property taxpayers’ bill of rights 2002-03 property taxpayers’ 2002/03 bill of rights annual...

2002-03ANNUAL REPORT

STATE BOARD OF EQUALIZATION

CAROLE MIGDENSan FranciscoFirst District

BILL LEONARDOntarioSecond District

CLAUDE PARRISHLong BeachThird District

JOHN CHIANGLos AngelesFourth District

STEVE WESTLYSacramentoState Controller

TIMOTHY W. BOYERSacramentoInterimExecutive Director

BILL OF RIGHTS

Property Taxpayers’

PROPERTY TAXPAYERS’ 2002/03 BILL OF RIGHTS ANNUAL REPORT

TAXPAYERS’ RIGHTS ADVOCATE OFFICE

California Board of Equalization450 N Street, MIC:70

P.O. Box 942879, Sacramento, CA 94279-0070

Toll Free (888) 324-2798

FAX: (916) 323-3319

Jennifer L. Willis, Advocate(916) 324-2798

PROPERTY TAXES

Bob Reinhard(916) 323-2513

Laura Bowman-Dirrim(916) 445-8267

BUSINESS TAXES

Todd Gilman(916) 445-0218

Rhonda Krause(916) 445-8321


Letter to Executive Director

October 2003

Mr. Timothy W. BoyerInterim Executive Director

Dear Mr. Boyer:

The Taxpayers’ Rights Advocate Office (TRA Office) staff and I are pleased to present the 2002-03Property Taxpayers’ Bill of Rights Annual Report for the Board’s and your consideration. This reporthighlights our accomplishments over the past year, current issues in the process of solution development,and emerging issues with recommendations for consideration in the coming year.

Throughout the year we worked with the public and with the staff of the Property and Special Taxes andLegal Departments, State Controller’s Office staff, county assessors and tax collectors, and other state andlocal property taxation officials. We identified trends and issues, resolved problems, strove to better serveour customers, and addressed concerns raised by taxpayers and their representatives. With the coopera-tion of the Property and Special Taxes Department and the Customer and Taxpayer Services Division, weemployed educational strategies, including media, taxpayer outreach, and information for the Board’sWeb site to improve taxpayer understanding and voluntary compliance with the law.

This is my last property taxes report and I want to personally thank Bob Reinhard who has been the staffon property tax issues since inception of the Property Taxpayers’ Bill of Rights. Bob, Laura Bowman-Dirrim, and all the TRA Office staff’s devotion to conflict resolution has provided a voice for taxpayerexpression. Due to their perseverance and with the assistance of Property Taxes and Legal Departments,Legislative Division, and the State Controllers Office Tax Defaulted Land Bureau staff, during my tenureas the Property Taxpayers’ Advocate, the following changes to the Board’s laws, policies and procedureswere implemented:

• Extended the filing period for reduced assessment appeals applications from September 15 toNovember 30 if the assessor has not sent value notices by August 1.

• Identified the educational need and participated in development of Publication 30, ResidentialProperty Assessment Appeals.

• Instituted provisions to reduce trickery of “assessment appeals mills” businesses.• Assessment notices are now required to show both the taxable roll value and the factored base year

value when a property’s value is less than the factored base year value, that is, when a decline-in-valueassessment has been made.

• Participated in changes to better inform disabled veterans of their property tax exemption rights.• Added Frequently Asked Questions (FAQ’s) to the Board’s Web site.• Made specific recommendations to the board with respect to standardizing interest rates applicable to

escape assessments and refunds of property taxes, and statutes of limitations, so as to place propertytaxpayers on an equal basis with taxing authorities.

TRA Office staff looks forward to continuing to work with local government officials, the public, andboard staff to identify trends and issues, develop viable solutions, and strive to better serve ourcustomers.Respecfully submitted,

Jennifer L. Willis,Property Taxpayers’ Advocate


CONTENTS

LETTER TO EXECUTIVE DIRECTOR

1 TAXPAYERS’ RIGHTS ADVOCATE OFFICE

2 STATUS OF IDENTIFIED ISSUES FROM LAST YEAR’S PROPERTY TAXPAYERS’BILL OF RIGHTS ANNUAL HEARING

3 RECURRENT ISSUES, PAST RECOMMENDATIONS, AND SUGGESTIONS

3 EQUALIZATION AND ASSESSMENT APPEALS

4 DECLINES IN VALUE AND PROPOSITION 8 VALUE RESTORATIONS

4 “PROP 13” EXCLUDED TRANSFERS AND CONSTRUCTION

4 MANUFACTURED HOMES AND PARKS

4 INFORMATION AND EDUCATION

5 SALES OF TAX DEFAULTED PROPERTY

5 DISABLED VETERANS’ EXEMPTION

5 SPECIAL ASSESSMENTS

6 ACCOMPLISHMENTS

7 CURRENT ISSUES

10 EMERGING ISSUES

14 TAXPAYER CONTACTS WITH TRA OFFICE

17 APPENDICES

17 A — DIFFERENCES BETWEEN THE BUSINESS AND PROPERTY

TAXPAYERS’ BILL OF RIGHTS

18 B — ISSUES FROM PROPOSITIONS 13 AND 8 AND THEIR PROGENY

18 PROPOSITION 8 — BASE YEAR VALUE AND INFLATION ADJUSTMENTS

21 CHANGE IN OWNERSHIP BASE YEAR VALUE TRANSFERS AND

NEW CONSTRUCTION EXCLUSIONS

22 PROPOSITION 13’S LEGACY

24 C — TABLE OF CONTACTS RECEIVED, BY COUNTY AND BY OFFICE

25 D — THE MORGAN PROPERTY TAXPAYERS’ BILL OF RIGHTS

PROPERTY TAXPAYERS’ 2002/03 BILL OF RIGHTS ANNUAL REPORT 1

TAXPAYERS’ RIGHTS ADVOCATES OFFICEIn January 1989, the original Taxpayers’ Billof Rights was established to ensure that therights, privacy, and property of Californiataxpayers are adequately protected in theassessment and collection of sales and usetaxes. Effective January 1993, the SpecialTaxes Bill of Rights was established, expand-ing the statutory authority of the Bill ofRights to the special taxes programs admin-istered by the Board of Equalization (BOE).As the Board accepts responsibility for newspecial taxes and fee programs, the pro-tections of the Bill of Rights are added foreach program. Since these programs prima-rily impact business owners, they will bereferred to generally as the BusinessTaxpayers’ Bill of Rights, covering both salesand use taxes and the various special taxesand fees.

The Morgan Property Taxpayers’ Bill ofRights, effective January 1, 1994, is found insection (§) 5900 et seq. of California’s Rev-enue and Taxation (R&T) Code. It governsthe assessment, audit, and collection ofproperty taxes, with the goal to ensure thattaxpayers receive fair and uniform treatmentunder the property taxation laws. It requiresthe Board to designate a “Property Taxpay-ers’ Advocate” (PTA) independent of, butnot duplicative of, the Board’s existingproperty tax programs, to report directly tothe Board’s Executive Director. The PTA is tobe specifically responsible for reviewingproperty tax matters from the viewpoint ofthe taxpayer, and to review, report on, andrecommend to the Board’s Executive Direc-tor any necessary changes which will helpimplement the Bill of Rights provisions.

The board established the Taxpayers’ RightsAdvocate Office (TRA Office) to addressboth business taxes and property taxesissues. Appendix A, on page 25 providesan explanation of the differences betweenthe Business and Property Taxpayers’ Billsof Rights.

The TRA Office:• facilitates resolution of taxpayer com-

plaints or problems;• monitors various Board tax and fee pro-

grams for compliance with the Taxpayers’Bill of Rights;

• recommends new procedures or revisionsto existing policy to ensure fair andequitable treatment of taxpayers;

• participates on various task forces, com-mittees and public forums; and

• holds mandated Taxpayers’ Bill of Rightshearings to provide the public,county assessors, and other local agencyrepresentatives with an opportunity toexpress their concerns, suggestions andcomments to the Board Members.

The TRA Office generally assists taxpayerswho have been unable to resolve a matterthrough normal channels, when they wantinformation regarding procedures relating toa particular set of circumstances, or whenthere appears to be rights violations in theproperty taxes, audit or compliance areas.Taxpayers also call to convey their frustra-tion, seeking assurance or confirmation thatBoard staff is correct or local county actionis lawful and just.

In cases where the law, policy, or proce-dures do not allow any change to the staffaction but a change appears justified theTRA Office is alerted to a potential area thatmay need clarification or modification.Several past Taxpayers’ Bill of Rights AnnualReport suggestions, recommendations forpolicy or procedural changes, and legislativeproposals have resulted from these types ofcontacts with taxpayers.

