Wednesday, October 7, 2009
2:00 p.m. - 4:00 p.m.
Presiding:
Cynthia Carley, Chair
Curt Cournale, Vice-Chair
Mark Peterson, Vice-Chair
Bill Jansen, Executive Committee Liaison
Jimmy La Peter, NAR Committee Representative
CAR Staff:
Christopher Carlisle, Legislative
Advocate
Jeff Keller, Public Policy Analyst
I. Opening Comments
II. State Taxation Issues
A. Action Items:
1. A Flat Tax is Again Proposed - As a result of the
introduction of Senate Bill 328 (Dutton) which declares the Legislature’s
intent to establish a flat tax, the Taxation Committee requested that C.A.R
staff prepare an analysis of the flat tax issue. The appeal of the flat tax
lies with imposition of a single flat income tax rate. In other words, all
taxpayers would be treated in the same manner and, moreover, productive
behavior would not be discouraged by imposition of a higher tax rate.
However, adoption of a flat tax would eliminate the progressivity of the
current income tax system in which individuals with higher incomes pay a
larger percentage of their incomes in taxes. The impact to lower-income
taxpayers can be mitigated by providing a large personal exemption. As a
result, it is projected that a flat tax would result in an income tax
increase for middle-class taxpayers. Both NAR and C.A.R. have adopted
policy positions in opposition to a flat tax due to the projected decline
in home prices, as well as declines in resale volume and housing starts.
(See Issue Briefing Paper)
2. Split Roll is Again Being Discussed - Due to the large
budget deficits the state has faced in recent years, split roll property
taxation is again being talked about as a means by which the state can
avoid such deficits. Under Proposition 13, property is assessed when a
change in ownership occurs and is taxed annually at 1 percent of the
assessed value – regardless of whether the property is residential or
commercial. A split roll property taxation system, however, would tax
commercial property at a higher rate than residential property and, thus,
more tax revenues would accrue to the state. When the implementing
statutory language for Proposition 13 was being considered, a task force
considered - but, ultimately rejected – recommending a split roll
property taxation system because it was concerned that a shift in tax
burden from commercial to residential properties would result because
commercial properties change ownership less frequently. The question of
whether a tax base shift from commercial properties to residential
properties has occurred has been intensely debated with parties on both
sides of the issue pointing to statistics they claim proves that there has
or has not been such a shift. C.A.R. has historically opposed a split-roll
property taxation system with the idea that taxes levied against real
property should be fair and equitable across all types of real property.
(See Issue Briefing Paper)
3. REO Property Sales are Inconsistently Used as Comparable Sales
when Residential Property is Reassessed - Foreclosures this year
will cause over 70 million nearby homes to decline in price by an average
of $7,200 per home. While neighborhood foreclosures can impact the
appraised value of a home, there appears to be some confusion as to whether
such foreclosures can also impact assessed value. Some county assessors
consider local REO sales when reassessing residential property for purposes
of property taxation while others believe they are prohibited by law from
doing so. Needless to say, the lower the assessed value of a residential
property, the lower the property taxes that the homeowner will have to pay
on that property. (See Issue Briefing Paper)
B. Discussion/Reporting Items:
1. Commission on the 21st Century Economy - Last October,
Governor Schwarzenegger and legislative leaders established the Commission
on the 21st Century Economy to make recommendations regarding stabilizing
revenues to the state to avoid the current “feast or famine” state budget
process. The Commission is scheduled to release its recommendations by
September 20; however, there are indications that the Commission will not
make that deadline. The Governor has already announced that he will
immediately call the legislature back into session to consider the
Commission’s proposed reforms when the recommendations are made. The draft
proposal circulated by the Commission contained the following
provisions:
a. Two Personal Income Tax Rates - Simplification to two
income tax rates; 2.75% for incomes up to $56,000 for joint filers and up
to $28,000 for single filers, and 6.5% for incomes above those amounts with
a standard deduction of $45,000. Itemized deductions would be limited to
mortgage interest, property taxes and charitable contributions.
b. Phase Out of State Portion of Sales and Use Tax - The
state portion of the sales and use tax would be phased out at the rate of
1% per year between 20012 and 2017.
c. New Business Net Receipts Tax - 4.2% new net receipts
tax would be levied on all businesses except for those with less than
$500,000 in gross receipts or $250,000 net revenue.
d. Elimination of Corporation Tax - The corporation tax on
businesses would be eliminated in 2012.
2. Home Purchase Tax Credits
a. SB 15XX (Ashburn) Housing Tax Credit - SB 15XX created
an additional tax credit for new home purchasers that equals 5% of the sale
price of a home, not to exceed $10,000. The credit is only available for
new, or previously unoccupied, homes purchased between March 1, 2009 and
March 1, 2010. The purchaser must live in the home for at least two years
or forfeit the credit (i.e., repay it to the state). The bill allocated
$100 million from the state's general fund for these tax credits. C.A.R.
sought amendments to expand this credit to all homes.
