Why the Business Coalition Opposed AB 1027

County assessors, reacting to a number of pro-taxpayer reforms in property tax administration, sponsored an omnibus bill to give them sweeping authority to change property assessment practices. These changes would have resulted in higher tax assessments and increased compliance and administration costs.

The bill, AB 1027 by Assemblymember Louis Caldera, was mainly promoted for the California Assessors Association (CAA) by Santa Clara County Assessor Larry Stone, with support from county counsels and the California State Association of Counties. In the predawn hours of June 6, the bill was defeated on the Assembly floor by a vote of 33-39 - eight votes below a simple majority needed for passage.

Despite amendments to the bill, the coalition of Cal-Tax member companies and business associations united to fight the measure, providing background and expressing the following concerns:

In negotiating SB 657 of 1995, the CAA agreed to compromise language whereby a taxpayer who failed to provide information as requested by the assessor would not be allowed to use the requested information themselves in an assessment appeals hearing until the requested information were provided to the assessor and the assessor received an appropriate continuance to review the information (Section 441(h)). The CAA now wants to unilaterally reopen their deal and require taxpayers to provide any data the assessor deems "relevant" at "any time," even if years have gone by and the taxpayer has not appealed the assessor's original opinion of value.

Proponents of AB 1027 have argued that taxpayers do not supply requested information in order to force the assessor to issue an escape assessment based on a "guess" at the value of the property - and then force the assessor to bear the burden of proof and defend his "guess" at an appeals hearing. This argument fails to mention that unless a taxpayer has supplied "all information as required by law" (Section 167), the taxpayer bears the burden of proving an assessment wrong. Thus, under current law, if a taxpayer fails to provide information, the assessor may issue an escape assessment and the taxpayer must come forward with the information at that time to refute it, or the assessor's opinion stands.

The cases cited by proponents of this provision of AB 1027 are irrelevant. In Henderson v. Bettis 53 Cal. App. 3d 486, it was the assessor who refused to give the taxpayer requested information underlying the assessor's own valuation. In ruling for the taxpayer, the court took note of "the fact that it is the assessor who enjoys the superior advantage" when it comes to information and assessments. In Roberts v. Gulf Oil 147 Cal App. 3d 770, the only issue was whether there was a difference between factual data and "interpretive data" for the purposes of obtaining information from taxpayers to assess oil properties. In short, there is no legal support for this section of AB 1027, and it constitutes a significant expansion of the power of the assessor to use frivolous information requests to harass and intimidate taxpayers.

As amended, AB 1027 greatly expands assessors' subpoena powers. Under current law (Section 454), the assessor may subpoena and examine a person in relation to statements furnished to the assessor, or any statement disclosing property assessable in the assessor's county that is under the control of the person subpoenaed. The assessor may also force an exchange of information with the taxpayer under current section 1606.

AB 1027 expands the subpoena power to records as well as people, and the information which can be sought from people under subpoena to virtually any purpose. Finally, AB 1027 greatly expands assessor subpoena powers by allowing assessors to subpoena individuals in other counties, thus drastically increasing taxpayer expense and allowing assessors to harass taxpayers into giving up appeals by making it too expensive for them to comply with information requests.

Under AB 1027, an assessor could demand that records and taxpayer employees from around the world be presented in connection with the valuation of a company's single property in a county. The amendments of May 30 do nothing to address this situation.

Under current law, if a taxpayer fails to provide information requested by the assessor, the assessor may seek a court order compelling the taxpayer to turn over the information. AB 1027 would impose an additional 10 percent penalty for failure to provide "any information or records" requested by the assessor. In the past, some assessors have requested information irrelevant to the valuation of property (such as gross sales data by business location). This effectively forces taxpayer acceptance of unfair valuations, by playing on taxpayer fear that the information will become public or otherwise available to their competitors. AB 1027 stacks the deck even further against businesses, forcing the taxpayer to pay a 10 percent penalty on top of the assessment before the taxpayer is even given the right to contest the validity of the underlying assessment. Once counties have the penalty money, it could take years for the taxpayer to get it back, even if the taxpayer never owed it in the first place.

Moreover, contrary to proponents' claims, the State Board of Equalization does not have the same power as that proposed to be given to counties' in AB 1027. Section 830, cited by proponents, only imposes a 10 percent penalty for failure to timely file a property statement. The Board's penalty provision in Section 830 is identical to that already given the counties in Section 463.

In short, these new information gathering provisions of AB 1027 are a substantial increase in power given to tax assessors for no demonstrable reason. It is inaccurate to claim as assessors do that these provisions merely clarify, simplify and reinforce existing provisions concerning access to information and do not expand the scope of information that may be discovered.

Under current law, public utilities' property tax values are set annually, at full fair market value, by the Board of Equalization. (Public utilities do not get the assessment protections of Proposition 13). Because utilities do business in multiple counties, it is administratively impossible for each county to separately assess utility property, and the Constitution charges the BOE with the duty to perform the same function in valuing the whole utility as the local assessor does in valuing single-county property.

AB 1027 would turn this whole process on its ear by granting counties the same rights as the BOE and the taxpayer! Under AB 1027, if a utility had property in 20 northern counties, each of those counties would be able to sue to increase a BOE assessment of the utility. Administrative costs for taxpayers and the state could skyrocket, as the BOE and the taxpayer would have to defend themselves not just against each other, but also against a multiplicity of counties whose chief interest is increasing values (and property tax revenues to counties) rather than finding the fair market value of the utility company.