The TRA Office provides assistance to tax-payers, the county, and Board staff to facili-tate better communication between partiesand eliminate potential misunderstandings.Taxpayers are provided information on poli-cies and procedures so they can be betterprepared to discuss and resolve their issues.

PROPERTY TAXPAYERS’ 2002/03 BILL OF RIGHTS ANNUAL REPORT2

Speakers at last year’s annual hearings inCulver City and Sacramento identified theissues below, and, as a result of the Board’sdirection during the hearings, staff addressedthem as follows.

Valuation of real property purchased ata tax sale — The taxpayers’ property wasencumbered with an access easement thatlimits development. The assessor’s office hadenrolled a value that was considerablygreater than the purchase price.

After the hearing, a representative of theassessor’s office said that they would reex-amine the assessment. Subsequently, theyinspected the property and reduced theassessed value to the purchase price.

Limit “Prop 13” inflation adjustmentsonly to the value of the land — Thetaxpayer suggested that improvementsdepreciate in value; the only time the valueof improvements would increase would bewhen there was new construction.

Taxpayer’s suggestion would require legisla-tive changes; R&T Code § 51 requires thatthe appraisal unit, including land and im-provements, be considered when adjustingthe value of locally assessed real property.

Reduce school bond assessments foractive agricultural properties — Proposi-tion 39, approved by the voters in Novem-ber 2000, lowered the voting threshold forcertain local school facilities bonds fromtwo-thirds to 55%. The taxpayer pointed outthat these facilities primarily benefit urbanareas, or areas that are urbanizing, and statedthat farmers do not directly benefit from thenew facilities being constructed in order tohandle this urbanization. The commentswere not against public education, which the

STATUS OF IDENTIFIED ISSUES FROMLAST YEAR’S PROPERTY TAXPAYERS’BILL OF RIGHTS ANNUAL HEARING

speaker supported, but rather concernsthat the public that they will serve shouldfinance schools.

The taxpayer noted that the State has aninterest in preserving agricultural properties,and asked that the Board propose legislationthat would reduce, or eliminate, the negativeeffect of school bond assessments on land,improvements, and personal property thatare used in active farming operations.

Proposition 39 was an Initiative Constitu-tional Amendment and Statute, put on theballot by petition signatures. The CaliforniaFarm Bureau Federation opposed it forreasons noted by the speaker. It amendedArticles XIII a (Tax Limitation) and XVI(Public Finance) of the California Constitu-tion, as well as § 47614 (Charter SchoolOperation) of the Education Code. Changes,such as the one proposed by the speaker,would require further changes to the Consti-tution.

Value Restoration After a “Prop 8”Reduction in Value — The adjusted baseyear value of the taxpayer’s property wasreduced in the 1990’s following declines invalue. The taxpayer questioned the valuerestorations.

The Legal Department and the TRA Officemet with the taxpayer and went over thedocumentation that was provided. Welooked at possible changes in ownershipscenarios that would have triggered a per-manent reduction in value and advised thetaxpayer of possible appeal strategies. Wediscussed the taxpayer’s situation with theassessor’s office.

Currently, the taxpayer has an appeal pend-ing with the local board of equalization.


Ten years ago, on September 8, 1993, TheMorgan Property Taxpayers’ Bill of Rightswas chaptered. Senate Bill 143 — Chap-ter 387, Statutes of 1993, in effect January 1,1994 — added Part 14 to Division 1 of theR&T Code. (The complete text of the law is inAppendix D.) The Legislature recognized thatdisputes and disagreements often arise as aresult of misunderstandings or miscommuni-cations, and felt that uniform practices ofappraisal and assessment would be ad-vanced by the proper assessment and collec-tion of property taxes.

During the past ten years, we have answeredtaxpayers’ questions and complaints, andreviewed, from the viewpoint of the taxpayer,property tax programs, paying particularattention to recurrent problems that wefound. We have reported on these mattersand recommended changes to administrativeprocedures, regulations, and laws.

Equalization and Assessment AppealsOur most common issues over the past tenyears related to appeals and equalization. Inthe first year, we recognized the need toimprove the appeals application, FormBOE-305-AH. We started work on the projectwith the Property Taxes Department, and itwas discussed by the public at our PropertyTaxpayers’ Bill of Rights annual hearing.Work on this project led to recognition thatthe instructions on the form were not ad-equate for the typical layperson filing anappeal. Additionally, property ownersneeded guidance on making a presentationbefore an assessment appeals board. Weidentified the need for an assessment ap-peals publication. Property Taxes Depart-ment took the lead on this project and theresult was Board Publication 30, Residential

Property Assessment Appeals. With changesin legislation, annual revision of the formand Publication 30 is necessary.

Also during our first year we heard com-plaints from the public and assessors thatthe final filing deadline for an assessmentappeal of September 15 was too early.Where taxpayers did not receive a valuenotice, they might not learn of a valueincrease until after they received their taxbill in late October. Some assessors told usthey didn’t think this was fair to affectedproperty taxpayers, since it essentially gavethe impression that government was gamingthe system. That is to say, the taxpayerreceives a property tax bill with an increasedassessment, and might realize that theassessed value was greater than the marketvalue of the property, but it would be toolate to do anything about it. We madeseveral proposals over the years. With BoardMember Chiang’s help, Assembly MemberHorton’s Assembly Bill 645 was chaptered,effective January 1, 2002. The bill amended§ 1603, changing the final filing date toNovember 30 if the assessor has not sent avalue notice to all taxpayers in the countyby August 1.

In the mid-90s some new businesses, socalled “assessment appeals mills,” werecharging taxpayers to complete and file theapplication form — something any taxpayercould do at no cost in 57 counties. Wereceived many complaints from taxpayers,that these “mills” were sending official-looking correspondence that tricked prop-erty owners into accepting their services.Along with several counties, we workedwith Board Member Klehs in supportingAssembly Member Davis’ Assembly

RECURRENT ISSUES,PAST RECOMMENDATIONS,

AND SUGGESTIONS


Bill 1178, providing examples and exhibitsused in legislative hearings and press confer-ences. The bill passed, became effectiveJanuary 1, 1998, and the complaints on thisissue have ceased.

We assisted the Legal and the Property TaxesDepartments in training local boards ofequalization and assessment appeals boardsin the mid-90s. Other activities that wesupported include: 1) allowing assessors tomake decline-in-value changes after the rollhas been sent to the auditor-controller [R&TCode § 4831]; 2) allowing corrections totimely filed appeals applications [Rule 305];and 3) increasing the maximum number ofassessment appeals boards in a county fromfive to ten [R&T Code § 1621].

Declines in Value and Proposition 8Value RestorationsThe second most frequent area of publiccontact deals with value declines and res-torations. Changes to R&T Code § 4831allow the assessor to make decline-in-valuecorrections within one year of the assess-ment being corrected. Our proposal [1997’sSenate Bill 1105] to change R&T Code § 619effective January 1, 1999, was enacted, andassessment notices now show both thetaxable roll value and the factored base yearvalue when a property’s value is less thanthe factored base year value, that is, when adecline-in-value assessment has been made.

We have prepared informational material fortaxpayers that explains the law in R&T Code§ 51 (a) and illustrates why the value of theirreal property may increase by more thantwo percent in a given year, though it willnot exceed the base year value adjusted forinflation at a rate not to exceed two percentper year. See Appendix B — Issues fromPropositions 13 & 8 and their Progeny.

“Prop 13” Excluded Transfersand ConstructionThere continue to be questions regardingthe various reappraisal exclusions in

Article XIIIA of the Constitution. Most exclu-sions require filing a claim form within alimited window of opportunity. Theparent-child exclusion statute, R&T Code§ 63.1 was amended, effective January 1,1998, to provide for an unlimited filingperiod for prospective relief, if the propertyhas not been transferred to a third party.This is similar to the relief available for thehomeowners’ exemption. However, thereare still some exclusions — such as seniorcitizens, disabled persons, and eminentdomain — where prospective relief is notpossible. We will continue our efforts tostandardize these reappraisal exclusionrequirements, to allow an additionalprospective-only benefit, where appropriate.

Manufactured Homes and ParksWe have worked with the Property TaxesDepartment in resolving assessment issuesfor manufactured homes [R&T Code § 5800,et seq.] and resident-owned mobilehomeparks [R&T Code §§ 62.1 & 62.2]. Thisincludes: attending county meetings andlegislative hearings, reviewing the newmanufactured homes and parks assessors’handbooks [AH 511], and working withtaxpayers that have questions about theirmanufactured home or their mobilehomepark.

