 74.5(e) pursuant to the Legislative findings and declarations.
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TABLE OF SECTIONS AFFECTED
BILL
SECTIONS
NUMBER
CHAPTER
NUMBER
SUBJECT
California Constitution
Article
XIIIA
Section 2*
Add
SCA 4
Res. Ch.
115
Valuation of real property
Revenue & Taxation Code
§63.1
Amend
SB 1233
Ch. 349
Transfers between parents and their
children
§70*
Amend
SB 111
Ch. 336
“Newly constructed”; “new construction”
§73
Amend
AB 1451
Ch. 538
“Newly constructed”; “new construction”;
exclusion
§74.5*
Amend
SB 111
Ch. 336
Seismic retrofitting improvements
§75.24
Add
AB 3035
Ch. 201
Supplemental assessments
§211
Amend
SB 1562
Ch. 356
Trees and vines
§214
Amend
SB 1284
Ch. 524
Welfare exemption
§214.16
Add
SB 1284
Ch. 524
Welfare exemption – low-income
housing
§218
Amend
SB 1064
Ch. 386
Homeowner’s exemption
§279
Amend
SB 1495
Ch. 594
Disabled veterans’ exemption; effective
dates
§469
Amend
AB 550
Ch. 297
Audit of profession, trade, or business
* Operative only if voters approve SCA 4 at the June 8, 2010 Primary Election.
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