David R. Doerr, principal contributor
Ronald W. Roach, editor

ANTI-PROPERTY TAXPAYER MEASURES MOVE FORWARD

Last week was not a good week for property taxpayers at the state Capitol. One assembly committee on Monday approved an assessor-sponsored omnibus property tax bill.

On Wednesday, the Senate Education Committee passed a measure making it easier to increase property taxes (see page 5).

The Assembly Revenue and Taxation Committee's approval of AB 1027 (Caldera), dubbed by State Board of Equalization Member Dean Andal as "The Assessors' Empowerment Act," was not a shining example of democracy in action for a high school government class.

Two committee members -- Assemblyman Wally Knox and Assemblywoman Dion Aroner -- were allowed to cast votes for the measure before the hearing began. They left the hearing without listening to any of the testimony on the bill and without knowledge of a subsequent amendment to the bill. Most of the witnesses in opposition to the bill, some of whom had traveled a considerable distance to voice their views, were not allowed to make substantive comments, but were simply permitted to state their names and affiliations.

In his introductory remarks on the bill, Committee Chair Louis Caldera noted the bill has "inspired much controversy." He said one objective of the bill was to give assessors new tools to get information.

Santa Clara County Assessor Larry Stone was the chief proponent witness. He said the value of property is largely determined by the income it generates. He charged some large corporate taxpayers with playing "cat and mouse" with assessors. Assemblyman Charles Poochigian told Mr. Stone that he was surprised at the stridency of his testimony and the strong language he used to describe unnamed corporate leaders.

Dan Wall, representing the California State Association of Counties, said counties suffered a cash flow loss due to the 1997 lien date change. Counties want business property statements filed earlier.

He also said taxpayers have made a lot of allegations regarding assessors during the past two years and this is "part of why we are responding." Mr. Wall, in arguing for county participation in the state assessee assessment process, stated that counties caused the "settlement agreement" between counties, the BOE and state assesses to happen.

Yolo County Assessor Alan Flory argued strongly for the bill. He said the 10 percent penalty for failure to provide information was to reimburse counties "for some of their costs." He argued for the right of assessors to change Proposition 13 base-year values at any time "to get them right."

Riverside County Assessor Gary Orso defended Riverside County's practice of demanding information from taxpayers who file assessment appeals.

Also testifying in support of the bill were John McKibben, representing county clerks; Baxter Culver, representing Sacramento County, and a representative of Los Angeles County.

Leading off opposition testimony, Mr. Andal said there was not much to like about the bill and it had nothing to do with fairness. He described as appalling a provision authorizing assessors to use a "value-in-use" standard. He said it is unconstitutional and assessors must assess at market value. He challenged the idea that assessors be allowed to participate in the state assessment process as "absurd." He noted the California Constitution gives the BOE the exclusive duty to value property of utilities and railroads.

Cal-Tax's Carol Ross Evans said the bill will further slant the property tax system against taxpayers. She noted that under current law the assessor has the presumption of correctness, taxpayers do not have the right of a trial de novo, and taxpayers are likely to have to pay amounts in dispute before an administrative appeals hearing is scheduled.

David Gangloff, vice-president of Property Tax Assistance, Inc. (a property tax consulting firm), said the bill's provisions would primarily hurt small taxpayers. Bellflower attorney Robert A. Pool testified the requests for information were "too vague" and, therefore, unconstitutional.

Others appearing in opposition to the bill were Mark Timmermann, representing the California Manufacturers Association; Dennis Mangers, representing the California Cable TV Association; Bill Northrup, representing independent oil producers; Jim Barnes, representing Pacific Telesis; Bev Hansen, representing the Air Transport Association; Peter Michaels, representing a number of state-assessed taxpayers; Ed Levy, representing the Western League of Savings Institutions; Don Reisner, representing Burlington Northern Sante Fe, and more than a half dozen real estate appraisers and property tax consultants.

In addition to the opposition testimony against the bill, the committee received opposition letters from the California Chamber of Commerce, Universal Studios, ConAgra, Intel, GTE California, Amgen, COSTCO, Unocal, Western States Petroleum Association, Raleys, Mobil, and a number of others.

The Department of Finance voiced a neutral position.