Information and EducationInformation and education remain one ofour top priorities. We’ve worked with themedia relations officer, Property and SpecialTaxes Department, county assessors, andothers, to: 1) inform the public about impor-tant upcoming property taxes dates; 2) in-form the public about law changes thatmight affect them; 3) identify and developchanges to Board publications, such aspublications 17 Appeals Procedures, 29California Property Tax — An Overview, 30Residential Property Assessment Appeals,and 70 California Taxpayers’ Bill of Rights;and 4) add property taxes “Frequently AskedQuestions” (“FAQ’s”) to the Board’s web site.


We also attend and give presentations atconferences of assessors, tax collectors, andtaxpayer organizations. We meet separatelywith various assessors, tax collectors,auditor-controllers, and board clerks. Asmentioned above, we assisted the Legal andProperty Taxes Departments in presentingtraining to local boards of equalization andassessment appeals boards.

The Property and Special Taxes Departmentmeets with California assessors and theirstaff and board clerks to review and approveforms for use in assessor and board offices.We participate in these discussions, review-ing the questions and instructions on formsfrom the taxpayers’ viewpoint. We areparticularly interested in whether the ques-tions are necessary to California’s system ofproperty taxation, and whether the formsencourage or inhibit taxpayer compliance.

We are also encouraging county assessors’offices to provide customer service trainingfor their staff. The Board’s Customer andTaxpayer Services Division made a presenta-tion at a California Assessors’ Associationconference, and offered to help the asses-sors provide training to their staff.

Sales of Tax Defaulted PropertyOccasionally, we receive calls concerningthe sale of a property for delinquent taxes.These calls usually result from a situationwhere the current taxes were paid, but therewas a delinquency from prior years, and thetax collector was unable to contact theproperty owner.

We have discussed these situations with theState Controller’s Tax Defaulted Land Bureauand worked with the Legislative Division intalking with legislators. Our goal is a solu-tion that will help find and inform a delin-quent taxpayer.

Disabled Veterans’ ExemptionWe worked with legislators’ offices andothers to update the value amounts of theexemption and to allow the immediate

transfer of the benefit to a replacementproperty. We learned that veterans were notalways aware of these benefits, so we alsopursued efforts to publicize the exemption.

Special AssessmentsWe participated in discussions during theimplementation of Articles XIII c and XIII dof the Constitution, which were adopted in1996. We continue to get questions aboutbenefit assessments, maintenance assess-ments, property related charges and fees,property-related services, special assessmenttaxes, special assessments, special benefits,special districts, and special taxes.


ACCOMPLISHMENTS

Two primary functions of the TRA Officeare to:

1. Ensure fair and equitable treatment of alltaxpayers in the assessment and collectionof taxes.

2. Identify changes in policies, procedures,regulations, and statutes that will enhancetaxpayer communication and complianceand improve the relationship betweentaxpayers and government.

As a result of specific contacts with taxpayersand local government authorities, sugges-tions are developed and considered. With thecooperation and assistance of Board staff,other state agencies, and county governmentofficials, the following was accomplished thispast year:

Assessment Appeals — A recent lawchange extending the filing period for anapplication for a reduced assessment re-sulted in questions from both taxpayers andassessors. The Property Taxes Departmenttook the lead in answering these questionsand the TRA Office fielded some of thesequestions. With the assistance of the MassCommunications Section, a press releasewas developed, explaining the changes andthe effect they would have for a taxpayerconsidering an appeal.

Full Homeowners’ Exemption for Landin a Resident-Owned ManufacturedHomes Park — There were situationswhere owners of manufactured homes in aresident-owned park were not able to claimthe full $7,000 homeowners’ exemption.This occurred in two situations, 1) whenmanufactured homes were assessed for lessthan $7,000, and 2) when manufacturedhomes were not subject to the countyproperty tax, because they were insteadsubject to the vehicle license fee. (In someresident-owned parks the land is not held inthe name of the owner of the manufactured

home, but rather in the name of a corpora-tion, and an ownership interest in the corpo-ration includes the right to occupy a specificspace in the park.) Any excess exemptionamount not used for the manufacturedhome was not being applied towards theland, since the land was not in the name ofthe manufactured home owner.

Recent advice and decisions have clarifiedthis issue; we believe that homeowners inthese situations are now receiving theirentitlement. We will continue to monitorthis area.

Taxpayer Contacts — TRA Office re-sponded to 183 individual property taxpay-ers. (See “Taxpayer Contacts withTRA Office” and Appendix C for moreinformation about the contacts.)

Revision Efforts — The TRA Office partici-pated with the Board’s Property TaxesDepartment as they coordinated efforts toinclude industry representatives and countyassessors in the revisions of various laws,rules, and handbooks.

Media Outreach — The TRA Officeworked with the Mass CommunicationsSection and the Media Relations Officer,using the media to inform taxpayers ofvarious critical property taxes assessmentdates and provided them with propertytaxes information throughout the year,including the new assessment appeals filingdeadlines mentioned above.


CURRENT ISSUES

In coordination with program and legalstaff, other state agencies, and local govern-ment officials, solutions are being developedto address the following issues:

Filing Periods for “Prop 13”Reappraisal Exclusions — Late Claims— In the 25 years since the 1978 approvalof Proposition 13, which added ArticleXIII A to California’s Constitution, votershave ultimately approved fourteen ballotinitiatives enacting propositions to amendArticle XIII A. The statutes implementingthese amendments, many of which excludesome properties from reappraisal followinga change in ownership or new construction,all contain required filing deadlines.

Among the change in ownership and newconstruction exclusions is the ability totransfer a base year value from an originalproperty to a replacement dwelling forpersons over age 55 and severely disabledhomeowners acquiring or building a newhome.

The constitutional amendments required theLegislature to enact legislation that furtherdefines and implements the exclusions.Most of the statutes require that the claimbe filed within three years of the excludableevent. If the claim is timely filed and theexclusion is granted, it takes effect from thedate of the reappraisable event and thetaxpayer may claim appropriate refunds fortaxes paid on a higher assessed value. [SeeChapter 2, “Change in Ownership andPurchase,” of Part 0.5 of Division 1 of theR&T Code.]

For someone who is knowledgeable aboutthese property tax benefits, three years maynot seem like an unreasonable period oftime to file a claim. However, throughnumerous phone calls and other contacts,the TRA Office, Property Taxes Department,and assessors have found that many

homeowners were unaware of these specialproperty tax savings opportunities. Anexample would be the 65-year old home-owner who sells one home and buys an-other dwelling for retirement, but doesn’tlearn of the exclusion until several yearslater. There is no provision allowing taxpay-ers who find themselves in this situation tomake a late claim and at least receive thebenefits in subsequent years.

There is an exception. In 1997 the parent-child and the grandparent-grandchild exclu-sions were amended to permit filing past thethree-year period, allowing prospective reliefwhere the property hadn’t subsequentlytransferred to a third party. This changebecame effective January 1, 1998. The Boardis required by law to track parent-childexclusions. The 1997 change has not re-sulted in any significantly increasedadministrative costs.

Queries and complaints continue to surfaceregarding the limited filing period for theother Prop 13 exclusions. Assessors forwardcalls to us, as do legislators. This past year,the Board proposed an amendment to R&TCode § 69.5, “Transfer of Base-Year Value toReplacement Dwelling,” to allow prospectiverelief after the end of the regular filing. Thelanguage was included in Senate Bill 1062,introduced by the Senate’s Committee onRevenue and Taxation, but was amendedout of the bill due to revenue loss concerns.The Department of Finance opposed thisitem, risking a veto of the bill, which in-cluded many other provisions. We will workwith the Legislative Division staff next yearto meet these concerns and, if appropriate,develop language that will help these tax-payers.

Grandparent-Grandchild Exclusion —Not All Grandchildren Eligible —Proposition 193, approved on March 26,1996, added subsection (2) to subdivision


(h) of section 2 of Article XIII a of theCalifornia Constitution. R&T Code § 63.1implements subsection (2) (h) and providesthat certain transfers between grandparentsand their grandchildren, as defined by thissection, shall be excluded as a change inownership. The grandparent-grandchildexclusion only applies if all the parents ofthe grandchild(ren) who qualify as childrenof the grandparent(s), as defined in section63.1, are deceased as of the date of thechange in ownership.

