Thursday, May 5, 2011 1:10 p.m. - 2:50 p.m. Sacramento
Mission Statement: This Committee is a Policy committee. Its mission is to develop C.A.R.'s government finance and taxation policy. It has original jurisdiction to evaluate legislation and regulation in the following issue areas as they relate to real estate:
Commercial Investment Government Finance Property Tax Transaction Tax
Presiding: Patricia Bouie-Hinds, Chair Jeff Sposito, Vice-Chair
Issue Chairs: Hal Alpert, Commercial Investment Jeannie Anderson, Transaction Tax Ronna Brand, Property Tax Bill Nelson, Government Finance
Liaisons: Mike Riley, C.A.R. Executive Committee Liaison Dennis Badagliacco, NAR Federal Taxation Committee Representative Jared Martin, NAR Commercial Committee Representative
CAR Staff: Christopher Carlisle, Legislative Advocate Matt Roberts, Federal Government Affairs Manager
I. Welcome and Opening Comments - Patricia Bouie-Hinds, Chair
II. State Taxation Issues
A. Commercial Investment - Hal Alpert, Issue Chair
1. AB 350 (Solorio) Displaced Property Service Employees - Under current law, an employer/contractor of janitorial service employees cannot terminate the employees of the prior employer/contractor for 60 days and, after that 60-day period, only if "just cause " to do so. AB 350 extends these protections to several property-related services, including security, landscape, window cleaning, and food cafeteria services. C.A.R. is opposed to this measure. This bill undermines the at-will employment presumption in California by forcing new property owners to continue the employment relationships of the previous owner of the property.
Status: Assembly Labor and Employment Committee Position: Oppose
2. AB 448 (Ammiano) Split Roll - Existing law requires the reassessment of real property upon the sale or transfer of the property. AB 448, a re-introduction of AB 2492 of 2010, proposes to instead trigger reassessment of a commercial property upon the sale or transfer of 100% of the corporation owning the property in any single transaction. This measure would also require the entity acquiring the ownership interest to file a change in ownership statements with the state Board of Equalization. C.A.R. opposes AB 448 because it will create a burdensome reassessment rule on non-residential property and lead to a split tax roll that will exacerbate the already unfortunate trend toward the "fiscalization " of land use decisions.
Status: Assembly Revenue and Taxation Committee Position: Oppose
B. Transaction Tax - Jeannie Anderson, Issue Chair
1. AB 392 (Alejo) Brown Act - The Brown Act currently requires local government entities to post their agendas 72 hours in advance of scheduled meetings; however there is no requirement that staff reports be similarly posted and the Brown Act can be satisfied by posting a hard copy of the agenda at a location accessible to the public. This can present a formidable obstacle for individuals and organizations attempting to follow the actions of local governments. C.A.R. is sponsoring AB 392 which would require all local government entities governed by the Brown Act to post their agendas as well as staff reports relating to agenda items on their website (if they have a website - the measure does not require the establishment of a website). Requiring that agendas and staff reports be posted on the locality's website will allow individuals and organizations to much more easily track proposed governmental actions.
Status: Assembly Local Government Committee Position: Sponsor
2. SCA 7 (Yee) Public Meeting Notification - The California Constitution currently requires that the meetings of public bodies be open to the public. SCA 7 amends the constitution to require public bodies to notify the public about their meetings and the actions they take. C.A.R. supports SCA 7 because it believes that the public has a fundamental right to be informed. By adding this requirement to the constitution, SCA 7 eliminates the state mandate and exorbitant reimbursement claims being submitted by local governments to cover the costs of appropriately notifying the public of scheduled meetings and proposed actions.
Status: Senate Elections and Constitutional Amendments Committee Position: Support
3. Purchase Price/Sales Commission - At the January meeting of the Taxation and Government Finance Committee a member of the committee noted that representatives of the County of Santa Barbara had stated that not including the sales commission within the purchase price for a home constituted fraud and inquired whether, in fact, this was the case. C.A.R. staff obtained a letter from the County Counsel for Santa Barbara County stating that "numerous documents submitted for recordation … appear to have intentionally underrepresented the full consideration paid for the transfer of property to avoid paying all of the documentary transfer tax (DTT) due. Examples of improper tax avoidance observed by the County Recorder include: (1) the failure to include sales commissions as part of the reported consideration paid …"Revenue and Taxation Code Section 110 (b) states: "'full cash value' or 'fair market value' is the purchase price paid in the transaction … 'Purchase price,' as used in this section, means total consideration provided by the purchaser or on the purchaser's behalf, valued in money …" As a result, callers to C.A.R.'s Legal Hotline, for example, will be told that the law requires that the purchase price for a home include the sales commission.
