Thursday, January 27, 2011 1:00 p.m. - 2:50 p.m. San Diego
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, 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
a. C.A.R. Sponsored Bill, Required Posting of Agendas and Staff Reports on Internet - Last June, the Taxation and Government Finance Committee passed and the Board of Directors approved the following motion: “That C.A.R. ‘SPONSOR’ legislation that would amend the Brown Act to require local governments to post meeting agendas and summaries of staff reports on their website 72 hours prior to the scheduled meeting.” This issue was originally brought forth by the Marin Association of REALTORS®. According to that association, “the town of Tiburon did not disclose to the public that they were going to hold public hearings about a proposal to increase the fee for resale inspection reports from $150 to $250. We learned about the proposal only when a final vote was announced on the council’s next meeting agenda.” In response to inquiries from the association, “town staff claimed to have fulfilled Brown Act requirements by simply posting the hearing notice outside town hall and in the classified section of a local weekly newspaper.” Requiring the posting of agendas and staff reports on the Internet will allow individuals interested in the actions of a particular local government to regularly check that locality’s Web site to get complete information about upcoming meetings. Once legislative committee appointments have been completed, C.A.R. will seek an author for this legislation.
Position: Sponsor Status: Introduced
2. Property Tax - Ronna Brand, Issue Chair
a. AB 75 (Hill) - Solicitations from Non-Governmental Entities - Last June, the Taxation and Government Finance Committee passed and the Board of Directors approved the following motion: “That C.A.R. ‘SUPPORT’ AB 2654 (Hill), a bill which requires private solicitations that resemble official documents to prominently disclose that they are from a non-governmental entity.” Such solicitations often, for example, offer assistance - for a fee - in applying to the county assessor for property reassessment for property tax purposes. Governor Schwarzenegger vetoed AB 2654 stating, “I am supportive of addressing consumer protection against fraudulent business practices. However, this bill also establishes a private right of action allowing for the recovery of damages up to three times the amount solicited, which I am concerned will lead to spurious lawsuits.” Assembly Member Hill has reintroduced the measure as Assembly Bill 75.
Position: Support Status: Introduced
b. ACA 4 (Blumenfield) - Vote Threshold Reduction for Bonded Indebtedness - Existing law limits property taxes to 1% of the value of the property. This measure would create an exception to the 1% limit for a rate imposed to service bonded indebtedness approved by 55% of the voters to fund (1) public improvements including, but not limited to, improvements to transportation infrastructures, sewer systems, waters systems, and park and recreation facilities, and (2) facilities used primarily to provide sheriff, police or fire protection services including furnishing and equipping those facilities.
Position: Oppose Status: Introduced
3. Government Finance - Bill Nelson, Issue Chair
a. SCA 5 (Simitian) - Vote Threshold Reduction for Parcel Taxes - This measure would reduce the vote required for a school district to impose a parcel tax from two-thirds to 55% of the voters voting on the proposition. The measure would require that the proposition have been approved by two-thirds of the membership of the governing board of the school district, community college district, or county office of education. Also, the proposition would have to provide an exemption to persons 65 years of age or older as well as to the disabled. Finally, the amount of the parcel tax could not exceed $250 per year. C.A.R. opposes SCA 5 because parcel taxes are not limited to facility construction, can be imposed indefinitely, and are a “flat fee” per parcel that may place an additional burden on homeowners least able to afford it.
a. Private Transfer Fee - The Federal Housing Finance Agency (FHFA) has issued a 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.” Both C.A.R. and NAR have asked for this prohibition on private transfer fees (PTF) and are supportive of the proposed guideline’s intent.
An area of question is the guideline’s failure to grandfather in existing PTFs. This may make properties with existing PTFs unmarketable to anyone who would otherwise utilize conventional financing. In the example of where a homebuilder placed a PTF on a property sold years ago there is little to no leverage to force the homebuilder to remove the PTF since they no longer own the property.
C.A.R. has submitted a comment letter stating our support for the proposed guideline, but asking that existing PTF be grandfathered in for the purpose of federal financing.
2. Government Finance - Bill Nelson, Issue Chair
a. National Commission on Fiscal Responsibility and Reform - In February of 2010, President Obama issued an Executive Order creating the National Commission of Fiscal Responsibility and Reform (Commission). The purpose of the Commission was to come up with recommendations to balance the budget, excluding interest payment on the debt, by 2015. While the Commission was merely an advisory body to the President, when they issued their final report late last year it sparked discussion and debate on how the country can cut costs and raise revenue.
Included in that discussion was a reduction in the mortgage interest deduction that would have severely limited the MID benefit for all homeowners and more so in high cost states such as California. While the Commission failed to garner the 14 out of 18 votes it needed to send the proposal to Congress, it did gain 11 bi-partisan votes. Given the harsh economic climate the government faces, the MID issue, as well as other real estate tax provisions is very likely to be on the table again.
Following the publishing of the Commission report, California Congressman Gary Miller introduced a Resolution in Congress supporting the MID. He intends to reintroduce this Resolution in the 112th Session and ask for bi-partisan support. Pursuing a resolution will help REALTORS® quickly identify members of Congress who support or oppose the MID.
b. Estate Tax and Bush Tax Rates Extension - On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853) extending the Bush-era tax rates and a host of other expired and expiring provisions. The legislation is not “paid for,” so there are no revenue raisers taken from real estate or other industry groups. The package provides temporary extensions of its numerous provisions. Some are retroactive, as well, so that the rules that had been in place previously will operate as if they had never expired.
Included in the bill are provisions that affect real estate investment and operations - such as energy-efficiency tax credits, capital gains, and more. A few key provisions of interest to REALTORS® include: • Retention of Bush-era tax brackets through the 2011 and 2012 tax years; • Retention of the capital gains tax rate of 15 percent for assets sold or disposed of during 2011 and 1012; • Reduction of payroll taxes for employees and self-employed individuals during 2011; • Extension of numerous energy efficiency credits through December 31, 2011, including the Energy Efficient New Homes, Energy Efficient Existing Homes, and Energy Efficient Building Credits.
The legislation revives the estate tax as of January 1, 2010, with an exclusion of $5 million ($10 million for a couple) and a maximum rate of 35%. The executors and heirs of those who died during 2010 may elect to pay no estate tax, but the assets will be subject to the carryover basis rules. That election will not be available for those who die after 2010. The $5 million exclusion and 35% rate will be effective through December 31, 2012.
c. 1099 Reporting for Small Businesses - The health care legislation enacted in 2010 included two controversial and burdensome new requirements. Starting in 2012, all businesses to provide IRS 1099 information returns to any vendor (and to the IRS) when the business makes payments of more than $600 to the vendor in any calendar year. This 1099 reporting provision came out of nowhere in the final days of the health care debate.
While there is bi-partisan support for the elimination of this provision as it is currently written, the Senate was unable to come to an agreement on what should be done. Two amendments at the end of last year failed to gain the 60 votes necessary to be included in a Senate passed small business bill.
The IRS, who will be in charge of implementing and enforcing the new law, has stated their concern for the avalanche of paperwork the law will create. They have stated they do not intend to require purchases made with credit and debit cards to be subject to the new law. They are also listening to the business community to see how else they may be able to ease the burden on small businesses.
Lastly, under current law, property managers are generally required to provide Form 1099 on many of the expenditures they incur as part of their management of rental property. The new law expands this rule so that ANY person who receives rental income (not just property managers) will be required to report all expenditures of more than $600 to anyone from whom they purchase services.