Proposition 193 was an extension of Propo-sition 58, which first added subdivision (h)to section 2 of Article XIII a when it wasapproved on November 4, 1986. It providesthat certain transfers between parents andtheir children, as defined by the Legislature,shall be excluded as a change in ownership.For these exclusions, the Legislature deter-mined in R&T Code § 63.1 that, in certaincircumstances, “children” include adoptedchildren, stepchildren, daughters-in-law, andsons-in-law.

The TRA Office and the Property TaxesDepartment have received calls from countyassessors’ offices requesting advice on theavailability of the exclusion in situationswhere grandparents, assumed parentalresponsibility and raised their grandchildren.In cases like these, there is general agree-ment that the intent of Proposition 193 wasto grant an exclusion, but the law, as writ-ten, doesn’t permit it if the grandchildrenwere not formally adopted.

The broad definition of “children” benefitsthose claiming the parent-child exclusion,but it may work against the claimants of thegrandparent-grandchild exclusion. Thelegislative advocates of Proposition 193intended that it permit property to be trans-ferred from grandparents to grandchildren incases where both parents were deceased.This is not the case, however, since thebroad definition of “parents” includes morethan just birth and adoptive parents. Perhapsthe absent birth parents had remarried, are

now deceased, but, a stepparent is still alive.Perhaps the children had never known theirbirth parents. The counties could not grantthe grandparent-grandchild exclusion,because of the statutory definition of “par-ent” and “child” in R&T Code 63.1. Grand-children would be unable to benefit fromthe exclusion while a relationship witheither a stepparent or a parent-in-law, asdefined by statute [R&T Code W 63.1 (c)],still exists; it continues to exist until termi-nated by divorce or, where the naturalparent is deceased, until the stepparent orparent-in-law has remarried.

Work continues within the Board and withthe California Assessors’ Association todevelop a legislative solution that will atleast partly alleviate this problem.

Value Restorations and Proposition 8Litigation — Uncertainties Remain —The TRA Office continues to receive callsfrom persons interested in the decision inthe Bezaire-Pool case in Orange County.Superior courts of other counties havereached decisions opposite that of theOrange County Superior Court. That is, theyheld that the two percent limitation onannual value increases, imposed by ArticleXIII a, applies only to base year valueincreases and not to increases in value,when the county assessor has enrolled theProposition 8 value, i. e., the lesser fairmarket value. The case is still under appeal;oral arguments are currently scheduled forDecember before the court of appeal.

The TRA Office continues to explain the lawand the conflicting courts’ decisions totaxpayers, and advises them to file a claimfor refund if they believe the application ofthe Bezaire-Pool decision to their propertywould result in a lowering of their assessedvalue. See Appendix B — Issues fromPropositions 13 & 8 and their Progeny.


Assessor May Not Be Able To Reduce anIncorrect High Base Year Value — R&TCode § 51.5 requires the assessor to correctan error or omission in the determination ofa base year value in any assessment year inwhich it is discovered, unless the errorinvolves a value judgment. Errors or omis-sions resulting from the exercise of valuejudgment must be corrected within fouryears. However, on occasion, county asses-sors discover base year value judgmenterrors that would lower the taxpayers' baseyear value, but they are not discovered untilfour or more years after the base year valuewas established.

Upon making a correction permitted bysection 51.5, an assessor may make escapeassessments if the correction results in ahigher base year value. However, the asses-sor may enroll escape assessments onlywithin the periods provided by the appli-cable statutes of limitation.

Assessor Cannot Reduce Value After aLocal Board of Equalization orAssessment Appeals Board Decision —If a local board of equalization or assess-ment appeals board has established theassessed value, the county assessor cannotchange it, the local board cannot re-hear it,and the taxpayer’s only recourse is to file aclaim for refund with the board of supervi-sors and, thereafter, file a refund action insuperior court. Examples include situationswhere additional evidence of value mayhave been discovered after the board set thevalue. The problem occurs infrequently, butwhen it does, it seems fair to have a moreexpedient remedy available than filing aclaim for refund with the board of supervi-sors and then filing an action in superiorcourt.

“Double” Possessory InterestAssessments — In some instances, statepark rangers, CalTrans workers, and otherspay property taxes on two homes for thesame period of time, continuing to pay taxeson a home they have vacated. For instance,

park rangers who are required to live instate housing in the park where they areworking may be transferred from one parkto another. The ranger may have a posses-sory interest assessment for the next tax yearon the home they lived in on the lien date,and a second possessory interest, along witha supplemental assessment, on the newhome they moved to after the lien date. Wewill work with the Legislative and the As-sessment Policy and Standards Divisions, toexplore possible regulatory or statutorychanges that will remedy this inequity inthe future.

Late Supplemental Assessments —Taxpayers should anticipate tax bills, andare liable whether or not they receive no-tice. Supplemental assessments fall outsidethe normal flow of the property taxes calen-dar, though. In situations where the countytakes more than a year to process a supple-mental assessment, and the property ownershave sold the property and moved, theymay not learn about the supplementalassessment for years. We will work with theCalifornia Assessors’ Association, the StateController’s Office, and others, to identifypossible solutions for this type of supple-mental assessment problem.

Exclusion or Exemption DenialNotification — Taxpayers have complainedthat they requested the transfer of a baseyear value or homeowners’ exemption, butwere never notified that the request hadbeen denied. Because they did not receive anotice of denial, they assumed the exclusionor exemption had been granted. When theyreceived the tax bill and discovered thatthey had not received the benefit, it mayhave been too late to request reconsidera-tion or file an application for changedassessment for that year in order to obtainthe full exemption or exclusion. The Califor-nia Assessors’ Association has offered toassist with developing an administrative,regulatory, or legislative solution. We willpursue this in the future.


As a result of taxpayer contacts and review ofissues, policies, procedures, and trends, bothwithin the Board and at the local (county)level, the TRA Office recommends consider-ation of the following areas of opportunity toproduce greater clarity and uniformity.

Tax-Defaulted Sales of Owner-OccupiedHomes — The home of an elderly taxpayer,which he owned free-and-clear of anymortgages or trust deeds, was sold at acounty tax sale because of delinquent prop-erty taxes. Although the current year’s taxeshad been paid, there was an unpaid delin-quency that had been outstanding for morethan five years. Consequently, the tax collec-tor noticed the property for sale and at-tempted personal service of the notice ofsale. Because the home was located in agated community, the tax collector’s agentcould not accomplish personal service of thenotice of sale, and instead, the notice of salewas posted in a public place, at the commu-nity gate. The homeowner never receivednotice of the pending sale, and the homewas subsequently sold at the public auction.

There were several signals that, if noticed,might have triggered follow-up attempts tocontact the homeowner, since the delin-quency appeared to be an oversight. Forinstance: 1) The property was receiving thehomeowners’ exemption, an indication thatthe owner lived there. 2) The mailing ad-dress was the same as the property address,again indicating that the taxpayer lived onthe property. 3) Tax bills were not beingsent to a lender, indicating the taxpayermight own the property out right, andtherefore have a stronger incentive to paythe delinquent taxes, which were minorwhen compared to the property value.4) Taxes had been paid for the current andrecent years — the delinquency was overfive years old.

EMERGING ISSUES

Since the sale, the local county tax collectorhas made suggestions that would improvethe process of collecting some delinquentproperty taxes and delay the sale of sometax delinquent properties. The proposalsinclude annually sending out a separatedelinquency notice to certain taxpayers andattempting to arrange a pre-sale consultationwith certain taxpayers prior to the sale oftheir property.

State Senator Jackie Speier proposedlegislation, Senate Bill 663, that would revisenotification requirements before the sale of atax-defaulted owner-occupied home. Theproposal would require additional notifica-tion attempts and could delay the sale for upto four more years.

Some property owners allow their taxes tobecome delinquent because the value oftheir property is less than the taxes owed —in these cases, adding additional steps to oursystem of conducting public auctions tosatisfy delinquent property taxes through thesale of tax-defaulted property could becomecumbersome, and the proceeds to be gainedmight be less than the costs of conductingthe sale.

RECOMMENDATIONS:Senator Speier’s bill was not enrolled thisyear, but this is the first year of a two-yearsession; it could be approved next year. Wewill continue to work with the StateController’s Bureau of Tax Administration forsolutions. The goal is to further protect thetaxpayer without further burdening thecounty. We will seek procedural or stan-dards changes that could be accomplishedadministratively at the local level.

Correcting a Supplemental AssessmentCalculation — The supplemental assess-ment statutes, R&T Code § 75, et seq., donot address the situation where the ap-praised values are proper, but an error is


made in calculating the supplemental assess-ment. This issue arose where developerspurchased land, notified the assessor thatthey would not be occupying or using thecondominiums they were building[§ 75.12(a)(1)], built the condominiums,completed the construction, and sold thecondominiums; this all occurred in a periodof about six months following the lien date.

