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June 2001 |
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For The Record |
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| "Trial de Novo" Wins Assembly Approval | ||
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By the Cal-Tax Staff |
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Robert M. Hertzberg
(Editor's Note: Items in
". . . fundamentally, when you're a taxpayer and you go before your government, do you have a sense of fairness? This bill does that." - Speaker Hertzberg.
Larry McCarthy: "Movement of a split-roll property tax bill in the California Legislature would underscore for everyone that policymakers don't mind making California an impossible place to operate a business."
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After an impassioned presentation by Assembly Speaker Robert Hertzberg, the Assembly on May 17 overwhelmingly approved long-sought legislation to level the playing field for taxpayers when they appeal local property assessments. A 64-2 vote sent the speaker's "trial de novo" bill, AB 934, to the Senate Revenue and Taxation Committee. (Opposing the bill were first-term Assembly Member Joe Canciamilla, D-Pittsburg, a former county supervisor from Contra Costa County, and Carole Migden, D-San Francisco, who is rumored to be running to succeed termed-out Johan Klehs on the State Board of Equalization. The Assembly delegation from the Silicon Valley abstained.) Speaker Hertzberg read the 57-word text of the bill, which allows county superior court judges to consider all relevant evidence in appeals of local property tax assessments. He noted that this process, called trial de novo, has been allowed on state assessments since the late 1980s. On May 14, AB 934 was approved 7-0 by the Assembly Revenue and Taxation Committee, despite strong opposition from county assessors who have argued that it would clog the courts. Mr. Hertzberg noted on the floor, however, that allowing trial de novo on other taxes has not had such a result. (Business lobbyists have testified that trial de novo on local property taxes is the norm throughout the country without causing problems in the judicial system. They have argued that trial de novo will result in more accurate valuations by assessors and fewer lawsuits, not more.) No one spoke against the bill on the Assembly floor as the speaker spelled out why the trial court should not be restricted to the administrative record, but shall consider all evidence relating to property valuation that is admissible under the rules of evidence, then base its decision on a preponderance of evidence. "Why did I introduce this bill?" Mr. Hertzberg asked, rhetorically. "What are we seeking to do? This measure levels the playing field by providing locally assessed taxpayers their day in court. If a taxpayer disagrees with the outcome of the assessment appeals board, this measure assures the taxpayer the right to present his or her case in court. "That right, called the right to trial de novo, is provided in all other tax assessments. The current system, in my judgment, members, is not fair. It is broken and requires a change. This measure removes the requirement that the courts limit their reviews just to the administrative record. This measure requires the court to consider all admissible evidence. The court will not change the true role of its nature in our society and will look to the factual issues. "Now there are those who argue that this will cost a bunch of money. We have some data on that. First, the California Assessors Association says that 85 percent of the cases that are appealed, which are very few, by the way, are either resolved by some stipulation or in the favor of the taxpayer. They have the right to litigate them today, anyway. The only question is, 'Can they look at all the evidence?'" The speaker recalled that former state Senator John Garamendi authored the bill in 1988 that became law to extend trial de novo to all state assessments. "The argument was there was going to be this gigantic flood of litigation; the lawyers were going to come out from under the rocks and sue everybody. And it was going to cost everybody a bunch of money. The fact of the matter is that it hasn't " This is "a question of fairness. Do you get a day in court?" Mr. Hertzberg, a lawyer, said he has represented homeowners in appeals of decisions by an assessment appeals board and thus has first-hand experience in going up against what he called a "stacked deck." Referring to assessors' arguments that trial de novo would increase government costs, the Van Nuys Democrat said, "The argument is, well, you know, 'This is going to cost government more money.' The question, to me, is, 'What's fair to the people?' Who do we represent? Are we worried about the mechanics of government? Then, fine, let's figure out a way to make it work better. But, fundamentally, when you're a taxpayer and you go before your government, do you have a sense of fairness? This bill does that." The speaker's arguments were supported on the floor by comments from three members. "This is a taxpayer-friendly bill; it levels the playing field," said Tom Harman, R-Huntington Beach. Mark Wyland, R-Escondido: "Many local assessors have come out against this, including my own in San Diego, but, as the speaker said, this is a tax-equity and fairness issue." Roy Ashburn, R-Fresno: "The bottom line is shall the taxpayer - whether that taxpayer be large or small - have the opportunity for a full and fair review of all of the evidence related to the assessment of a particular piece of property. This bill extends that protection, and for that reason it is a meritorious bill." Proponents applauded the Assembly's action. "Trial de novo is a major issue for taxpayers in California who believe their property has been overtaxed and they have evidence to prove it. A reputation for fairness is an important element of the state's tax structure," said Larry McCarthy, Cal-Tax President. "This reform will provide taxpayers greater accountability by encouraging more complete and thorough administrative hearings, which will reduce costs of litigation for taxpayers and government." Cal-Tax General Counsel Greg Turner commented: "This could be the biggest taxpayer bill of the year. It has been a top priority for taxpayers over the last decade." Los Angeles County Assessor Rick Auerbach and other critics of the bill contend that taxpayers already are treated fairly by "independent" assessment appeals boards and that trial de novo would benefit sophisticated taxpayers with the means to hire lawyers. However, proponents counter that the assessment appeals boards are appointed by county boards of supervisors (or the boards themselves sit as the appellate body) and could be politically biased. Los Angeles attorney Jack Cahill, former chief tax counsel for Los Angeles County, set up the first assessment appeals board in that county. He testified to the Assembly Revenue and Taxation Committee that county counsels represent