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AB-1553 Property taxation: local exemption: possessory interests: publicly owned housing.(2023-2024)

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Date Published: 01/03/2024 02:00 PM
AB1553:v97#DOCUMENT

Amended  IN  Assembly  January 03, 2024
Amended  IN  Assembly  March 09, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill
No. 1553

Introduced by Assembly Member Lowenthal

February 17, 2023

An act to add Section 107.5 Sections 155.30 and 167.5 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. taxation.


LEGISLATIVE COUNSEL'S DIGEST


AB 1553, as amended, Lowenthal. Property taxation: local exemption: possessory interests: independent: publicly owned housing project. housing.
The California Constitution authorizes the Legislature to authorize, pursuant to a 2/3 vote of the Legislature, county boards of supervisors to exempt real property having a full value so low that, if not exempt, the total taxes and applicable subventions on the property would amount to less than the cost of assessing and collecting them. Existing property tax law sets forth procedures for a county board of supervisors to make that exemption for such property.
Existing property tax law requires that all property subject to tax be assessed at its full cash value, and includes certain possessory interests among those property interests that are subject to tax. Existing property tax law defines a taxable possessory interest to be a use that is independent, durable, and exclusive. Existing property tax law specifies that, for purposes of the definition of a taxable possessory interest, a possession or use is not independent if it is pursuant to a contract that includes, but is not limited to, a long-term lease for the private construction, renovation, rehabilitation, replacement, management, or maintenance of housing for active duty military personnel and their dependents, if specified criteria are met.

This bill would provide that there is no independent possession or use of land or improvements if the possession or use is for a tenancy, as defined, in a residential unit, as defined, in a publicly owned housing project, as defined, is part of a governmental assistance program, and directly fulfills the governmental, public purpose of providing the housing, as described in the governmental assistance program. The bill would also provide that there is no independent possession or use of land or improvements if the possession or use is for onsite managerial duties for a publicly owned housing project, is necessary for the administration of the governmental assistance program, and directly fulfills the governmental, public purpose of the provision of housing under the governmental assistance program. The bill would make related findings and declarations. By imposing additional duties on local tax officials, the bill would impose a state-mandated local program.

Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill also would state the intent of the Legislature to comply with these requirements.

This bill would authorize a county board of supervisors to exempt from property taxation any possessory interest held by a tenant of publicly owned housing, as defined, with a value so low that the total taxes and applicable subventions on the property would amount to less than the cost of assessing and collecting them, except as provided. The bill would provide that there is a rebuttable presumption that the property taxes and applicable subventions on a possessory interest held by a tenant in publicly owned housing are less than the costs of assessing and collecting those taxes and applicable subventions. The bill would set forth procedures for granting or denying those exemptions and for implementing the exemption. The bill would provide that the board shall be deemed to have agreed with the rebuttable presumption and the exemption shall be deemed granted if the board does not take any action, if the board agrees, by a majority vote, to grant the exemption at a public hearing, or if the board fails to reach a majority vote for or against the exemption at the public hearing. By imposing additional duties on county boards of supervisors and local tax officials, the bill would impose a state-mandated local program.
Existing property tax law provides that there is a rebuttable presumption affecting the burden of proof in favor of the taxpayer or assessee who has supplied all information as required by law to the assessor in any administrative hearing involving the imposition of a tax on an owner-occupied single-family dwelling, the assessment of an owner-occupied single-family dwelling as specified, or the appeal of an escape assessment.
This bill would provide that there is a rebuttable presumption affecting the burden of proof in favor of a taxpayer or assessee who is a tenant in publicly owned housing, as defined, in any administrative hearing involving the disputed existence or value of a possessory interest alleged to be held by that tenant.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.

This bill would take effect immediately as a tax levy.