The land was appraised when it was pur-chased. The new construction was appraisedwhen completed, but supplemental assess-ments were not issued since the developershad met the requirements for the “builders’exclusion.” The property was reappraisedwhen it sold, and a supplemental assessmentwas issued; it should have been based onthe difference between the “raw” land valueand the value of the condominium propertyat the time of sale. Instead, the calculationswere based on the difference between the“raw” land value plus the value of the newlyconstructed condominium at the time ofcompletion [which would have been thetaxable value on the current roll if therehadn’t been a “builders’ exclusion”] and thevalue of the condominium property at thetime of sale [the new base year value].

The new property owners paid theirsupplemental assessment, and two yearswent by before the error was discovered.About a month before the end of the fiscalyear, new supplemental bills were sent out,showing the amount that had already beenpaid as the “first installment,” and the addi-tional amount due as the “second install-ment.” Confused and angry taxpayers calledboth the assessor and the tax collector;many said they could not come up with theadditional amount due (averaging about$1,000) on such short notice.

The assessments were valid, but the statutesare not specific regarding enrollment, duedates, and payments in this unique situation.The TRA Office, Assessment Policy andStandards Division staff, Legal Departmentstaff, and the State Controller’s Bureau of

Tax Administration worked together with thelocal assessor and tax collector to explainthe assessment to taxpayers. The tax collec-tor was also able to offer an installmentpayment plan to taxpayers.

RECOMMENDATION:It may be necessary to amend the statutes,with the goal of providing better directionwhen errors like this occur in the future. Wewill work with other Board staff and theState Controller’s office to address this issue.

Loss of Parent – Child Exclusion AfterTransfer to Third Party —R&T Code § 63.1(e)(1)(B) states, in part, thata change in ownership shall not include“… transfers of real property betweenparents and their children… and… betweengrandparents and their grandchildren occur-ring… within three years after the date ofthe purchase or transfer of real property forwhich the claim is filed, or prior to transferof the real property to a third party, which-ever is earlier.” [emphasis added]

Heirs usually hire an estate attorney, a realestate broker, a CPA, and/or a title companywhen selling inherited real property. How-ever, the requirement to file for an exclusionon the inherited property prior to its sale isnot widely known and may be overlooked,even by professionals. The exclusion cannotbe granted unless a claim is filed in a timelymanner prior to the transfer of the realproperty to a third party. Failure to do socan result in an expensive tax bill for theheirs, as the assessor is required to correctan error or omission when it is discoveredand enroll up to four years of escape assess-ments. These often become financial hard-ship cases because they are unable to paythe tax and delinquent fees timely.

For purposes of transfers between parentsand their children, section 63.1 wasamended in 1990 in an attempt to eliminateretroactive property tax corrections wherethe person(s) filing the claim form, andotherwise eligible for the benefit, had al-


ready transferred the real property to athird party. It was recognized even then thata substantial number of taxpayers wouldinadvertently lose their right to the constitu-tional change in ownership exclusion,resulting in a bill for additional taxes afterthey had sold the property and possiblysettled the estate. As predicted, this warninghas come true.

The largest number of our contacts (11.5%)is dedicated to addressing the parent-childexclusion. A significant portion relates tothese third party transfer problems. Severalcounties have commonly voiced their con-cern about the number of taxpayers deniedthis exclusion. Los Angeles, San Bernardino,San Diego, and San Mateo Counties esti-mated that three percent of parent-childtransferees are not able to take advantage ofthis provision.

Los Angeles County reported a substantialreduction in the time spent resolving taxdisputes after implementing the followingstrategy three years ago:

1. Public meetings with targeted groups todiscuss property tax issues of commoninterest. Hold quarterly meetings with taxagents, escrow companies, contractors,developers, community leaders, churches,senior centers, as well as hosting a boothat trade shows and county fairs. Arrangeto meet groups on weekends or before orafter normal business hours. In all venues,pamphlets and material are handed out,discussions take place, questions areanswered and suggestions for resolutionsgiven by all parties.

2. Designate a Property Owners’ Advocatewho can impartially find solutions andconfirm fairness of the county processand decisions. Taxpayers feel that theirbest interests are served when they canconsult with a third party they trust,especially for those who can’t afford anagent.

3. Create a community advisory panel con-sisting of representatives from the Boardof Realtors, tax professionals, the legisla-ture, escrow companies, a taxpayer asso-ciation, the county’s property owners’advocate and the mayor’s office.

RECOMMENDATIONS:1. Use LTA’s and sessions at conferences to

encourage counties to issue timely supple-mental and escape assessments andidentify any administrative or regulatorychanges that would improve the process.

2. Promote designation of local propertyowners’ advocate or ombudsman who canhelp taxpayers understand and/or resolvetaxation problems. Investigate the successof counties that are doing this, and dis-cuss the topic at conferences.

3. Provide customer service training foradvocates, ombudsmen, and/or other staffmembers who have frequent public con-tact. The BOE can provide this training.

4. Include this and other recurring issues asfrequently asked questions (FAQ’s) oncounty Web sites.

5. Create a community advisory panel.

6. Target and work with local “interestedparties” related to specific property taxa-tion laws.

7. Identify areas of recurring disputes bycollecting annual statistics, including thenumber of exclusions and denials.

8. Work with the Assessment Policy andStandards Division to issue a Letter toAssessors (LTA) that will describe thevarious filing periods for the § 63.1(parent-child) exclusion; emphasize that itcan be filed within six months after themailing of a notice of supplemental orescape assessment, irrespective ofwhether the property has been transferredto a third party. The LTA could alsoaddress filing periods for other exclusions,such as § 69.5 (persons over the age of 55and severely and permanently disabledpersons).


9. Recommend legislation for considerationthat would extend the filing period insubparagraph (C) of § 63.1 (e) (1) to oneyear.

Uniform adoption of these strategies willresult in greater public awareness andcompliance and reduced time spent solvingdisputes.


The TRA Office assisted 183 individualproperty taxpayers and representatives lastyear. All contacts with taxpayers and theirrepresentatives are important and contributeto better understanding and improvement ofthe property taxation system. These contactsoffer the opportunity to review a given

TAXPAYER CONTACTS WITH TRA OFFICE

specific situation — a situation that is some-times indicative of a more global statewideissue which needs to be addressed throughchanges in the law, rules, policies, or proce-dures.

The following chart provides a breakdownof last year’s contacts.

Types of Issues

Local county assessment offices (assessors,clerks for assessment appeals boards andlocal boards of equalization, auditor-control-lers, and tax collectors) referred many ofthese contacts to the TRA Office. The tableon the next page shows a breakdown of thetype of issues we received. Issues involvingthe levy and collection of property taxes,redemption, and corrections, cancellations,

and refunds have decreased about 25 per-cent from four years ago. They were 17 per-cent of our caseload during 2002-03. Theseare issues we work with the StateController’s office, and/or refer to the appro-priate county tax collector or auditor-controller.

Collection & Refunds

17%

Other

6%

Assessment & Appeals

77%


An increasing number of our contacts dealtwith assessment and exemption issues (up25± percent) or with Prop 13 related issues— contacts about base year values, declinesin value, intra-family transfers, and seniorcitizen and disabled persons exclusions (a40± percent increase). Contacts about ap-peals decreased considerably — downmore than 80 percent.

These trends are not surprising. The appealsform, including the instructions, has im-proved, and the publication of “Residential

Property Assessment Appeals” has served toanswer questions and inform taxpayers oftheir rights and responsibilities.

At the same time there is confusion aboutthe many Prop 13 exclusions, and an in-creasing number of taxpayers are discover-ing that if they’d only known, they mighthave qualified for the transfer of a lowerbase year value. And there is uncertaintyabout the constitutionality of R&T Code § 51while the Bezaire-Pool case is on appeal inOrange County.

