Loading...
HomeMy WebLinkAboutMINUTES - 06192001 - SD.7 Y S F? J ''�^.•� �. '.�y,�'•' CONTRA TO: BOARD OF SUPERVISORS r �y; .: .. . -: -.. . : COSTA COUNTY FROM: Supervisor Federal Glover, Chair Supervisor Donna Gerber, MemberJr Finance Committee DATE: June 19, 2001 SUBJECT: AB 934 (Hertzberg) SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION RECOMMENDATION(S): CONSIDER the recommendation of the Finance Committee on AB 934 (Hertzberg) which would allow a taxpayer the right to a trial de novo if not satisfied with the decision of an Assessment Appeals Board. BACKGROUND/REASON(S) FOR RECOMMENDATION(S): On June 5`h, the Board of Supervisors referred AB 934 (Hertzberg) to the Finance Committee for their review and consideration. There is.a considerable time urgency for Board action on this bill, since it is scheduled for review by the Senate Local Government Committee on Wednesday, June 201h. Senator Tom Torlakson, a member of Contra Costa County's legislation delegation, chairs the Senate Local Government Committee. Attached is a copy of the Finance Committee staff report, including a copy..of.the bill, analysis from the Counsel for the Contra Costa County Assessor and analyses from the Assembly Revenue and Tax Committee and from the Assembly floor. ' CONTINUED ON ATTACHMENT: YES SIGNATURE: _ RECOMMENDATION OF COUNTY ADMINISTRATOR_RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD N Ti in,- 19, ?.QQ] APPROV D S RECOMM ED_OTHER XX The Board discussed the matter- and invited comment. The followin ersons addressed the Board: John Wolfe, Contra Costa County Taxpayers Association, 600 Las Juntas Street, Martinez, CA Sandra Falk,Local One, P.O. Box 222, Martinez, CA 94553 Following testimony, the Board approved the recommendation of the Finance Committee to Oppose AB934 (Hertzberg) unless amended. VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A XX UNANIMOUS(ABSENT 1 TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ABSENT: ABSTAIN: ON MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. Contact: �� x, //I] � � 1 ATTESTED_ _ _L JO EETEN,CLERK 0 THE BOARD OF SUPERVISORS AND/COUNTY ADMINISTRATOR cc: Sara Hoffman,CAO ' .�YV, ` /�1 �C�(/l� Gus Kramer,Assessor Dennis Graves,Counsel for the Assessor BY, INDEPUTY County of Contra Costa OFFICE OF THE COUNTY ADMINISTRATOR MEMORANDUM DATE: June 18, 2001 TO: Supervisor Federal Glover, Chair Supervisor Donna.Gerber, Member Finance Committee FROM: Sara Hoflinan. Assistant County Administrator SUBJECT: AB 934 (Hertzberg) RECOMMENDATION(S): OPPOSE AB 934 (Hertzberg) which would allow a taxpayer the right to a trial de novo if not satisfied with the decision of an Assessment Appeals Board. BACKGROUND/REASON(S) FOR RECOMMENDATION(S): On June 5h, the Board of Supervisors referred AB 934 (Hertzberg) to the Finance Committee for their review and consideration. There is a considerable time urgency for Board action on this bill, since it is scheduled for review by the Senate Local Government Committee on Wednesday, June 20". Senator Tom Torlakson, a member of Contra Costa County's legislation delegation, chairs the Senate Local Government Committee. Due to this time urgency, staff has scheduled a report back from the Finance Committee before the full Board of Supervisors on June 19, 2001. Under current law, either a taxpayer or a County Assessor can appeal a decision of an Assessment Appeals Board (AAB) to the Superior Court. The discretion of the Court is constrained by the record and findings before the AAB, that is, the Court must sustain the findings of the AAB if supported by substantial evidence in the record. Assuming an AAB has not committed prejudicial error of law, this "substantial evidence" usually sustains an AAB decision upon Superior Court review. AB 934 would substantially change property tax litigation by allowing for a trial de novo on taxpayer appeals. Under AB 934, a taxpayer, but not an assessor, would have the right to a trial de novo if not satisfied with the decision of an AAB. Under such trial de novo review, the Court would not be constrained by the record, analysis, findings or decisions of the AAB, but rather could ignore the record, retry the case ab initio and make its own findings and decisions with regard to the determinations of the AAB. The County Assessor and Counsel for the Assessor have reviewed this bill and believe that it would be deleterious to Contra Costa's efforts to equitably assess property (see attached letter from County Counsel). AB 934 would • establish an unequal playing field wherein the taxpayer could appeal, but not the Assessor • encourage appeals that now settle to avoid subsequent court action. • increase the County's cost for assessment appeal litigation dramatically, particularly against large refineries with resources far beyond those of the County • put very technical issues before a body that does not have the specialized knowledge to fairly settle complex cases The financial impact of AB 934 could be very substantial to the County. If two refineries per year were appealed, the cost to the County for the appeals would be approximately $1.5 million a year with a loss exposure of at