C. Property Tax - Ronna Brand, Issue Chair
1. AB 75 (Hill) Solicitation Disclosures - Under existing law a non-governmental agency cannot seek funds or information using a solicitation, either paper or electronic, that contains a term or symbol that could be interpreted as implying a connection to any state or local government unless they have the agency's approval or they include a notice disclosing that they are not associated with a state or government agency. AB 75 would expand this provision to include any symbol, term or general content implying a connection to a federal, state or local government agency. This bill would also require that the disclosure notice be conspicuously displayed on the front and back or each page of the solicitation and would increase the violation fine to $2,500 as well as allow an affected individual to recover damages. C.A.R. supports this measure which protects homeowners from misleading solicitations which often include real estate-related services like property tax reassessment and homestead filing services.
Status: Assembly Appropriations Committee Position: Support
2. AB 1090 (Blumenfield) Senior and Disabled Citizens Property Tax Deferment - The Senior Citizens and Disabled Citizens Property Tax Postponement Law, which expired February 20, 2009, allowed the Controller to postpone payment of property taxes for those qualified property owners who applied for the program. AB 1090 would establish the County Deferred Property Tax Program for Senior Citizens and Disabled Citizens. This program would allow counties that opt-in to defer property taxes for those individuals who qualify retroactively, for taxes due on or before February 20, 2011, and on an ongoing basis. Each individual wishing to participate in this program shall apply on the county provided forms each year that they wish to have their taxes deferred; the deferred amount along with interest being charged on the balance shall be secured by a county property lien. C.A.R. supports this measure as it would help protect individuals who are on a fixed income, such as senior citizens or disabled individuals, from losing their homes due to their inability to pay their property taxes.
Status: Assembly Revenue and Taxation Committee Position: Support
3. SB 507 (DeSaulnier) Change in Ownership Statement - When the ownership of real property changes the new owner is required to file a change in ownership statement with the county assessor. It a county assessor makes a request to a transferee to file the statement and the transferee fails to do so within 45 days a penalty can be levied of the greater of $100 or 10% of the property tax due not to exceed $2,500 for non-willful failures to comply with the request. SB 507 would extend the 45 day limitation to 90 days and would increase the penalty cap to $5,000 on properties that qualify for the homeowner's tax exemption (i.e., residential homes) and $20,000 for those that do not (i.e., commercial properties). C.A.R. is monitoring this measure as it moves through the legislative process.
Status: Senate Governance and Finance Committee Position: Watch File
D. Government Finance - Bill Nelson, Issue Chair
1. AB 184 (Swanson) Seismic Safety Improvements - Public agencies are currently allowed to enter into a contractual assessment with homeowners to fund the installation of various property improvements. AB 184 would expand existing law to add seismic strength improvements to the list of allowed improvements. This measure will allow residential, commercial and industrial property owners to enter into a contract with a city or county to fund seismic improvements through an assessment on the property. C.A.R. supports AB 184 because it would provide an opportunity for property owners to install seismic retrofits other than at point-of-sale and without burdensome up-front costs.
Status: Assembly Floor Position: Support
2. AB 935 (Blumenfield) Foreclosure Mitigation Fee - This measure would prohibit a county recorder from accepting a notice of trustee's sale for recordation unless the mortgage servicer pays a foreclosure mitigation fee of $20,000. The recorder will hold the money in trust until a trustee deed of sale is filed at which point the money would be deposited into the Foreclosure Mitigation Fund. The funds will be available for a number of purposes including K-12 and community college, public safety, redevelopment, small business loans and mitigating the effects of foreclosure. However, should a notice of rescission be filed with the recorder the $20,000 would be returned to the servicer. C.A.R. opposes AB 935 because it will discourage lenders from extending mortgages to homebuyers.
Status: Assembly Banking and Finance Committee Position: Oppose
3. SB 653 (Steinberg) Local Tax Authorization - SB 653 would authorize county boards of supervisors to place any tax on the ballot before the voters without restriction – including taxes that even the Legislature has not chosen to impose. C.A.R. is opposed to this measure as it believes that counties should not have such open ended authority to impose taxes. Of paramount importance, C.A.R. is concerned that SB 653 would allow counties to impose a tax on services which would adversely impact our already fragile economy.
Status: Senate Government and Finance Committee Position: Oppose
4. SCA 5 (Simitian) Parcel Tax Vote Threshold Reduction - SCA 5 would reduce the vote threshold required for a school district to impose a parcel tax from two-thirds to 55% of the voters in the area if the proposition being voted on was approved by two-thirds of the governing board of the district. C.A.R. opposed SCA 5 because parcel taxes are a "flat fee" per parcel that may place an additional burden on the homeowners least able to afford the tax.
Status: Senate Governance and Finance Committee Position: Oppose
III. Federal Taxation Issues
A. Commercial Investment - Hal Alpert, Issue Chair
1. Lease Accounting Standard The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) proposed lease accounting changes that may be detrimental to our nation's economy by reducing the overall borrowing capacity of many commercial real estate lessees and lessors. The proposal would bring nearly $1.3 trillion in leased assets onto companies' balance sheets, with roughly 70 percent being real estate leases. Under the proposal companies would be required to use a "right-of-use" accounting model where both lessees (renters) and Lessors (property owners) recognize assets and liabilities arising from lease contracts. Currently, accounting rules allow many businesses to classify leases as operating expenses, which do not appear on their balance sheets. Both FASB and IASB believe these changes would improve transparency as well as provide investors with more consistent and concise financial reporting. However, if enacted, this proposal could negatively impact the financial stability of many businesses, which could prolong our nation's economic recovery.