ISSUE 1998-99 2002-03

General Property Taxation 4% 6%

Assessment & Exemptions 22% 26%

Miscellaneous Properties Types 2% 2%

“Prop 13” Related 34% 47%

Appeals 11% 2%

Collections Related 15% 9%

Corrections & Refunds 8% 8%

Assistance & Postponement 4% 0%


The following chart shows the sources ofreferrals to TRA Office:

Internet, Media & Pamphlets

29%

County Assessors 29%

BOE & Legislature 6%

Auditor-Controllers & Tax Collectors

3%

Recontacts 9%

Other 12%

Taxpayers' Representatives 12%

Sources of Referrals

Sometimes the assessor, tax collector, orauditor-controller’s office will refer thetaxpayer to the TRA Office so taxpayers and/or their representative(s) are provided anunbiased independent review of their situa-tion. On a few occasions, the person callingwas concerned about the fairness of treat-ment he or she received from the assessmentoffice(s). The officials in charge of theseoffices are concerned with taxpayer service,and the potential lack of professional treat-ment, so they are very anxious to correctperceived inadequacies. When they refersomeone to the TRA Office (or when acontact calls directly), the taxpayer willeither receive an affirmation of the localpolicy or procedure, or the local official will

receive feedback from the TRA Office. Inthe latter case, the TRA Office might discusspossible improvements in the local official’soperations to make them more “taxpayerfriendly,” or offer suggestions for thecorrection or resolution of errors andother problems.

Calls are also received from people whohave learned about the TRA Office from themedia, a library, or another state agency.They may be concerned about the fairnessof the treatment they received from anassessment office. In addition to workingwith the person, the TRA Office contacts theoffice involved in order to help the taxpayerresolve the problem, when possible.


A major difference between the BusinessTaxpayers’ Bill of Rights and the PropertyTaxpayers’ Bill of Rights is in the resolutionof taxpayer complaints. The BOE is theagency responsible for assessing and collect-ing business taxes. The Executive Directorhas administrative control over the func-tions, staff, and their actions. The Advocatereports directly to the Executive Directorand is separate from the business and prop-erty taxes line programs.

When taxpayers’ complaints about the BOEbusiness taxes programs are received in theTRA Office, the Advocate and her staff havedirect access to all the documents and Boardstaff involved in the taxpayers’ issues. TheAdvocate and her staff are liaisons betweenthe taxpayers and the Board program staff tosolve the problems. In the area of levies, forexample, the Advocate has the ability to staycollection. The Advocate can also order therelease of levy, and the refund of up to$1,500, upon finding that the levy threatensthe health or welfare of the taxpayer or hisor her spouse and dependents or family. Ifthe Advocate disagrees with other actions ofthe staff and is unable to resolve the situa-tion satisfactorily, the issue is elevated to theExecutive Director for resolution. TheExecutive Director then has the authorityto overturn the actions of the staff.

However, in responding to property tax-payers’ complaints, the Advocate typicallyhas no direct access to the taxpayers’ docu-ments. Each of the 58 counties maintains itsown records. The Advocate and her staffwork with county assessors, tax collectors,and auditor-controllers (most of whom areelected officials), plus clerks to the countyboards of supervisors. The Morgan PropertyTaxpayers’ Bill of Rights provides the

APPENDICES

A — Differences between the Business andProperty Taxpayers’ Bill of Rights

Advocate with broad oversight, but there isno authority to mandate or overturn localactions. So far, however, the Advocate hasbeen successful in soliciting cooperation andpossible change with these local countyofficials.


In June 2003 ”Prop 13” was 25 years old.This ballot initiative, approved by the voterson June 6, 1978, adding Article XIII a to theCalifornia Constitution, dramatically changedthe system of real property taxation inCalifornia. The feature that most taxpayersnoticed immediately was the reduction inthe effective tax rate to one percent. Prior tothe passage of Prop 13 the tax rate hadvaried statewide, but hovered aroundthree percent. Prop 13 also provided for a“value at acquisition” property tax system,whereby a “base year value” is establishedwhen a property undergoes a change inownership or new construction is com-pleted, and annual increases in the base yearvalue are limited to two percent.

After Prop 13 went into effect, the Legisla-ture recognized that the law did not coverthe situation where a property’s value de-clined. The amendment tied value changesto the consumer price index, allowingincreases up to two percent a year andreductions when the index went down. Butit did not allow for reductions in assessedvalue in years in which the index increased,but a property’s fair market value had de-clined. In order to remedy the situation, theLegislature passed a legislative constitutionalamendment, SCA 67, which was numberedon the ballot as “Prop 8,” which was ap-proved by the voters on November 7, 1978.Prop 8 was implemented by R&T Code § 51to provide that locally assessed real propertyis enrolled at the lesser of the inflation-adjusted base year value or the current fairmarket value.

Proposition 8 — Base Year Value andInflation AdjustmentsPrimarily due to the economy, propertytaxpayers in a majority of California’s coun-ties experienced declines (or no increases)in the value of their homes during the 1990s.This resulted, in some cases, in significantly

B — Issues from Propositions 13 & 8 and their Progeny

lowered assessments. Proposition 8 allowedthe assessor to reflect declines in propertyvalue. The mechanics for these reductionsare specified in R&T Code § 51,subdivision (a), which requires the assessorto annually enroll the lesser of the factoredbase year value or the current fair marketvalue. The original language of Proposi-tion 13 has led many taxpayers to believethat, regardless of the enrolled value, thatvalue can be raised a maximum of onlytwo percent per year. However, section 51provides that the two-percent limitationapplies only to the factored base year valueand not a lower current fair market valuewhere a property has been assessed pursu-ant to Prop 8. An example illustrates howthis works.

Assume that a couple purchased a home inApril 1989 (a peak year in many Californiareal estate markets), for $174,000. Thepurchase met the definition of an openmarket transaction, and the price indicatedthe fair market value of the property. Theassessor enrolled a base year value of$174,000. The following year the house wasworth $181,000, and the assessor applied the2% inflation factor to the base year valueand enrolled $177,480, about $3,500 lessthan the actual fair market value. The tableon the next page shows these values for1989 and 1990.


Let’s say that in 1991 the actual fair marketvalue of the property declined $5,000, to$176,000 — this is $5,030 less than thefactored base year value of $181,030. If theassessor’s office were aware of the decline,the lesser value of $176,000 would have

(FACTORED) FAIR TAXABLE CHANGE CHANGEBASE YEAR MARKET ROLL IN ROLL IN ROLL

YEAR VALUE VALUE VALUE ($) (%)

1989 $174,000 $174,000 $174,000

1990 $177,480 $181,000 $177,480 $3,480 2%



1991 $181,030 $176,000 $176,000 ( -$1,480) ( -1%)1992 $184,650 $158,000 $158,000 (-$18,000) (-10%)

been on the roll that was sent to theauditor-controller. Let’s assume the fairmarket value decreased again the next year,to $158,000 — $158,000 would have beenenrolled for 1992. The following tableillustrates these value changes:

In 1993 the fair market value started increas-ing again, but through 1998 it was still lessthan the factored base year value, so the

taxable value continued to represent thelower fair market value. The continuation ofthe table provides further illustration:



1993 $188,343 $162,000 $162,000 $4,000 3%1994 $192,110 $169,000 $169,000 $7,000 4%1995 $194,396 $170,000 $170,000 $1,000 1%1996 $196,554 $186,000 $186,000 $16,000 9%1997 $200,485 $198,000 $198,000 $12,000 6%1998 $204,495 $201,000 $201,000 $3,000 2%

So in 1993, the base year value, adjusted forinflation, was $188,343, but the value on theassessment roll, reflecting the marketplace,was $162,000. In 1994 the fair market valueof the property increases, to $169,000, whichis still less than the factored base year value,which has now increased to $192,110. Theassessor is still required to enroll the lesserof the factored based year value or thecurrent fair market value; $169,000 would be

the taxable value, a 4% increase over theprior year. In 1996 the fair market valueincreases to $186,000, still less than thefactored base year value, and the assessorwould increase the taxable value to $186,000— a 9% increase over the prior year’s value.The pattern continues — increases in theroll value may be greater than two percent,but the value enrolled is less than the fac-tored base year value.


In 1999, the fair market value increased byten percent, and is greater than the factoredbase year value for the first time in nineyears; the assessor would enroll the lesser

factored base year value. The continuationof the table provides further illustrationthrough 2002:



1999 $208,284 $222,000 $208,284 $7,284 4%2000 $212,450 $231,000 $212,450 $4,166 2%2001 $216,699 $238,000 $216,699 $4,249 2%2002 $221,033 $256,000 $221,033 $4,334 2%

In 1999, the fair market value of $222,000 isgreater than the factored base year value of$208,284. This pattern continues, and theassessor would enroll the lesser of thefactored base year value or the fair marketvalue. By 2002, the factored base year valueof $221,033 is approximately $35,000 lessthan the $256,000 fair market value.

Although the taxable value on the roll isrestored to the factored base year value in1999, the revenue that would have been

The shaded area represents the values on the assessment roll.