At the conclusion of the hearing, Mr. Caldera offered amendments removing from the bill a provision that would have repealed current law requiring an appeals board to hear a property taxpayer's appeal in two years, or enroll the property owner's opinion of value.

The vote on the bill was 6-3 with "yes" votes cast by Democrats Caldera, Dion Aroner, Wally Knox, Elaine Alquist, Louis Papan and Carl Washington.

Voting against the bill were Republicans Poochigian, Howard Kaloogian, and Nao Takasugi.

The bill will next be heard in the Assembly Appropriations Committee -- probably in early May.

Major provisions still in AB 1027 include:

• Value in Use. Value-in-use assessments would be permitted as assessors would be allowed to create a mythical taxpayer of one and a mythical market.
• Business Property Statements. Business property statements would be due on March 31.
• State Assesses. Counties would be allowed as a party in the valuation of state-assessed property.
• Information Requests. Assessors are given expanded authority to demand information; subpoena powers are expanded and penalties are more severe.
• Base-year Value. Assessors would be allowed to change base-year values at any time if taxpayers do not furnish assessors with all "relevant" information.
• Escape Assessments. Provisions in SB 657 (Maddy), shifting the burden of proof on escape assessments from taxpayers to assessors, would be repealed.
• BOE Handbooks and Rules. The bill requires 180 days notice to assessors before the BOE could revise an assessors handbook or adopt rules.

• Suspense File. The committee approved eight bills that had been sent to the suspense file:

AB 41 (Murray) conforms the personal income tax to federal law, allowing small businesses to expense up to $18,000 of personal property.

AB 122 (Brown) provides tax relief to vineyards with Pierce's disease.

AB 203 (Takasugi) conforms to federal Subchapter S law changes, with no change in the Subchapter S tax rate.

AB 258 (Floyd) reestablishes a child-care tax credit.

AB 265 (Battin) exempts the gain on gifts of appreciated property to charities from the alternative minimum tax.

AB 372 (Battin) establishes specified tax credits for donations of computers for school use.

AB 511 (Caldera) gives local government the revenue raised by the state's bank tax.

AB 1499 (Caldera) conforms the research and development credit with 1996 federal changes.

• FTB Confidentiality. Legislation allowing charter cities some access to confidential Franchise Tax Board information (AB 701, Caldera) was approved by a 7-4 vote after amendments were approved to remove opposition of Cal-Tax and others. As amended, cities may only get the name, address, taxpayer identification number and business code of taxpayers reporting business income on the tax return. The City of Los Angeles stated it needs the data to administer its business license tax.
• R & D Credit. Legislation changing the base calculation for the research and development tax credit (AB 1356, Figueroa) was sent to the suspense file. The bill reduces the calculation of the base to not less than 20 percent, rather than 50 percent of the qualified research expenses.

Speaking for the Semiconductor Trade Association, Chris Micheli said by making California's R & D credit more attractive, it will encourage taxpayers to do more R & D in this state. Cal-Tax's David R. Doerr and Fred Main, representing the California Chamber of Commerce, also testified in support.

Lenny Goldberg, representing the California Tax Reform Association, spoke in opposition, saying the bill provides a larger credit for the same amount of activity.