Position: Oppose Unless Amended
Status: Signed by the Governor on February 20, 2009
(Chapter 11, Statutes of 2009)
b. SB 49 (Dutton) Housing Tax Credit - SB 15XX, which was
signed into law as part of the "marathon" negotiations on the state budget,
created a tax credit for new home purchasers equal to 5% of the sale price
of a home, not to exceed $10,000. The credit is only available for the
purchase of new, or previously unoccupied, homes between March 1, 2009 and
March 1, 2010. The current program authorized by SB 15XX allocated $100
million in state funds to provide these tax credits. By the end of April,
more than $40 million of the tax credit funds had been allocated. SB 49 was
amended in April to remove the $100 million funding cap for the tax credits
for homes purchased prior to December 1, 2010. C.A.R. supports SB 49
because the revisions to the current state housing tax credit will further
assist the recovery of California's housing economy.
Position: Support
Status: Senate Revenue and Taxation Committee
c. AB 765 (Caballero) Housing Tax Credit - SB 15XX, which
was signed into law as part of the "marathon" negotiations on the state
budget last February, created a tax credit for new home purchasers equal to
5% of the sale price of a home, not to exceed $10,000. The credit is only
available for completed purchases of new (previously unoccupied) homes
between March 1, 2009, and March 1, 2010. The current program authorized by
SB 15XX allocated $100 million in state funds to provide these tax credits.
As introduced, C.A.R. supported AB 765 which would have removed the tax
credit funding cap for homes purchased prior to December 1, 2010. As
amended in June, however, AB 765 does not eliminate the $100 million cap
given the state budget shortfall, but rather changes the eligibility
criteria for the tax credit by requiring purchasers to execute an
enforceable contract by March 1, 2010 and to close escrow before December
1, 2010. The bill was further amended to revise the Franchise Tax Board
(FTB) process for calculating the number of tax credits available. For each
certification received from a seller, FTB is required to reduce the total
amount of credit available for allocation by an amount equal to 70% of the
credit allocated to a taxpayer. C.A.R. supports AB 765 because it will
allow approximately 5,000 more home buyers to access this tax credit.
Position: Support
Status: Senate Floor Inactive File
d. AB 902 (Torres) Foreclosed Homes Income Tax Credit - AB
902 would grant purchasers of foreclosed homes, whose annual gross income
is no more than 120% of the area's median income, a tax credit equal to two
percent of the cost of the home up to $3,000. The credit will be available
to buyers purchasing the foreclosed property as a principal residence if
the purchase is made after January 1, 2009, and before January 1, 2012.
Unfortunately, AB 902 was amended in May to fund this tax credit by
repealing mortgage interest deductions for second homes from January 1,
2010, through January 1, 2012. C.A.R. will oppose AB 902 unless it is
amended to utilize an alternative funding source.
Position: Oppose Unless Amended
Status: Assembly Revenue and Taxation Committee
3. Cancellation of Mortgage Indebtedness: SB 97 (R. Calderon) and
AB 111 (Niello) - The federal government enacted the Mortgage Debt
Relief Act of 2007 that permitted 3 years of mortgage debt relief by not
requiring borrowers to pay income tax on debt forgiven in a “short” sale.
In late 2008 the federal government extended this relief through December
31, 2012. Last year, California enacted SB 1055 which provided conformity
with the federal statute for the 2007 and 2008 tax years. AB 111 would
fully conform to the federal rule and extend debt forgiveness on "phantom"
income through December 31, 2012.
Position: Support
Status: Assembly Rev. and Tax. Committee and Senate Rev.
and Tax. Committee, respectively
4. Recording Fee Increases
a. SB 676 (Wolk) Recording Fees - C.A.R. opposed SB 676
which proposes to increase the cost for recording the first page of a
document from $4 to $10 without any reference to the actual cost of
providing the recording service. C.A.R. argued that the amount of the
recoding fee should be limited to the actual cost of providing the service,
and was concerned that SB 676 was merely intended to increase revenue for
local governments. In order to satisfy C.A.R.'s concerns, SB 676 was
amended to limit the recoding fee to actual costs up to a maximum of $10.
With this amendment, C.A.R. has removed its opposition.