least $10 million per year of tax receipts. There is substantial opposition to AB 934 by California counties. County assessors from the following counties are listed in opposition: Alameda, Los Angeles, San Diego, San Bernardino, Sacramento, Humboldt, Placer, Mendocino, Tulare, Yolo, Napa, Stanislaus, Ventura and Contra Costa County (attorney for the Assessor). Boards of Supervisors of the following counties are also registered in opposition: Santa Clara, Modoc and Kern. In addition, opposition is registered by the California Assessors Association and the California Tax Reform Association. CSAC is also opposed to AB 934. Attached for the Committee's information is a copy of the bill analysis from the Assembly Revenue and Tax Committee and from the Assembly floor. cc: Gus Kramer, Assessor Dennis Graves, Counsel for the Assessor COUNTY COUNSEL'S OFFICE CONTRA COSTA COUNTY 651 Pine Street, 9th Floor Martinez CA 94553 (925) 335-1833 Fax (510) 646-1078 March 29, 2001 Honorable Robert M. Hertzberg Speaker of the California Assembly State Capital Sacramento CA 95814 Re: AB 934 (Hertzberg), trial de novo for local assessment disputes Dear Speaker Hertzberg, Gus Kramer, the Assessor of Contra Costa County, is opposed to AB 934. The opposition of Mr. Kramer, and many other assessors, is founded on three fundamental points, which are further detailed in the attached letter (with citations to legal authority). 1. AB 934 would operate very unfairly in favor of taxpayers and against assessors Decisions of assessment appeals boards (AABs) often are unfavorable to assessors, just as to taxpayers, and such decisions sometimes lack factual or legal justification. The Bill would retain the current stringent standard for judicial review for the assessor (the substantial evidence standard), while eliminating any standard for taxpayers and allowing a completely new de novo hearing. Thus, if an assessor gets a bad decision from an AAB, he would face the difficult substantial evidence standard if he seeks superior court review. However, if a taxpayer gets a bad decision from an AAB, he would have no such obstacle, but rather could have a completely new de novo hearing. While the assessor would be discouraged from seeking judicial review, under AB 934 taxpayers would be encouraged to flood the courts with such disputes, regardless of the merits. 2. AB 934 would be extremely costly to counties and the State For the reasons noted in the attached letter, AB 934 would greatly increase the assessors' costs of litigating assessment disputes. In addition, there would be greatly increased costs to the court system as a result of having to hear a flood of new, complex cases. Moreover, assessors would have little choice but to accept unreasonable settlements when taxpayers realize that the county does not have 1 the resources to defend more than a very small portion of the superior court de novo cases that savy taxpayers would be encouraged to file under AB 934. Such settlements will result in a significant loss of tax revenues. The State is liable to "backfill" the schools share of such lost revenues. 3. A8934 would be unconstitutional The legal analysis for this conclusion is set forth in the attached letter. Should the Bill pass, I would expect to see an early challenge. If you have any questions, please feel free to call. Thank you for your consideration. Very truly yours, eDenGraves Senior Financial Counsel Attorney for the Assessor of Contra Costa County Cc: Gus Kramer, Assessor c:speaker.dot.doc.dot 2 COUNTY COUNSEL'S OFFICE CONTRA COSTA COUNTY 651 Pine Street, 9th Floor Martinez CA 94553 (925) 335-1833 Fax (510) 646-1078 March 29, 2001 Martin Helmke, Chief Consultant Senate Revenue and Taxation Committee State Capital Sacramento CA 95814 Re: AS 934 (Hertzberg), trial de novo for local assessment disputes htar+- A Dear Mr.JJs4mke✓ Thank you for meeting with Gus Kramer, Assessor of Contra Costa County, and me on the subject Bill. We also talked with Assemblyman Joe Canciamilla, Eileen Roush, Chief Consultant for the Assembly Revenue and Taxation Committee, and Came Cornwell, Chief Consultant for Senator Tom Torlakson. This is to summarize the points we discussed to explain our opposition to AS 934. Current Law Under current law, either the taxpayer or the assessor can appeal a decision of an assessment appeals board (AAS) to superior court, but the discretion of the court is constrained by the record and findings before the AAS: the court must sustain the findings of the AAB if supported by substantial evidence in the record. (Westlake Farms Inc v Kings County, 39 CA3d 179,183-5 (1974], Hunt-Wesson Foods Inc v Alameda County, 41 CA3d 163, 168-1,76 (1974].) Assuming an AAS has not committed a prejudicial error of law, this "substantial evidence" standard usually sustains an AAB decision upon superior court review. Trial de novo under AB 934 AS 934 would work a major change in property tax litigation. If the trial de nova bill passes, taxpayers — but not assessors —would have the right to a trial de novo if not satisfied with the decision of an AAB. Upon such trial de novo review, the court would not be constrained by the