• Mining Assessments. The committee approved AB 1246 (Olberg), defining certain mining real property as fixtures. At the hearing, proponents agreed to amend out of the bill a second provision requiring a separate appraisal unit for such property.
• Community College Donations. The committee approved AB 1149 (Lempert), establishing a tax credit for donations of equipment to community colleges. The bill was suggested by Controller Kathleen Connell.
• Woodland Sales Tax. AB 1472 (Thomson), allowing the City of Woodland to impose a 0.5 percent sales tax, with majority-voter approval, for general purposes, passed with only Democrats in support. In the past, special city-only add-on sales taxes have required two-thirds voter approval.
• Child Support. Federally required legislation for financial institutions to give the Franchise Tax Board information on depositors who may be delinquent in child-care support (AB 702, Villaraigosa) was approved. Financial institution representatives told Caltaxletter they were not opposing the bill as they were trying to work with the author to fashion the best bill possible.
• Senior Volunteers. Legislation giving seniors a tax credit (up to $250) for volunteering in schools (AB 283, Baca) was placed on the suspense file.
• Sales Tax Interest. AB 222 (Takasugi) equalizing the interest rate paid on sales tax overpayments and under payments was approved unamiously.
• BOE Administrative Costs. The committee approved AB 836 (Sweeney), limiting the amount that the BOE can charge for administrating local transportation sales tax to one percent. Observers wondered why the bill was not placed on the suspense file since it would cost the state $16.2 million.
• FASIT Conformity. AB 1417 (Campbell), conforming to 1996 federal law relating to financial asset securitization investment trusts (FASIT), was sent to the suspense file. Mr. Takasugi said the appropriate motion should have been to pass, and Mr. Poochigian wondered if there is "something sacrosanct about the ceremony of sending bills to the suspense file."
• College Costs. Legislation establishing a program with tax advantages to encourage parents to save for their children's college education (AB 13, Firestone) was approved.
• Use Tax: Construction Subcontractors. The committee approved AB 1243 (Granlund) placing the responsibility for paying use tax on construction subcontractors.
• Credit Unions. The committee sent to the suspense file AB 1413 (Papan), exempting state-chartered credit unions from certain taxes. Testifying in opposition, James Clark of the California Bankers Association said it was unfair to exempt such credit unions from taxes that other financial institutions had to pay.
• Non-controversial Bills. The committee approved several non-controversial bills: AB 1041 (Assembly Revenue and Taxation Committee), revising BOE-administrated excise taxes; AB 1042 (Assembly Revenue and Taxation Committee), changing the date for computing Proposition 13's inflation factor, among other things; AB 1043 (Assembly Revenue and Taxation Committee), relating to sales tax; AB 364 (Baca), relating to discharge of indebtedness; AB 1033 (Frusetta), extending the sunset date for the Children's Trust Fund Checkoff; and AB 1229 (Caldera), relating to the treatment of worthless accounts for sales tax purposes.

ASSEMBLY COMMITTEE CONSIDERS NEW TAXES FOR TRANSPORTATION FUNDING

The Assembly Transportation Committee last Monday narrowly approved AB 595 (Brown) allowing the Metropolitan Transportation Commission (MTC) to impose a new tax of up to 10 cents per gallon of gasoline in addition to existing state and local taxes -- if approved by a margin of vote "determined necessary by the California Constitution."

The tax, which is predicated on the "privilege of selling (motor vehicle fuel) within the region," would generate up to $4 billion if levied at the maximun rate for 20 years.

The MTC was created to provide transportation planning for the nine-county region that includes San Francisco, Alameda, Contra Costa, Marin, Napa, San Mateo, Santa Clara, Solano and Sonoma counties. This bill would require the MTC to adopt an expenditure plan for transportation projects.

A parade of 22 proponents testified in support. Cal-Tax's Vance Hansen was the lone opponent, noting that the measure's voter approval requirements were vague. As a special tax, he said the bill requires a two-thirds popular vote under Propositions 13 and 218.

Kevin Murray, the committee chair, commented that voters in the region of six million people should be allowed to determine the proposal's fate, and the bill was approved by a bare-majority 11-5 vote.

Other committee action included rejection, on a 10-10 vote of, AB 653 (Papan), which sought to index fuel tax rates for inflation. Assemblyman Larry Bowler questioned whether indexing the fuel costs for inflation would result in a guaranteed annual tax increase. Assemblyman Robert Printer observed that "this measure, while not a spike, would indeed fuel inflation and would also remove the annual tax increase from public scrutiny by eliminating a legislative vote."

More than a dozen supporters, including labor unions and local government units, testified in support. Cal-Tax testified in opposition, saying the bill would guarantee annual tax increases, and that transportation projects should be reviewed and financed on a priority basis.

Another bill, AB 1368 (Villaraigosa), which would have imposed a 30-cent-per-barrel tax on oil refiners to fund various emission reduction programs, was stripped of content other than intent language and moved on to the Assembly Appropriations Committee. It is expected to be considered by a future Senate-Assembly conference committee on emission measures.

MAJORITY-VOTE SCHOOL BONDS PROPOSAL ADVANCES

Efforts to reduce the voter approval requirement for school bonds are moving forward at the Capitol. The Senate Education Committee on Wednesday approved SCA 12 (O'Connell) reducing the vote requirement from two-thirds to a majority.

