May 18, 2010

Taxation and Government Finance Committee
Transactions and Regulatory Committee

The following is for study only and has NOT been approved by the Taxation and Government Finance Committee, Legislative or Executive Committees or the Board of Directors.

Issue:
Should the amount of the transfer tax paid (and, thus, the cost of the home purchased) be kept confidential?

Action:
Optional.

Options:
1. Support allowing the amount of the transfer tax paid to be kept confidential: Retain the provision in law that allows individuals who pay the documentary transfer tax to request that the amount of the tax be kept private and/or support amending the Public Records Act to allow keeping the amount of the tax paid confidential.
2. Support keeping the amount of the transfer tax paid public information: Eliminate the provision in law that allows individuals who pay the documentary transfer tax to request that the amount of the tax be kept private and/or oppose amending the Public Records Act to allow keeping the amount of the tax paid confidential.
3. Other.
4. Do nothing.

Status/Summary:
The party recording the document conveying real property can under existing law request that the amount of the documentary transfer tax due be shown on a separate paper.  This was intended to allow individuals to keep the amount of the tax and, thus, the price paid for the real property, private.  However, in July 2007, Attorney General Jerry Brown reiterated in a published opinion that the internal accounting records of county recorders are subject to inspection under the Public Records Act.  As a result, C.A.R. staff was contacted by the representatives for the County Recorders Association of California to determine what C.A.R.’s position would be if legislation were introduced to eliminate the ability of the individual paying the tax to request that amount of the tax due be shown on a separate paper.  C.A.R. staff discussed this issue with the leaderships of both the Taxation and Government Finance Committee and the Transactions and Regulatory Committee, and there was a split of opinion.  Clearly, there is a tension between the desire for privacy on the part of the homebuyer and the need of potential homebuyers to know how much is appropriate to pay for a home in that neighborhood.

Discussion

Currently, cities and counties impose a documentary transfer tax when documents conveying real property are recorded.  The amount of the tax, for general law cities, is $1.10 per $1,000 of the price paid for the real property; charter law cities can establish a higher documentary tax rate.  The law requires that documents subject to the tax show the amount of the tax due on their face.  However, the party recording the document may request that the amount of the tax due be shown on a separate piece of paper.  This was intended to allow individuals to keep the amount of the tax and, thus, the price paid for the real property, private.  If the amount of the tax paid is kept private, the price paid for the real property is also kept private because the latter amount can only be calculated knowing the former amount (and the tax rate).

In July 2007, Attorney General Jerry Brown reiterated in a published opinion that the internal accounting records of county recorders are subject to inspection under the Public Records Act.  According to the opinion, the Public Records Act is intended “to facilitate the people’s right to monitor their government’s activities, under the principle that ‘access to information concerning the conduct of the public’s business is a fundamental and necessary right of every person in this state.’”  While the Public Records Act contains several exemptions permitting specified records to be kept confidential, there is no such exemption for county recorders’ accounting records.  In addition, the accounting records are “evidence of the manner and extent to which such taxes have been assessed and paid; hence, they are ‘public records’ concerning matter of interest to the public.”  Consequently, the accounting records must be made available for inspection upon request.

C.A.R. staff was contacted by the representatives for the County Recorders Association of California to determine what C.A.R.’s position would be if legislation were to be introduced to eliminate the ability of the individual paying the documentary tax to request that the amount of the tax due be shown on a separate piece of paper.  The Recorders’ view is, per the Attorney General’s opinion, that the amount of the tax cannot be kept private.  In addition, when complying with requests to show the amount of the tax due on a separate paper, county recorders have to hunt in other records to determine the amount and provide it to the individual requesting the information.  Since the amount of the tax due cannot currently be kept private, eliminating the ability to have the amount shown on a separate paper will save county recorders the trouble of finding the amount of the tax paid when a Public Records Act request is made.  Note, however, that the Recorders did not suggest the alternative of amending the Public Records Act to allow accounting records to be kept confidential.

C.A.R. staff discussed this issue with the leaderships of both the Taxation and Government Finance Committee and the Transactions and Regulatory Committee, and there was a split of opinion.  It was noted that many buyers of high-end properties prefer to keep the purchase price of the home confidential in order to protect their privacy.  (However, the purchase price can to a large extent still be determined by finding out the assessed value of the property from the county assessor.)  On the other hand, if the amount of the documentary transfer tax paid can be kept private, that may prevent REALTORS® from getting home prices for comparable properties.  Thus, there is a tension between the need for privacy on the part of the homebuyer and the need of potential homebuyers to know how much is appropriate to pay for a home in that neighborhood.

Note: The Recorders Association ultimately decided to not pursue legislation this year; however, they may do so in the future.  Since the Recorders are not currently planning to introduce legislation, it may be appropriate to delay action until the Recorders decide to pursue legislation.