Granting counties standing in these proceedings is also bad policy because it is based on two faulty premises. First, the counties demand such standing ostensibly because they receive a portion of the property tax proceeds paid by public utilities. By the same reasoning, school districts and special districts receive a much larger portion of property tax proceeds. Should they also be given standing? Moreover, at the local level, various local government entities receive a portion of local property tax proceeds. If a taxpayer thinks his or her home is overvalued and protests the assessor's value, should the Parks and Recreation District, or the Police Department be given equal rights to say that a homeowner's property tax value should be increased?

Counties have argued that they have some sort of special "expertise" in valuing public utilities that the BOE doesn't already have. Utility valuation is a highly specialized pursuit, and the BOE has an entire division of personnel who do nothing but utility valuation. By contrast, some county assessors are not even certified real property appraisers, let alone in possession of any unique knowledge about the valuation of utility property which they have no legal authority or responsibility to assess. The counties' "expertise" argument is specious.

The counties want "standing" for a single reason: to create legal leverage and political pressure for higher utility property taxes. Those taxes are passed along in the most regressive way - higher utility rates. This provision of AB 1027 amounts to a way for counties to disguise a property tax increase as a utility rate increase and let the utility company and BOE take the heat for it. It too is bad policy and should be deleted.

For years, BOE handbooks, which guide local assessors on how they must legally value property, have been decades out of date. Assessors have benefitted from this because taxpayers have not had any relevant, updated authority for guidance by which some assessors' often improper and illegal valuation techniques could be questioned. Assessors have resisted the efforts of the BOE to update assessor handbooks by always claiming that "more time" is needed for their review.

There is no evidence that the BOE has prevented assessors from having any less opportunity for input on handbook revisions than that given to other interested parties. Rather, by requiring that the BOE issue 90 days notice to "all other interested parties" that a proposed handbook is to be issued, the counties set the stage for an endless stream of delays requested by "interested parties" that did not receive "adequate notice." This provision of AB 1027 is merely a clever way of keeping revised assessor handbooks from being produced in an organized and timely fashion so that taxpayers and assessors know the rules.

Under current Government Code section 15606, the state BOE must prescribe rules to govern local boards of equalization when equalizing, and assessors when assessing. Current law further requires that the BOE bring an action in court to compel an assessor or "any city or county tax official" to come into compliance with those BOE rules. The Legislature adopted this uniformity policy after a series of scandals involving local assessors and assessment appeals boards rocked the state in the 1960s.

Such a uniformity policy also prevents local assessors and assessment appeals boards from adopting "traps" in their local rules to prevent taxpayers from getting a fair valuation and appeals hearing. As noted in Taxing California Property (Section 16:05): "Many counties still use forms that request more information than is required by law. Taxpayers should also be alert to procedural traps incorporated in some of them."

Recently, Riverside County adopted a local rule which said that unless a taxpayer submitted all information supporting their position along with their application for reassessment, their protest was automatically rejected without possibility of amendment. The legality of this rule is still on appeal in the courts. Counties have and will continue to use any and all means, including the provisions of AB 1027, to stack the deck against property taxpayers.

It is by no means clear where the state's interest in fair and uniform assessment and appeals procedures and the counties' interest in local autonomy begin and end. AB 1027, however, would allow Boards of Supervisors to adopt any local rules, any forms, any procedures, for assessment appeals hearings, no matter how unfair to taxpayers, without the ability of any oversight agency to protect taxpayers' rights. This is not something the Legislature should adopt.

Moreover, for taxpayers with property in multiple counties, this provision of AB 1027 also raises the specter of up to 58 different sets of rules and forms for practice. This raises taxpayer compliance costs and makes California's property tax system less workable. For all of these reasons, the Legislature should carefully consider why it adopted Section 15606 in the first place before embracing AB 1027's "local rules" approach.

Under current law (Section 441), Business Property Statements (BPSs) are filed on the last Friday in May, but the assessor has the discretion to set a date as early as April 1. AB 1027 moves the due date for the BPS to March 31, with discretion to move the date to as early as February 1. Proponents have argued that the move to a January 1 lien date in 1997 makes such a drastic change in the BPS filing date possible. The two are not the same.

Moving the lien date to January 1 has already improved the quality of the information given to the assessor (since the lien date now coincides with business financial reporting periods) and this should bring about the improvements in the quality of the local roll sought by the assessor.

AB 1027, however, creates brand new workflow problems and taxpayer expense with marginal public benefit. Taxpayers who file in multiple states have a workflow schedule for filing BPSs across the United States. AB 1027 would require taxpayers to hire extra personnel to prepare their California BPS at the same time other BPSs are due in other states. Forcing taxpayers to have to rush to prepare BPSs by an earlier date may even offset the improvements in the quality of information brought about when the lien date was moved to January 1.

Moreover, proponents imply that 18 Silicon Valley companies filed their BPS early, and so "if they can do it, so can others." This is factually misleading for two reasons: (1) One company cited, IBM, filed by April 30 by special arrangement with Santa Clara County Assessor Larry Stone, on a one-time basis. The other companies filed on April 30 when they received a demand letter to do so from Mr. Stone; and (2) they filed by April 30, not the March 31 or earlier date that AB 1027 provides. In short, business compliance with this provision will increase compliance costs substantially - exactly the opposite direction from where California needs to go.

Conclusion

AB 1027 is a poorly drafted, ill-conceived bill that does nothing for taxpayers but assure higher property taxes, higher compliance costs and more litigation. It is a huge step in the wrong direction for policy makers trying to improve California's business climate. There are no problems cited by the proponents that are of a magnitude justifying such a massive power shift into the hands of tax assessors; rather, AB 1027 is calculated by its sponsors (the tax assessors and the counties) to make California's most unfairly administered tax, the property tax, even more stacked in favor of government.