Senator Jack O'Connell argued that local districts need to meet their own facility needs and noted that 10 of 26 school bonds that failed in March all received a majority vote. He added that Governor Pete Wilson supports the bill.

Wendy Nelson, representing the Howard Jarvis Taxpayers Association, spoke against the bill. She said that only property taxpayers must pay the taxes to pay off the bonds, but votes are also cast by voters not paying property taxes.

Meanwhile, the Assembly Education Committee last Wednesday decided to postpone a hearing on ACA 5 (Mazzoni), which seeks a 58 percent threshold for voter approval of local school bonds.

TWO BOE REGULATORY HEARINGS SET

The State Board of Equalization has scheduled back-to-back May 7 public hearings at 1:30 p.m. in the BOE's Sacramento hearing room on sales tax regulations relating to records (Regulation 1698) and animal life and feed (Regulation 1587).

Amendments to Regulation 1698 rewrite the regulation requiring taxpayers to keep complete records. Major changes in the regulation: (1) taxpayers are required to "make available to the board" all records -- rather than "made available for examination;" (2) procedures for a record retention limitation agreement are set forth, and (3) requirements are established regarding maintenance of taxpayer records on electronic media.

Amendments to Regulation 1698 provide "emus" constitute animals which ordinarily constitute food for human consumption.

NEW WINE IN OLD BOTTLES

Soak the Rich. AB 83 (Villaraigosa) has been amended to reimpose the 10 percent and 11 percent personal income tax brackets. The bill also provides for a refundable 20 percent earned income tax credit. The amendments also create a non-refundable tax credit for the fees paid to a community college by students or parents of students earing less than $35,000. The bill is keyed a majority vote bill by Legislative Counsel.

Swimming Pool Safety Devices. AB 813 (Baldwin) has been amended to establish a tax credit (generally a maximum of $1,000) for installation or upgrading of child safety devices for residential swimming pools.

Sales Tax Changes. AB 1043 (Assembly Revenue and Taxation Committee) has been amended to make a number of changes in sales tax law. It excludes from definition of engaging in business in this state persons advertising in or on California media. It also exempts feed for zoo animals, equalizes interest on under payments and overpayments of sales tax, authorizes a managed audit program.

Sales Tax on Motor Vehicles. AB 1340 (Prenter) has been amended to exclude from the purchase price of a new motor vehicles (on which sales tax is computed) any allowance for a trade-in.

Tax Credit: College Tuition and Fees. AB 1441 (Wayne) has been amended to establish a tax credit for University of California or state university tuition and fees (up to $750) if the student transfers with 60 units from a community college.

Tax Credit: Bank Deposits. AB 1520 (Vincent) has been amended to provide a 20 percent tax credit for deposits of $50,000 or more for five years in a "community development financial institution."

Agricultural Land. SB 1182 (Costa) has been amended to allow property restricted under Williamson Act contracts (and assessed at lower of Proposition 13 value or percentage thereof or use value) to shift to a more restricted farmland security zone contract. In addition to enjoying a special Williamson Act assessment, such property, among other things, would be exempt from parcel taxes.

Sales Tax Exemption: Newspapers. SB 1300 (Calderon) has been amended to restore the sales tax exemption for newspapers and periodicals that existed prior to 1991.

NEW LEGISLATION OF INTEREST

Sales Tax Exemption. AB 1608 (Pringle) reinstates the sales tax exemptions for newspapers and periodicals that was in effect before 1991.

POTPOURRI: SYMPOSIA, SIGHTINGS, SALUTES & SNAFUS

L.A. tax amnesty. The Los Angeles City Council last Wednesday voted to extend tax amnesty for home businesses. The program, which enables L.A. residents to apply for a new business license without having to pay past business taxes or penalties, is extended from June 5 to September 5.

Thompson eyes Congress. State Senate Budget Committee Chair Mike Thompson of St. Helena announced last Wednesday that he is running for the Democratic nomination in the North Coast congressional district now represented by Republican Frank Riggs. Mr. Thompson also is a former chair of the Senate Revenue and Taxation Committee.

Solar energy tax credit. The Senate Energy, Utilities, and Communications Committee last Tuesday approved legislation restoring a solar energy tax credit (SB 116, Peace).