Position: Watch as Amended
Status: Enrolled to the Governor
b. AB 827 (Yamada) Recording Fees to Fund Historical County Records
- As introduced, AB 827 would have allowed counties to impose an
additional per page recording “fee” of up to $3 for the first page of a
document and $1 each for the remaining pages for the archiving of documents
of historical interest. AB 827 was amended to instead limit the recoding
fee to the actual costs of providing archival services up to a maximum of
$3 per property-related document. Under state law, a fee can only be
charged to cover the cost of providing the service for which the fee is
collected. As a result, C.A.R. opposed AB 827 because this “fee” is really
a tax since the fee is being used to pay for a program unrelated to
recording a document. AB 827 also attempts to circumvent the voters’ right
to approve local taxes.
Position: Oppose
Status: Senate Floor Inactive File
5. Property Tax Base Year Value Transfers
a. SB 274 and SCA 11 (Dutton) Transfer to More Expensive Home
- Currently, Proposition 60 allows a homeowner 55 years of age or
older to transfer, on a one-time basis, their property tax base year value
to another home of equal or lesser value. This measure would allow senior
homeowners to transfer their property tax base year value to a more
expensive home; however, the difference in value between the original and
replacement homes would be added to the base year value, which would
eliminate any negative fiscal impacts on government. C.A.R. supports SB 274
and SCA 11 because they protect seniors who are often on a fixed and/or
limited income from property tax increases that can occur when purchasing a
new home.
Position: Support
Status: Senate Revenue and Taxation Committee
b. AB 157 (Anderson) Property Tax Base Year Value Transfers for
Disaster Relief - Currently, homeowners whose homes are damaged or
destroyed by a disaster are permitted to transfer the property tax base
year value of that property to a replacement property of comparable value
within five years of the disaster, provided the replacement property is
located in the same county as the original property. AB 157 would extend
that time period to seven years. C.A.R. supports AB 157 because disputes
with home insurers regarding compensation can be extremely protracted in
the wake of a disaster. AB 157 recognizes this fact by extending the period
for these transfers by an additional two years.
Position: Support
Status: Senate Revenue and Taxation Committee
c. AB 321 (Niello) Retention of Spouse’s Eligibility Under
Proposition 60 - Proposition 60 allows a homeowner 55 years of age
or older to transfer - on a one-time basis - their property tax base
year value to another home of equal or lesser value. Currently, married
homeowners can transfer the property tax base year value of their home to
another home based on the qualification of one of the spouses.
Unfortunately, the other spouse loses the ability to similarly transfer the
base year value of a property. If the two individuals were not married,
both individuals would be able to transfer the base year value of their
home one time. This measure would preserve the ability of the
non-qualifying spouse to subsequently transfer the base year value of that,
or another home subsequently owned by that individual. C.A.R. supports AB
321 because it addresses this inequity by proposing to amend the existing
statute so that the non-qualifying spouse is not considered a “claimant” of
the Proposition 60 benefit.
Position: Support
Status: Assembly Appropriations Committee
6. Vote Threshold Reductions (Note: Constitutional
amendments require approval of both houses of the legislature by a
two-thirds vote.)
a. SCA 6 (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%. C.A.R. opposes SCA
6 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.
Position: Oppose
Status: Senate Floor
b. SCA 12 (Kehoe) Special Tax and Bonded Indebtedness Vote
Threshold Reduction - This bill would reduce the vote required to
approve special taxes and bonded indebtedness to fund emergency and public
safety services, from a two-thirds vote to 55 percent. C.A.R. opposes SCA
12 and argues that California voters have on several occasions clearly
stated that special taxes and bonded indebtedness should only be approved
by a two-thirds vote and that the higher standard that a two-thirds vote
reflects the public’s view that the imposition of special taxes and bonded
indebtedness should held to that standard.
Position: Oppose
Status: Senate Floor
c. ACA 9 (Huffman) Property Tax and Special Tax Vote Threshold
Reduction - Proposition 13, which was approved by the voters in
1978, prohibits property taxes from exceeding 1% of the full cash value of
the property. Current law also requires a two-thirds vote to approve
special taxes. ACA 9 proposes to reduce the vote requirement for the
imposition of property taxes and special taxes to 55%. C.A.R. opposes ACA 9
and argues that California voters have on several occasions clearly stated
that property taxes and special taxes should only be approved by a
two-thirds vote and that the higher standard that a two-thirds vote
represents reflects the public’s view that the imposition of special taxes
should be held to that standard.
Position: Oppose
Status: Assembly Floor
d. ACA 10 (Torlakson) Education Finance District Special Tax Vote
Threshold Reduction - ACA 10 would reduce the vote required to
approve special taxes for education finance districts from a two-thirds
vote to a simple majority. C.A.R. opposes ACA 10 because it runs counter to
the expressed views of California voters who have clearly stated that
special taxes should only be approved by a two-thirds vote.