record, analysis, findings or decision of the AAB, but rather could ignore the record, retry the case ab initio, and make its own findings and decision without regard to the determinations of the AAB. 1 Assessment appeals boards are better able to resolve property tax valuation disputes than courts It may be appropriate to begin comments on AS 934 by addressing the practical issue of the best tribunal for resolving property tax valuation disputes. AS 934 would allow property tax disputes to be resolved by a single judge, without specialized background, rather than by a constitutionally required quasi- judicial tribunal of three AAB members with particular expertise in the often complicated, specialized field of appraisal. Having appeared before AABs and judges on such matters for nearly 30 years, it is my opinion that judges rarely have the training to adequately understand the valuation theories and technical complexities often presented in such cases. Indeed, that is one of the major reasons that Article XIII, Section 16, of the California Constitution requires that such disputes be submitted to AABs. De novo review would be contrary to the California Constitution and established case law The California Constitution and the long-established jurisdictional doctrine of exhaustion of administrative remedies require that assessment appeals boards hear property tax valuation disputes before resort to judicial review. (Cal. Const., Art XIII, Sec. 16, Abelleira v District Court of Appeal, 17 C2d 280, 291-3 [19411, Stenocord Corporation v San Francisco, 2 Cad 984, 988 [19701.) Under AS 934 property tax valuation disputes would continue to be heard by an assessment appeals board. However, AS 934 would render the AAB hearing a nullity when a taxpayer seeks judicial review, because a reviewing court would in no manner be constrained by the record, findings, analysis or decision of the AAS. Because of the constitutional requirement that assessment appeals boards be the tribunals for property tax valuation disputes, case law has established the principle that the factual determinations of an AAB are entitled to the same deference as a trial court's findings. (Westlake Farms vs Kings County, supra, 39 CA3d 179, 185.) By purporting to authorize a superior court to ignore the findings of an AAS and try issues de novo, AS 934 is irreconcilable with this constitutionally based principle. If adopted, AS 934 would face an early constitutional challenge.' ' Trial de novo presently is allowed upon review of a determination of the State Board of Equalization (SSE). However, extending de novo review to local agencies is different. The SSE assesses utilities and railroads because their properties cover many counties but function as a single operational unit. In doing these "central assessments", the SBE is in the highly unusual position of an inherent conflict of interest: it both makes the assessment and sits in judgement of its own assessment if a taxpayer disagrees with the assessment. Because of this conflict, it makes good sense for an independent tribunal —the superior court—to examine the assessment ab initio, without being constrained by the determinations of the SBE. Perhaps for 2 Adverse impacts of the Bill Aside from its unconstitutionality, the Contra Costa Assessor strongly opposes AB 934 for the following reasons: 1. The Bill would greatly increase the costs of resolving property tax valuation disputes. One of the reasons the law currently requires assessment disputes to be resolved by an AAB is that the costs of resolving such disputes in an administrative hearing are typically far less than they would be in court. The costs of discovery (eg, depositions) in court litigation, as well as the requirements of courtroom rules of evidence, will result in much longer hearings and greatly increased costs. Although the casts for both parties would increase dramatically in court litigation, the assessor is more likely to . be limited by budget than are major taxpayers. Indeed, well-funded taxpayers can be expected to force unreasonably low settlement valuations, knowing that the County will have the resources to respond to very few court cases. 2. The resulting loss of property taxes would severely impact local governments and the State. When large taxpayers take advantage of the system to force unreasonably low valuation settlements under threat of extremely costly, time- consuming superior court litigation, the loss of property taxes by local governments will be very significant. The State's costs for backfilling the loss of taxes to schools would be even more significant. 3. The Bill would operate very unfairly as it would allow the taxpayer the option of a trial de novo in superior court, in which the traditional substantial evidence standard of review would not apply, but the assessor would remain limited to an administrative mandamus action in which he would bear the burden of the more difficult substantial evidence standard of review. 