Vote: MAJORITY2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

The Legislature finds and declares all of the following:

(a)California has a housing supply and affordability crisis of historic proportions. The consequences of failing to effectively and aggressively confront this crisis are hurting millions of Californians, robbing future generations of the chance to call California home, stifling economic opportunities for workers and businesses, worsening poverty and homelessness, and undermining the state’s environmental and climate objectives.

(b)Lack of supply and rising costs are compounding inequality and limiting advancement opportunities for many Californians.

(c)The majority of California renters, who represent more than 3,000,000 households, pay more than 30 percent of their income toward rent. Nearly one-third of renters, who represent more than 1,500,000 households, pay more than 50 percent of their income towards rent.

(d)There is continued need for housing at all income levels, including missing middle-income housing that will provide a variety of housing options and configurations to allow every Californian to live near where they work.

(e)Since the New Deal era, when the California Supreme Court concluded in Housing Authority of Los Angeles County v. Dockweiler (1939) 14 Cal.2d 437, that publicly owned affordable housing projects are public uses and purposes, publicly owned affordable housing has served as a partial solution to the unaffordability of housing in California.

(f)Recent innovations have led to the creation of publicly owned affordable housing projects that meet the state’s interest in addressing what is now a critical issue. That is, creating affordable housing for the “missing middle-income” population, or median- and moderate-income households, for whom such housing has lagged, to go along with the highly successful publicly owned affordable housing for low- and very low income households.

(g)Because they are publicly owned, publicly owned affordable housing projects are exempt from property taxation under Section 3 of Article XIII of the California Constitution.

(h)Private possessory interests in publicly owned property are generally subject to property taxation. However, it had been the long-standing opinion of the State Board of Equalization (board), since prior to 1995, that the possessory interest assessments should not be made against those tenants because it would defeat the purpose of publicly owned affordable housing and undercut the property tax exemption under Section 3 of Article III of the California Constitution.

(i)The board relied on English v. County of Alameda (1977) 70 Cal.App.3d 226, which held that the possessory interests of beneficiary residents of property exempt under the welfare and the college exemptions, including housing for elderly persons, hospital staff, and college and university staff, were not taxable because it would frustrate the public charitable or educational goal for which the exemptions were granted. The California Supreme Court agreed with this principle in Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1118.

(j)Accordingly in 1995, concluding that the principle in English v. County of Alameda was “equally applicable” to public housing, the board reaffirmed its existing opinion that publicly owned affordable housing tenants do not have taxable possessory interests because imposing the tax on those tenants would defeat the very purpose of the publicly owned affordable housing.

(k)In 2010, the Chair of the Assembly Committee on Housing and Community Development requested the board’s opinion, and the board came to the same conclusion after reevaluating its 1995 opinion. Given the board’s long-standing opinion, the Legislature has not found it necessary to enact legislation addressing this topic.

(l)In October 2022, the board issued a legal opinion, relying on the definition of “possessory interest” in Section 107 of the Revenue and Taxation Code, that indicates that public housing tenancies “create taxable possessory interests.” While the opinion suggests that county assessors refrain from taxing possessory interests held by low-income tenants in public housing projects based on the board’s prior opinions, the opinion has created uncertainty with respect to the taxability of the possessory interests of all tenants in publicly owned affordable housing. This uncertainty can most expeditiously and efficiently be resolved through legislation.

(m)English v. County of Alameda (1977) 70 Cal.App.3d 226, predated the 1995 amendments to Section 107 of the Revenue and Taxation Code. Those amendments were intended to narrow the types of possessory interests that may be assessed, rather than expand what may be assessed under preexisting case law, such as English v. County of Alameda (1977) 70 Cal.App.3d 226.

(n)It is the intent of the Legislature to clarify that under existing law, the tenancies in publicly owned affordable housing and other publicly owned housing occupied by public beneficiaries are not subject to possessory interest taxation.

(o)In addition, the Legislature indicates that Section 107.5 of the Revenue and Taxation Code, as added by this act, is solely to the extent necessary to ensure its validity, adopted pursuant to the authority given to it under subdivisions (a), (b), and (e) of Section 3, and subdivision (b) of Section 4, of Article XIII of the California Constitution.