Position: Oppose
Status: Assembly Floor
e. ACA 15 (Arambula) Local Transportation Project Special Tax Vote
Threshold Reduction - This bill would reduce the vote required to
approve special taxes for local transportation projects, from a two-thirds
vote to 55 percent. C.A.R. opposes ACA 15 and argues that California voters
have on several occasions clearly stated that special taxes should only be
approved by a two-thirds vote, and that the higher standard that a
two-thirds vote reflects the public’s view that the imposition of special
taxes should held to that standard.
Position: Oppose
Status: Assembly Floor Inactive File
7. Miscellaneous
a. 3% Withholding for Independent Contractors - C.A.R.
opposed a budget proposal, intended to bridge the state's budget gap, that
would have forced those making payments to independent contractors to
withhold 3%. This would be in addition to the quarterly estimated tax
payments independent contractors must pay. This provision was included in
several proposals (SB 17xxx, AB 19xxx and SB 19xxxx) intended to increase
revenues to the state. The Governor vetoed one of these and the others were
defeated in the legislature.
Position: Oppose
Status: Defeated
b. SB 279 (Hancock) Mello-Roos Districts/Energy Efficiency
- This bill would authorize a Mello-Roos District to finance the
acquisition and installation of energy efficiency improvements on public
and privately owned real property. C.A.R. opposed SB 279 until it was
amended to allow Mello-Roos districts to finance energy efficiency
improvements, but only if those districts are formed through an alternative
method that assesses only those homeowners who opt-into the district.
Position: Watch as Amended
Status: Enrolled to the Governor
c. AB 474 (Blumenfield) Water Efficiency Improvements -
Existing law, created by AB 811 of 2008, permits cities and counties to
designate an area within its jurisdiction where local government officials
and willing property owners can enter into contractual agreements to
finance the installation of energy efficiency improvements on existing
homes. AB 474 will permit these contractual agreements to also be applied
to water efficiency improvements made to real property. C.A.R. supported
the passage of AB 474 because it offers a workable alternative to
point-of-sale for water efficiency upgrades to existing property. Utilizing
a voluntary contractual obligation between property owners and utilities
through both public and private incentives allows homeowners to more
affordably make the appropriate upgrades to their homes.
Position: Support
Status: Enrolled to the Governor
III. Federal Taxation Issues
A. Discussion/Reporting Items:
1. Homebuyer Tax Credit
The current First-time
Homebuyer Tax Credit (HTC) expires on November 30, 2009; meaning that in
order to be eligible for the HTC the escrow cannot close past November 30,
2009. The current HTC is:
If the home was purchased between January 1, 2009 and November 30,
2009
* The tax credit is 10% of the purchase price,
capped at $8,000.
* The tax credit does not need to be
repaid - the only exception being if the property is sold within
3-years of purchase.
* You can get the credit if the
property is financed by a tax exempt qualified mortgage issue/bond.
C.A.R. and NAR are working diligently on both expanding and extending the
HTC. C.A.R and NAR want to see the tax credit expanded to all homebuyers
and extended until the end of 2010.
The HTC has accomplished its primary goal; it has helped create homeowners
and has helped stabilize housing prices. C.A.R.’s research on the use of
the tax credit in California showed that 39% of homebuyers said that they
would not have purchased a home without the tax credit. Additionally, 52%
of homebuyers making under $100,000/year said that they would
not have purchased a home without the tax credit.
Furthermore, of those first-time homebuyers who planned to apply for the
tax credit, 40% of respondents said it was the “most important” factor in
their purchasing of a home.
2. Estate Tax
The Economic Growth and Tax
Reconciliation Act of 2001 set in motion a ten-year plan to increase the
exemptions from the estate tax and lead to a one-year full repeal in 2010.
Effective in 2010, the estate tax will be repealed, but only for 2010. In
the interim, the amount of the exclusion will gradually increase from
$675,000 to $3 million and the estate tax rates are gradually reduced from
a maximum of 50% to a maximum of 45%. However, in 2011, the estate tax laws
will revert to the laws that were in effect on June 6, 2001.
As under prior law, the basis of assets received between 2001 and 2010 is
"stepped up" to its fair market value at the time of death. When repeal
comes into effect, the estate will not be taxed, but the basis of assets
that heirs receive will be "carried over" so that the basis in the hands of
the heir is the same as the basis of the previous owner.
Below is a chart showing the progression of the estate tax’s top rates and
exemption maximum through its full repeal in 2010 and its reversion back to
the old rates and exemption levels in 2011.
|
Year |
Exemption Maximum |
Top Estate Tax Rate |
|
2004 |
$1,500,000 |
48% |
|
2005 |
$1,500,000 |
47% |
|
2006 |
$2,000,000 |
46% |
|
2007 |
$2,000,000 |
45% |
|
2008 |
$2,000,000 |
45% |
|
2009 |
$3,500,000 |
45% |
|
2010 |
No Maximum |
0% |
|
2011 |
$1,000,000 |
55% |