250,000

225,000

200,000

175,000

150,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

YEAR

VA

LUE(

$)

From 1993 to 1998 the fair marketvalue is increasing, but is still lessthan the factored base year value.

In 1991 the propertydeclines in value & the fairmarket value is less than

the factored base year value.

In 1999 the fairmarket value

exceeds the factoredbase year value.

fair market value

taxable roll value

factored base year value

collected if there had not been the declinein value and the slow recovery is not re-gained. Over this 13-year period, the valueof the property increased 47 percent, but thetotal increase in taxable value, however, wasonly 27 percent. Compounded, this changein taxable value works out to be only1.9 percent annualized — less than thetwo-percent maximum in Prop 13. The chartbelow summarizes the information in thetables above:


In the preceding example which started onpage 18, state law [R&T Code § 51 (a)]required the assessor to annually review aproperty’s value once a temporary reductionin the assessed value has been granted as aresult of a decline in its market value. Thelaw provides that a property owner is en-titled to the lesser of two values: 1) aproperty’s base year value (typically estab-lished at the time of acquisition or newconstruction), annually adjusted for inflationnot to exceed two percent, or 2) the currentmarket value as of the lien date. (The liendate is January 1st.) Once reduced, theassessed value may be increased up to theadjusted base year value in any year, consis-tent with existing market conditions. Theincrease in value is limited only by thecurrent market value as of the lien date, orby the factored Proposition 13 value, which-ever is less.

As pointed out earlier (“Value Restorationsand Proposition 8 Litigation” on page 8),there is confusion about the restoration ofvalues after a Prop 8 reduction. Since wefirst identified this problem area in the1990s, there has been one court case order-ing one method, while others have upheldthe Legislature’s method in R&T Code § 51.We had hoped that taxpayer educationwould remove confusion. At this point, itmight take a decision by the State SupremeCourt or a Constitutional amendment toclarify things.

Change in Ownership Base Year ValueTransfers and New ConstructionExclusions

Starting in 1980 fourteen constitutionalamendments have modified the reappraisalprovisions of Prop 13 by excluding fromchange in ownership and completion ofnew construction, certain types of transfersand improvements:

■ Transferring a base year value to a re-placement property for:

• homeowners over 55 years of age andseverely disabled homeowners buyingor building a new home;

• property owners acquiring propertyafter being displaced by governmentalaction or eminent domain proceedings;

• victims acquiring a comparable prop-erty to one destroyed or substantiallydamaged by a disaster; and

• certain “qualified” contaminated prop-erty.

■ Other excluded changes in ownershipinclude transfers:

• between spouses and between someformer spouses;

• of a principal residence between par-ents and their children;

• of $1 million of property betweenparents and their children; and

• between grandparents and grandchil-dren in some cases.

■ Excluded new construction includes:

• work necessary to comply with localseismic safety ordinances;

• seismic retrofitting improvements andimprovement utilizing earthquakehazard mitigation technologies;

• fire detection & extinguishing systemsand fire-related egress improvements;

• active solar energy systems;

• improvements for the purpose ofmaking a building more accessible tocertain disabled persons; and

• victims constructing a property compa-rable to one destroyed or substantiallydamaged by a disaster.

These exclusions all have one thing incommon — they prohibit a reappraisal afteran event that would have otherwise trig-gered a reappraisal under Prop 13, as passedin 1978. However, they differ in application.For instance, many require filing a claimwithin three years, but some allow the filingof a late claim for prospective only relief.


Intra-county transfers of base year values areallowed, but only under certain circum-stances. Some forms of disaster relief requirea damage or destruction resulting fromGovernor-declared disaster and others don’t.Value, use, or age might determine thresh-olds for the exclusion.

These different criteria — a multitude ofspecial circumstances excluding propertiesfrom reappraisal — are difficult for theassessors’ offices to administer. They areeven more difficult for a homeowner tounderstand. The TRA Office will work withthe California Assessors’ Association, theLegislative Department, and the Propertyand Special Taxes Department over the nextfew years to propose legislative changes,where appropriate, to standardize thefeatures of these statutes, as well as iden-tifying and providing continued taxpayereducation.

Proposition 13’s Legacy

California, like the other 49 states, hadcollected property taxes based upon an advalorem (“according to value”) assessmentsystem. Property was (theoretically) assessedas its fair market value each year, and localgovernments (like counties, cities, andschool districts) raised or lowered the taxrate in order to collect the taxes that wereneeded. This effective tax rate was the ratiobetween the value of the property in thedistrict, city, or county and the property taxrevenue budgeted by that district, city, orcounty. This changed in 1978.

Two major changes have already beendiscussed:

• The effective tax rate was reduced toone percent.

• Real property could only be reappraisedwhen it transferred (a change in owner-ship or purchase) or was improved (newconstruction). Property that didn’t transferand wasn’t improved kept it’s March 1,1975, value as a “base.” When property

transferred or was improved the assessorwould reappraise the property and estab-lish a new base. In between reappraisalevents the assessor would increase thevalue for inflation using a rate based uponthe consumer price index, but the ratecould not exceed two percent.

Other changes were not immediately notice-able. The State had a revenue surplus, andafter Prop 13’s passage, the State stepped inand used the State surplus to assist localgovernment, and in particular the schools.An opportunity was missed to 1) change theway local government was funded and2) consider the need for the services theyprovide, according to A. Alan Post, whoheaded the California Legislative Analyst’soffice until he retired in 1977. In addition toproperty related services — fire and police,streets and sewers — the property tax alsofunded education, welfare and health care,and the court systems. With the State step-ping in, the incentive to reform wheregovernment spent money, and how theyfunded those expenditures, was missing.

Eventually the State surplus shrunk anddisappeared, and State government begansuffering revenue shortages. They stoppedassisting local government, and this left thecounties struggling for ways to fund man-dated services, including the welfare systemand schools. The public cannot alwaysunderstand why Prop 13 seemed to work in1980 — services weren’t being cut — butdoesn’t work now — the schools don’t haveenough money, roads are deteriorating,parks aren’t being maintained, etc.

Another problem some members of thepublic have trouble accepting — nearlyidentical properties, sitting side-by-side, havecompletely different property tax burdens.The U.S. Supreme Court has upped theconstitutionality of the value at acquisitionprovisions of Prop 13. But the taxpayer whopurchased the condominium for $100,000 in1979 has trouble accepting that she’s paying


twice as much property taxes for the sameamount of services as her neighbors, whopurchased their condominium for $50,000in 1976.

Although the largest initial impact of Prop 13for taxpayers was the reduction in theeffective tax rate, there was a differentimpact on the operation of an assessor’soffice. Previously, most counties had beenappraising the entire county on a cyclicalbasis, perhaps dividing the county into four,five, or six areas and concentrating on adifferent area each year. After Prop 13, theywould only be appraising properties wherethere had been a change in ownership ornew construction. Instead of gathering datafor the area they would be working, andusing that data for every property in thatarea, they would have to gather data all overthe county, and apply it to only those prop-erties in the county where a change inownership or new construction occurred.

It cannot be denied that Prop 13 reducedproperty taxes and local government rev-enues. Other results and inequities arearguable — some claim that the property taxburden has shifted, that homeowners cannotafford to move, that local government isreplacing taxes with fees, that the level ofgovernment service has declined. Thosedesiring more information on the subjectwould do well to start with two papers,already dated, presented in association withthe California Research Bureau: “LocalGovernment Revenue & Expenditures SinceProposition 13: A Historical Primer”, byRoger Dunstan (CRB-93-006, August 1993),and “Local Government Finances SinceProposition 13: An Historical Primer”, byHelen C. Paik (CRB-95-007, November1995). They summarize, mostly throughthe use of charts, the major changes in thesource of funding for cities and counties,and the areas where these funds are spent.More information is available atwww.library.ca.gov/html/statseg2.cfm.