At NAR's New Orleans' business meetings NAR took the policy "That the National Association of REALTORS® opposes lease accounting standard changes proposed by the Financial Accounting Standards Boards (FASB) and the International Accounting Standards Board (IASB) that would treat the income producing real estate business as a financing business on company balance sheets."
Their rational was a concern that the proposed lease accounting standard changes will be detrimental to the nation's economy by reducing the overall borrowing capacity of many commercial real estate lessees and lessors. Due to larger balance sheets, more frugal lessees will want less space and shorter-term leases without renewal options or contingent rents, which will decrease cash flow for property owners. Shorter-term rents will likely reduce the borrowing capacity of many commercial real estate lessors, who rely on leases and the value of the property as collateral in order to obtain financing.
The FASB and IASB announced that they will delay their final lease accounting rules by at least a few months after their original June 2011 finalization target date. The effective date of this proposal will likely be in 2012 or 2013, where virtually all new and outstanding leases would be subject to the new accounting standard.
B. Transaction Tax - Jeannie Anderson, Issue Chair
1. Private Transfer Fee The Federal Housing Finance Agency (FHFA) has issued a proposed rule intended to limit the usage of private transfer fees (PTF). This is a follow up to their proposed guideline stating "the Enterprises (Fannie Mae and Freddie Mac) should not purchase or invest in mortgages encumbered by private transfer fee covenants or securities backed by private transfer fee revenue, as such investments would be unsafe and unsound practices and contrary to the public missions of the Enterprises and the Banks." However, unlike the proposed guidelines, the proposed rule creates many exceptions that would make the final rule ineffective in California.
The proposal creates exceptions for homeowners associations (HOA) and non-profit entities who utilize the money to provide a "direct benefit" to the encumbered property. The FHFA has defined "direct benefit" as:
Direct benefit means that the proceeds of a private transfer fee are used exclusively to support maintenance and improvements to encumbered properties as well as cultural, educational, charitable, recreational, environmental, conservation or other similar activities that benefit exclusively the real property encumbered by the private transfer fee covenants. Such benefit must flow to the encumbered property or the community comprising the encumbered properties and their common areas or to adjacent or contiguous property. A private transfer fee covenant will be deemed to provide a
direct benefit when members of the general public may use the facilities funded by the transfer fees in the burdened community and adjacent or contiguous property only upon payment of a fee, except that
de minimis usage may be provided free of charge for use by a charitable or other not-for-profit group.
C.A.R. is strongly opposed to the proposed rule and has met personally with the FHFA and submitted a comment letter expressing our concern, opposition and recommended changes to ensure the implementation of a prohibition on PTFs is done in a manner that benefits California's housing market. (Comment Letter)
C. Government Finance - Bill Nelson, Issue Chair
1. Proposed Budget Plans and Real Estate Taxes House Budget Committee Chairman Paul Ryan (R-WI) has introduced the outlines of a major budget proposal that is intended to reduce federal spending by over $6 Trillion over the next 10 years. The primary focus of the proposal is an overhaul of the two largest entitlements, Medicare and Medicaid. Notably, though, the proposal also directs the Ways and Means Committee to overhaul the tax code with a goal of reducing the top corporate and individuals tax rates from their current 35% to no more than 25%. To achieve such a dramatic rate reduction, numerous tax benefits will need to be revised or repealed.
The Budget Committee has no jurisdiction to create the legislation that would overhaul the tax system. Thus, the Republican budget makes no statement about what provisions would be subject to revision of elimination. This budget submission should be viewed as the first step in a long journey that may continue into 2012 and 2013.
The Obama Administration has released its Fiscal Year 2012 budget proposals. The document includes the same MID limitation that was part of the Administration's FY 2010 and FY 2011 budgets. That proposal would limit the value of the MID for upper income taxpayers. For 2011, the value of the deduction for those in the 30% and 35% brackets would be limited to 28%. After 2012, the value of the deduction would be limited to the 28% bracket for those in the 33% and 39.6% brackets.
The Administration notes that if this proposal would be adopted, the value of the MID and all other itemized deductions would be the same as it was following the Tax Reform Act of 1986.
2. 1099 Small Business Reporting The Senate has passed H.R. 4, a bill that repeals the small business 1099 reporting requirements that were enacted as part of the Health Care reform and the landlord reporting requirements enacted in 2010 as part of a Small Business bill. The measure passed on a strong bipartisan vote of 87 - 12. Similarly, the House had passed its version with a vote of 314 - 112. The House and Senate versions are identical, and President Obama has already signed the bill.
The repeal is drafted as if the provisions had never been enacted. Thus, it is a complete and total repeal.