both the assessor and the assessment appeals board in a system that is permeated by unsavory ex-parte contact at the expense of taxpayers. Ray Rossi, director of external tax affairs for Intel Corporation, also appeared before the Assembly tax policy panel in April. He said the availability of trial de novo is a question asked in Intel's site-selection process in various states. He recounted that other states say trial de novo is not a burden to the courts because it results in better appraisals and earlier settlements. At that hearing, opposition testimony was presented by Mr. Auerbach, his Santa Clara County counterpart, Larry Stone, and Dan Wall, lobbyist for Los Angeles County. Mr. Auerbach said the change would cost his county $3 million a year and added that generators of electricity would use trial de novo to try to lower their taxes. Mr. Wall said assessing is an "art" that should not be decided in court. Mr. Stone did a David Letterman imitation, listing what he called 10 problems with trial de novo. The procedure was "contrary to the best interests of elected assessors," he said, while creating fiscal uncertainty, more litigation and benefits to large corporations. Split-Roll Bill is Dropped Committee Chair Ellen Corbett told a sparse audience that Mr. Leonard dropped the bill "altogether." In a statement released by his office, Mr. Leonard said, "I am dropping AB 1013 because there is no data to show that commercial property owners have taken advantage of state law to the detriment of residential property owners." There was no proof that there has been enough change in the property tax burden between residential and commercial property owners to warrant such a change in the law, according to a Leonard aide. The Leonard bill provided that when 50 percent of a corporation's voting stock changed hands, all property of the corporation in California would be reassessed to market value. The bill was limited to corporations subject to Security and Exchange Commission filing requirements. The committee analysis scored the bill as a $3.3 billion tax increase. Some of those at the committee hearing speculated that Mr. Leonard, a San Bernardino County Republican, did not want to be known as the author of the second largest tax increase in California history. Proponents of the measure were listed as the California Tax Reform Association, the California State Association of Counties, and unions representing state and local government employees. Cal-Tax President Larry McCarthy expressed satisfaction with the demise of this split-roll proposal. "It is important for this bill to drop from sight," he said. "Movement of a split-roll property tax bill in the California Legislature would underscore for everyone that policymakers don't mind making California an impossible place to operate a business." Amid Blackouts, Senate Passes "Windfall Profits" Tax Twenty-five Democrats voted "aye" and 12 Republicans voted against it. Because the bill did not pass with 27 votes, or two-thirds of the Senate as required by Proposition 13, there could be a court challenge on this point. Meanwhile, just hours earlier, the Assembly Revenue and Taxation Committee approved a slightly different version of a "windfall profits" tax (AB 128X, Corbett), despite the fact that the bill was substantially amended at the hearing. SB 1X imposes a 100 percent excise tax on sales of electricity at a price above $80 per megawatt-hour. It also establishes a refundable tax credit equal to the amount of revenue generated by the tax. AB 128X establishes a retroactive (to January 1, 2001) sliding-scale tax of 50 percent of gross receipts on electricity sales over $60 per megawatt-hour; 70 percent of the gross receipts of sales over $90 per megawatt-hour, and 90 percent of gross receipts of sales over $120 per megawatt-hour. The rate of tax can be changed "from time to time" by the California Public Utilities Commission. The tax will be imposed on the sum of (1) sales of electricity made directly to a purchaser; (2) sales to the state or Independent Systems Operator (ISO), and (3) sales to a retailer for resale. The bill will likely tax sales not made in California, because it defines "sales of electricity to a retailer" in California to be the higher of the ratio of the retailer's sales in California to the total sales or percentage of total electricity sales by the retailer everywhere, using a ratio of total sales everywhere in the year 2000 to sales in California in the year 2000. Debate in the Senate was hotter than the 95-degree temperature outside. Democrat Senator Steve Peace, who is generally given credit for pushing the electricity deregulation bill through the Legislature in 1996, became highly emotional in denouncing energy producers. Continuing to blame the California crisis on the Federal Energy Regulation Commission (FERC), as well as Harvey Rosenfield's Proposition 9, which sought to unravel deregulation in 1998 and caused a two-year delay in construction of additional power plants, Senator Peace called SB 1X the "only reasonable alternative." He said it will bring competition to the market with rules and "a referee who will blow the whistle." He described FERC as "the proverbial cop in the donut shop who refuses to enforce the law" and limit what wholesalers can charge. Republican Senator Ray Haynes said the tax would not bring additional electricity to Californians. "We are going to make sure by passing this bill that the lights will go out," he said. Democrat Senator Debra Bowen said the prospect of taxing excess profits "will grab (energy producers) by the horns and their hearts and minds will follow." Republican Senator Tom McClintock said the tax would cut supplies of electricity, noting that other states, such as Texas and Nevada, are building, or will build, power plants to serve California with investments that benefit those states' economies, not California's. "To make electricity cheap, we have to make it plentiful. This is a very wrong step in a very wrong direction," he said. The Senate Democrats' performance was criticized in a May 9 Sacramento Bee editorial: "Confiscating revenues above that base price, pegged at $80 per megawatt-hour, or the average cost of production for the industry, would guarantee that no owner of an older or less-efficient power plant sells electricity in California this summer, assuring even more blackouts. And it would certainly cool any company's ardor about investing in the new power plants that are the key long-term solution to the state's electricity shortage." Steven Kelly of the Independent Energy Producers told the committee that the bill jeopardizes plans for as much as $10 billion in private capital investment in new California power plants. Meanwhile, Governor Gray Davis "is open to the idea" of such a tax, but has not endorsed either bill, said his press secretary, Steve Maviglio. "It just depends on the bill." FTB Postpones Action on Protest Reg |
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| (c) 2001 California Taxpayers' Association | ||