SEC. 2.Section 107.5 is added to the Revenue and Taxation Code, to read:
107.5.

(a)For purposes of paragraph (1) of subdivision (a) of Section 107, there is no independent possession or use of land or improvements if either of the following criteria are met:

(1)That possession or use is all of the following:

(A)For a tenancy in a residential unit in a publicly owned housing project.

(B)A part of a governmental assistance program.

(C)Directly fulfills the governmental, public purpose of providing the housing, as described in the governmental assistance program.

(2)That possession or use is all of the following:

(A)For onsite managerial duties for a publicly owned housing project.

(B)Necessary for the administration of the governmental assistance program.

(C)Directly fulfills the governmental, public purpose of the provision of housing under the governmental assistance program.

(b)For purposes of this section, the following definitions apply:

(1)“Enforceable restriction” means a recorded covenant or other enforceable mechanism that restricts the occupancy of the residential units, except as may be required to avoid displacement of tenants, to public beneficiaries.

(2)“Public beneficiary” means a person or household that is the beneficiary of a state or local governmental assistance program available to the general public that offers housing in the publicly owned housing project. Beneficiaries of these governmental assistance programs exclude employees of the public agency owner of the publicly owned housing project. However, beneficiaries of these governmental assistance programs include, and are not limited to, the following:

(A)Seniors.

(B)Persons and families of low or moderate income, as defined in Section 50093 of the Health and Safety Code.

(C)Students attending college or university.

(3)“Publicly owned housing project” means a housing project owned by an agency that is exempt from taxation under either subdivision (a) or (b) of Section 3 of Article XIII of the California Constitution and that contains residential units that are subject to enforceable restrictions.

(4)“Residential unit” means a residential unit, whether attached or detached, in a publicly owned housing project.

(5)“Tenancy” means a tenancy in or possession of, claim to, or right to the possession of a residential unit.

(c) The provisions of this section are severable. If any provision of this section or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 3.

(a)It is the intent of the Legislature in enacting this act to provide legislative direction to county assessors, the State Board of Equalization, the courts, and other involved parties regarding the intended interpretation of the term “independent,” as that term is used in Section 107 of the Revenue and Taxation Code and as it relates to publicly owned housing projects.

(b)Section 2 of this act, which adds Section 107.5 to the Revenue and Taxation Code, does not constitute a change in, but rather is declaratory of, existing law. It is the intent of the Legislature that reimbursement to any entity for the loss of any ad valorem property tax revenue as a result of this act not be required, as the act is declaratory of existing law.

SEC. 4.

It is the intent of the Legislature to comply with Section 41 of the Revenue and Taxation Code.

SECTION 1.