L.A.'s no-new-taxes budget. Mayor Richard Riordan has proposed no new taxes for a fourth consecutive year in a nearly $2.6 billion general fund plan for the 1997-98 fiscal year. The proposal overcomes a projected $101 million shortfall. The budget, unveiled April 18, invests in new programs to promote entrepreneurship in government, according to the mayor's office. "With creativity, new efficiencies and additional investments in technology, we can save taxpayers $100 million over the next five years," Mr. Riordan said. The overall budget of $4 billion is down $50 million from last year. It cuts 470 jobs, mostly those which are vacant. The Los Angeles Times reported that the budget has a $10 million gap, which represents revenues no longer received because voters in early April defeated a citywide business tax surcharge.

The mayor wants the City Council to consider bond measures for new police and firefighting facilities ($465 million) and library facilities ($150 million).

In L.A. County, CAO David Janssen last Monday described a $12 billion proposed budget for 1997-98 that would eliminate at least 1,200 public health system jobs. The byword for this budget is "privatization." A projected $120 million deficit in the Department of Health Services budget is mostly erased by downsizing the system and privatizing the county's rehabilitation hospital at Rancho Los Amigos and the High Desert Hospital in the Antelope Valley.

Tax Freedom Day. Mark down May 6 as "Tax Freedom Day" in California, with the average taxpayer earning enough to satisfy federal, state and local tax collectors. This is one day later than 1996 as a result of moderate growth and progressive tax systems, according to the Tax Foundation in Washington, D.C. Nationally, Tax Freedom Day is May 9. The foundation reports that Californians average 84 days of work to pay federal taxes and 41 days to make enough for state and local taxes.

Competitiveness Council ... 5 years later. Last Tuesday was the fifth anniversary of the Council on California Competitiveness' (a.k.a. the Ueberroth Commission) issuance of recommendations to rescue California's economy. Governor Pete Wilson, who created the 17-member panel of business and labor leaders, released a report at the state Chamber of Commerce Small Business Legislative Conference that heralded successful implementation of council recommendations. Of the 161 recommendations, 104 have been adopted. They include a major overhaul of the workers' compensation system, regulatory streamlining, and economic incentives. In the tax area, the report by Lee Grissom, head of the governor's Office of Planning and Research and the council's executive director, lists enactment of a 5 percent reduction in the bank and corporation tax rate, and enhanced tax credits for manufacturers' equipment and research and development. Governor Wilson, in his speech, noted Council Chair Peter Ueberroth's description of state government on April 22, 1992 as a "well-honed job-killing machine." Now, California leads the nation in the creation of jobs -- more than 1,000 a day. Workers' compensation premiums have been slashed almost 40 percent. So-called "U-haul" migration -- one job flight measurement -- had 7.5 percent more rented trailers leaving California in 1991-92, compared to 2.5 percent more moving in at present.

Mr. Ueberroth, in an April 21 letter released by the governor's office, recalled December 1991 when he was asked by the governor to chair the council. He noted, "Businesses frustrated by high taxes and excessive government regulation were locating out of the state. There was a need for immediate action." The bipartisan council issued its recommendations in four months.

"Five years later," Mr. Ueberroth wrote, California once again "is the nation's economic leader where entrepreneurial spirit thrives and business innovation is an example to the world."

Mr. Wilson agreed with Mr. Ueberroth that much remains to be done, particularly in the areas of tort, welfare and education reform.

Teachers and Internet taxes. The National Education Association (NEA) is holding a State Education Finance Workshop on May 15-16 at the Bahai Hotel resort in San Diego. One of the topics for discussion is "the possibility of taxing commerce in cyberspace."

COMING UP

April 28: FRANCHISE TAX BOARD HEARING
Location: Room 121, 450 N street, Sacramento, at 10:00 a.m.
Subjects: (1) Positions on bills, (2) Discussion of legislative relief for "failure to perfect," (3) Staff report on Regulation 25128, regarding the double-weighted sales factor, (4) Staff report regarding MTC working groups and possible regulation defining business/non-business income and a unitary business, (5) Staff report on possible regulation on "check-the-box" entity classifications, (6) Staff report on FTB home page, and (7) Resolution appointing Valerie Holland as new board secretary.