Appeals &

County Assessor Equalization Boards Tax Collector Auditor-Controller Other TOTAL

Alameda 2 1 1 4

Calaveras 1 1

Contra Costa 2 1 3

Del Norte 2 2

El Dorado 2 2

Fresno 1 1

Humboldt 2 2

Inyo 2 2

Kings 1 1

Los Angeles 12 6 18

Madera 1 1

Marin 5 5

Mendocino 3 1 4

Mono 3 3

Monterey 2 2

Orange 5 2 7

Placer 4 4

Riverside 10 10

Sacramento 6 1 7

San Bernardino 6 6

San Diego 16 7 23

San Francisco 10 1 11

San Joaquin 1 1

San Luis Obispo 2 2

San Mateo 5 4 9

Santa Barbara 5 5

Santa Clara 7 1 8

Santa Cruz 1 1

Shasta 3 3

Sierra 1 1

Siskiyou 1 1

Solano 5 5

Sonoma 3 2 5

Stanislaus 1 1 2

Sutter 3 3

Tuolumne 2 2

Ventura 1 2 3

Yolo 2 2

Unknown 1 1

Statewide1 1 1

BOE2 4 4

FTB/SCO3 4 4

Bill of Rights4 1 1

TOTALS: 139 1 31 1 11 183

C — Table of Contacts Received, by County and by Office

1These were questions or issues that went beyond any particular county.2Property Taxes Department contacts included questions about mapping and timber taxes.3Typically, these were questions about tax sales, payment plans, or property tax assistance.4Questions about the Morgan Property Taxpayers’ Bill of Rights.


D — The Morgan Property Taxpayers’ Bill of Rights

5900. This part shall be known and may becited as “The Morgan Property Taxpayers’Bill of Rights.”

5901. The Legislature finds and declares asfollows:

(a) Taxes are a sensitive point of contactbetween citizens and their govern-ment, and disputes and disagree-ments often arise as a result of misun-derstandings or miscommunications.

(b) The dissemination of information totaxpayers regarding property taxesand the promotion of enhancedunderstanding regarding the propertytax system will improve the relation-ship between taxpayers and thegovernment.

(c) The proper assessment and collectionof property taxes is essential to localgovernment and the health andwelfare of the citizens of this state.

(d) It is the intent of the Legislature topromote the proper assessment andcollection of property taxes through-out this state by advancing, to theextent feasible, uniform practices ofproperty tax appraisal and assess-ment.

5902. This part shall be administered by theboard.

5903. “Advocate” as used in this part meansthe “Property Taxpayers’ Advocate” desig-nated pursuant to Section 5904.

5904. (a) The board shall designate a “Prop-erty Taxpayers’ Advocate.” The advocateshall be responsible for reviewing theadequacy of procedures for both of thefollowing:

(1) The distribution of informationregarding property tax assess-ment matters between and

among the board, assessors, andtaxpayers.

(2) The prompt resolution of board,assessor, and taxpayer inquiries,and taxpayer complaints andproblems.

(b) The advocate shall be designated by,and report directly to, the executiveofficer of the board. The advocateshall at least annually report to theexecutive officer on the adequacy ofexisting procedures, or the need foradditional or revised procedures, toaccomplish the objectives of this part.

(c) Nothing in this part shall be construedto require the board to reassignproperty tax program responsibilitieswithin its existing organizationalstructure.

5905. In addition to any other duties im-posed by this part, the advocate shall peri-odically review and report on the adequacyof existing procedures, or the need foradditional or revised procedures, withrespect to the following:

(a) The development and implementationof educational and informationalprograms on property tax assessmentmatters for the benefit of the boardand its staff, assessors and their staffs,local boards of equalization andassessment appeals boards, andtaxpayers.

(b) The development and availability ofproperty tax informational pamphletsand other written materials thatexplain, in simple and nontechnicallanguage, all of the following matters:

(1) Taxation of real and personalproperty in California.

(2) Property tax exemptions.

(3) Supplemental assessments.

[Revenue and Taxation Code Sections]


(4) Escape assessments.

(5) Assessment procedures.

(6) Taxpayer obligations, responsibili-ties, and rights.

(7) Obligations, responsibilities, andrights of property tax authorities,including, but not limited to, theboard and assessors.

(8) Property tax appeal procedures.

5906. (a) The advocate shall undertake, tothe extent not duplicative of existing pro-grams, periodic review of property taxstatements and other property tax formsprescribed by the board to determine bothof the following:

(1) Whether the forms and theirinstructions promote or discour-age taxpayer compliance.

(2) Whether the forms or questionstherein are necessary and ger-mane to the assessment function.

(b) The advocate shall undertake thereview of taxpayer complaints andidentify areas of recurrent conflictbetween taxpayers and assessmentofficers. This review shall include, butnot be limited to, all of the following:

(1) The adequacy and timeliness ofboard and assessor responses totaxpayers’ written complaints andrequests for information.

(2) The adequacy and timeliness ofcorrections of the assessment roll,cancellations of taxes, or issu-ances of refunds after taxpayershave provided legitimate andadequate information demonstrat-ing the propriety of the correc-tions, cancellations, or refunds,including, but not limited to, thefiling of documents required bylaw to claim these corrections,cancellations, or refunds.

(3) The timeliness, fairness, andaccessibility of hearings and

decisions by the board, countyboards of equalization, or assess-ment appeals boards wheretaxpayers have filed timely appli-cations for assessment appeal.

(4) The application of penalties andinterest to property tax assess-ments or property tax bills wherethe penalty or interest is a directresult of the assessor’s failure torequest specified information or aparticular method of reportinginformation, or where the penaltyor interest is a direct result of thetaxpayer’s good faith reliance onwritten advice provided by theassessor or the board.

(c) Nothing in this section shall be con-strued to modify any other provisionof law or the California Code ofRegulations regarding requirements orlimitations with respect to the correc-tion of the assessment roll, the cancel-lation of taxes, the issuance of re-funds, or the imposition of penaltiesor interest.

(d) The board shall annually conduct apublic hearing, soliciting the input ofassessors, other local agency repre-sentatives, and taxpayers, to addressthe advocate’s annual report pursuantto Section 5904, and to identify meansto correct any problems identified inthat report.

5907. No state or local officer or employeesresponsible for the appraisal or assessmentof property shall be evaluated based solelyupon the dollar value of assessments en-rolled or property taxes collected. However,nothing in this section shall be construed toprevent an official or employee from beingevaluated based upon the propriety andapplication of the methodology used inarriving at a value determination.

5908. Upon request of a county assessor orassessors, the advocate, in conjunction with


any other programs of the board, shall assistassessors in their efforts to provide educa-tion and instruction to their staffs and localtaxpayers for purposes of promoting tax-payer understanding and compliance withthe property tax laws, and, to the extentfeasible, statewide uniformity in the applica-tion of property tax laws.

5909. (a) County assessors may respond to ataxpayer’s written request for a writtenruling as to property tax consequences of anactual or planned particular transaction, oras to the property taxes liability of a speci-fied property. For purposes of statewideuniformity, county assessors may consultwith board staff prior to issuing a rulingunder this subdivision. Any ruling issuedunder this subdivision shall notify the tax-payer that the ruling represents the county’scurrent interpretation of applicable law anddoes not bind the county, except as pro-vided in subdivision (b).

(b) Where a taxpayer’s failure to timelyreport information or pay amounts oftax directly results from the taxpayer’sreasonable reliance on the countyassessor’s written ruling under subdi-vision (a), the taxpayer shall berelieved of any penalties, or interestassessed or accrued, with respect toproperty taxes not timely paid as adirect result of the taxpayer’s reason-able reliance. A taxpayer’ s failure totimely report property values or tomake a timely payment of propertytaxes shall be considered to directlyresult from the taxpayer’s reasonablereliance on a written ruling from theassessor under subdivision (a) only ifall of the following conditions aremet:

(1) The taxpayer has requested inwriting that the assessor advise asto the property tax consequencesof a particular transaction or as tothe property taxes with respect to

a particular property, and fullydescribed all relevant facts andcircumstances pertaining to thattransaction or property.

(2) The assessor has responded inwriting and specifically stated theproperty tax consequences of thetransaction or the property taxeswith respect to the property.

5910. The advocate shall, on or beforeJanuary 1, 1994, make specific recommenda-tions to the board with respect to standardiz-ing interest rates applicable to escape assess-ments and refunds of property taxes, andstatutes of limitations, so as to place prop-erty taxpayers on an equal basis with taxingauthorities.

5911. It is the intent of the Legislature inenacting this part to ensure that:

(a) Taxpayers are provided fair andunderstandable explanations of theirrights and duties with respect toproperty taxation, prompt resolutionof legitimate questions and appealsregarding their property taxes, andprompt corrections when errors haveoccurred in property tax assessments.

(b) The board designate a taxpayer’sadvocate position independent of, butnot duplicative of, the board’s existingproperty tax programs, to be specifi-cally responsible for reviewing prop-erty tax matters from the viewpoint ofthe taxpayer, and to review andreport on, and to recommend to theboard’s executive officer any neces-sary changes with respect to, propertytax matters as described in this part.

property taxpayers’ bill of rights 2002-03 property taxpayers’ 2002/03 bill of rights annual...

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