 The Legislature finds and declares all of the following:
(a) California has a housing supply and affordability crisis of historic proportions which is compounding inequality and limiting advancement opportunities for many Californians.
(b) The majority of California renters, who represent more than 3,000,000 households, pay more than 30 percent of their income toward rent. Nearly one-third of renters, who represent more than 1,500,000 households, pay more than 50 percent of their income towards rent.
(c) There is continued need for housing at all income levels, including missing middle-income housing that will provide a variety of housing options and configurations to allow every Californian to live near where they work. Expanding the availability of government-owned housing, including those own through Joint Powers Agreements (JPAs) formed by local government entities is an important part of the strategy to provide adequate low- and moderate-income rental residential opportunities.
(d) Since the New Deal era, when the California Supreme Court concluded in Housing Authority of Los Angeles County v. Dockweiler (1939) 14 Cal.2d 437, that publicly owned affordable housing projects are public uses and purposes, publicly owned affordable housing has served as a partial solution to the unaffordability of housing in California.
(e) Publicly owned affordable housing projects are exempt from property taxation under Section 3 of Article XIII of the California Constitution. Possessory interests in publicly owned property, however, are generally subject to property taxation.
(f) The imposition of a property tax, however modest, on tenants of publicly owned housing directly contradicts and interferes with the achievement of the important governmental housing goals discussed above.
(g) For over 40 years it had been the consistent opinion of the State Board of Equalization that tenants of government-owned housing are not subject to property taxes on their occupancy because it would defeat the purpose of publicly owned affordable housing and undercut the property tax exemption under Section 3 of Article XIII of the California Constitution.
(h) During this period, the board’s consistent policy has been applied to residents of property exempt under the welfare and the college exemptions, including housing for elderly persons, hospital staff, and college and university staff, and to residents of public housing.
(i) Relying on the board’s longstanding interpretation of the law, and on the statements of the California Supreme Court, in California Assn. of Psychology Providers v. Rank (1990) 51 Cal.3d 1, 23, that longstanding, consistent interpretation of the constitution by the administrative agency charged with its administration is to be afforded great weight, the Legislature adopts and endorses the reasoning of the conclusions of the board as expressed in Letter to Assessors 80/48 (1980), Annotations 660.0225 (1988) and 660.0155 (2010), and the documents contained therein. It is the intent of the Legislature to clarify that under existing law, the tenancies in publicly owned affordable housing and other publicly owned housing occupied by public beneficiaries are not subject to property taxation.
(j) Section 7 of Article XIII of the California Constitution states that the Legislature may authorize county boards of supervisors to exempt property where the property taxes due on that property are less than the costs of assessing and collecting those taxes. In that capacity, the Legislature also finds and declares that even if a tenant in publicly owned housing has a property interest in the dwelling unit they occupy, there are unique circumstances which affect both the value of any such interest as well as the costs of assessing and collecting property taxes on that property. These circumstances include, but are not limited to, the reasonably short-term nature of the interest, the rental income stream which is fixed at submarket rates by the government entity owning the property and the fact that any taxes due from a tenant would not be secured by a lien on real property which makes collection more costly in the event of a default.
(k) For these reasons, the Legislature finds and determines that a statute concerning these issues as they relate to tenants of publicly owned housing is needed.

SEC. 2.

 Section 155.30 is added to the Revenue and Taxation Code, to read:

155.30.
 (a) (1) Notwithstanding any law and subject to the limitations of this section, a county board of supervisors may exempt from property taxation any possessory interest held by a tenant of publicly owned housing with a value so low that the total taxes and applicable subventions on the property would amount to less than the cost of assessing and collecting them.
(2) Notwithstanding paragraph (1), the board shall not exempt possessory interests with a total base year value, as adjusted by an annual inflation factor pursuant to subdivision (f) of Section 110.1, or full value of more than fifty thousand dollars ($50,000).
(b) Notwithstanding Section 155.20 and subject to the limitations in this section, there shall be a rebuttable presumption that the property taxes and applicable subventions on a possessory interest held by a tenant in publicly owned housing are less than the costs of assessing and collecting those taxes and applicable subventions.
(c) A county board of supervisors may grant an exemption for a possessory interest pursuant to this section as follows:
(1) By inaction. If the board does not hold a public hearing pursuant to paragraph (2) and does not take a vote to apply, or to deny the application of, the exemption under this section to the possessory interest at issue, then the board shall be deemed to have agreed with the presumption described in subdivision (b) and the exemption shall be deemed granted by the board with respect to the possessory interest.
(2) By action. Alternatively, on or before the lien date the board shall consider in a public hearing whether to apply the exemption under this section to the possessory interest. The county shall provide sufficient prior notice of the public hearing and provide an opportunity for the public to be heard at the hearing. A majority vote of the board shall be required to apply or to decline to apply the exemption described in subdivision (b) to the possessory interest. However, if the board takes a vote pursuant to this paragraph but fails to reach a majority vote either in favor of or against the application of the exemption for the possessory interest, the board shall be deemed to have agreed with the presumption described in subdivision (b) and the exemption shall be deemed granted by the board with respect to the possessory interest.
(d) If the board holds a hearing pursuant to paragraph (2) of subdivision (c) and votes to deny the exemption for a possessory interest of a tenant in publicly owned housing, prior to the assessor enrolling the possessory interest, the county shall send, by registered United States Mail, notice to each applicable tenant that does all of the following:
(1) Informs the tenant of the county’s intention to impose property tax on their possessory interest.
(2) Displays the valuation proposed to be assessed by the assessor and the methodology to support the proposed value.
(3) Provides information regarding the assessment appeals process for contesting both the existence of a possessory interest and the valuation of any such interest.
(e) If the board grants the exemption for the possessory interest, as described in subdivision (c), the following apply:
(1) In administering the exemption authorized by this section, the assessor shall not enroll the tenant’s possessory interest on the assessment roll. However, if the assessor enrolls the possessory interest, the county treasurer-tax collector shall not send the tenant a tax bill for any taxes on the possessory interest.
(2) The exemption shall be applicable to lien dates following the granting of the exemption for the possessory interest and may, at the option of the board, continue in effect for succeeding fiscal years. Any revision or rescission of the exemption shall be adopted by the board on or before the lien date for the fiscal year to which that revision or rescission is to apply.
(3) The exemption of possessory interests held by tenants in publicly owned housing pursuant to this section shall be applicable to all open property tax years and shall apply prior to any regular property tax assessments of tenant possessory interests in publicly owned housing made pursuant to Chapter 2 (commencing with Section 2601) of Part 5 and prior to escape assessments of possessory interests to tenants of publicly owned housing issued pursuant to Section 531, whether placed on the regular or supplemental roll or on the secured or unsecured roll.
(f) For purposes of this section, the following definitions apply:
(1) “Board” means a county board of supervisors.
(2) “Costs of assessing and collecting” shall include, but are not limited to, the costs to the assessor’s and treasurer-tax collector’s office for potential administrative disputes before an assessment appeals board to contest the existence or value of a possessory interest by the tenant, determination of value in accordance with this section, the cost of notifying each residential tenant of the county’s intent to assess property taxes as required by this section, the costs of the treasurer-tax collector in preparing and sending a tax bill, and a reasonable estimate of potential legal or other costs and risks of noncollection of property taxes from residential tenants because the taxes are not secured by a lien on property and because of the limited financial resources of the tenant.
(3) “Property taxes and applicable subventions” shall not include any non-ad valorem property taxes or similar charges based on ownership of a residential possessory interest in publicly owned housing.
(4) “Publicly owned housing” means an apartment or condominium multifamily residential project that is owned by an agency that is exempt from property taxation under either subdivision (a) or subdivision (b) of Section 3 of Article XIII of the California Constitution.
(5) “Tenant” means the occupant of a residential unit in publicly owned housing. “Tenant” shall not include holders of a commercial lease of real property in publicly owned housing.
(6) “Value” means the valuation of the possessory interest as determined by subparagraph (A) of paragraph (3) of subdivision (e) of Section 21 of Chapter 1 of Division 1 of Title 18 of the California Code of Regulations, as that section read on January 1, 2023, where the term of possession is conclusively presumed to be the stated term of possession in the lease agreement plus any express options for the tenant to unilaterally extend the lease that are part of the written lease agreement, and where the rent to be capitalized is the contract rent paid by the tenant over the term of possession.

SEC. 3.

 Section 167.5 is added to the Revenue and Taxation Code, to read:

167.5.
 Notwithstanding any law, there shall be a rebuttable presumption affecting the burden of proof in favor of a taxpayer or assessee who is a tenant in publicly owned housing, as defined in Section 155.30, in any administrative hearing involving the disputed existence or value of a possessory interest alleged to be held by that tenant.

SEC. 5.SEC. 4.

 If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.

SEC. 6.SEC. 5.

 Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.
SEC. 7.

This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.