2 this reason, no reported appellate case has challenged de novo review of SSE decisions nor established the principle that the constitutional scheme requires that the SSE's factual determinations be given the same deference as a trial court's findings. Z AS 934 amends R+TC Section 5170, referring to "a suit for the refund of....locally assessed property taxes..'. Section 5170 is part of Article 2 of Chapter 5 of Part 9 of Division One of the Revenue and Taxation Code. Chapter 5 is entitled "Refund Actions by Taxpayers" and contains the R+TC Section 5140 et seq provisions governing actions by which a taxpayer can challenge the decision of an AAS. The Section 5140 et seq action is the"suit for refund of locally assessed property taxes" to which AS 934 refers. Such a remedy is available only to a taxpayer. County of Sacramento v Assessment Appeals Board No 2, 32 CAM 654, 672-3 (19731.) An assessor's remedy for challenging the decision of an AAS is a petition for writ of administrative mandamus under Code of Civil Procedure Section 1094.5. (See County of Sacramento v Assessment Appeals Board No 2, supra, 32 CAM 654, 672-3, County of San Diego v Assessment Appeals Board No. 2. 148 CAM 548, 553 [1983].) Thus, AS 934 would allow the taxpayer, but not the assessor, to have a trial de novo if dissatisfied with the decision of an AAS. If the assessor is dissatisfied with the decision of an AA8, he would remain limited to the CCP 3 4. In addition to the difference in the standard of review, the Bill would allow the taxpayer a significant, unwarranted tactical advantage. Savy taxpayers could put on a very rudimentary, inexpensive case before the AAB, knowing that they have the option of a trial de novo in superior court and that the assessor would have to put on a much more thorough, costly AAB case because he does not have the option of atrial de novo. Knowing that he would have the option of a trial de novo, the taxpayer could be expected to reveal as little as possible of his case, using the AAB hearing essentially as discovery of the assessor's case. The taxpayer then could take full advantage by using the AAS discovery in a superior court trial de nova, knowing that the assessor will suffer by not having equivalent discovery unless willing to undergo the major expense of depositions and interrogatories in the superior court proceeding. If trial de novo is tome adopted. AS 934 ought to be amended to level the playing field between the assessor and taxpayer We firmly believe that AB 834 ought not become law. However, if the Legislature believes that there is good reason for trial de novo, the reason should apply with equal force to both the taxpayer and the assessor. If the taxpayer has the option of a new hearing in which the judge is not constrained by the AAS record, the assessor also ought to have that right and not suffer the disadvantages outlined above. Accordingly, if the Legislature determines that this Bill should pass, at the very least the Bill ought to be amended to read: "In a taxpayer's suit for the refund of state-assessed or locally assessed property taxes, or in an assessor's pedfion for mandate challenging the decision of an assessment appeals board, the trial court may not be restricted to the administrative record, but shall consider all evidence relating to the valuation of the property admissible under the rules of evidence. The court shall base its decision upon the preponderance of the evidence before it." [Proposed additions in italics.] We would be happy to respond to any further questions you might have. Thank you for your interest and time. 1094.5 petition for writ of administrative mandamus, in which the substantial evidence standard of review would continue to apply. (id.) 4 k ,s Senior Financial Counsel Attorney for the Assessor of Contra Costa County Cc: Assemblyman Joe Canciamiila Eileen Roush, Chief Consultant, Assembly Rev and Tax Committee Came Comwell, Chief Consultant for Senator Tom Torlakson. a A8934trtaldenava.doc 5 CALIFORNIA LEGISLATURE-2001-02 REGULAR SESSION ASSEMBLY BILL No. 934 Introduced by Assembly Member Hertzberg February 23, 2001 An act to amend Section 5170 of the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEI;S DIGEST AB 934, as introduced, Hertzberg. Property taxes: refund proceedings: local assessments. Existing property tax law provides, with respect to suits for refund of state-assessed taxes, that the trial court is not restricted to the administrative record, but may consider all relevant admissible evidence. This bill would extend these provisions to property tax refund proceedings involving locally assessed property. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. The people of the State of California do enact as follows: 1 SECTION 1. Section 5170 of the Revenue and Taxation Code 2 is amended to read: 3 5170. In ftits a suit for the refund of state-assessed or locally 4 assessed property taxes, the trial court sly may not be restricted 5 to the administrative record, but shall consider all evidence 6 relating to the valuation of the property admissible under the rules 99 AB 934 —2- 1 2- 1 of evidence. The court shall base its decision upon the 2 preponderance of the evidence before it. O 99 AB 934 Assembly Bill - Bill Analysis Page 1 of 6 AB 934 _.... Page 1 ASSEMBLY THIRD READING AB 934 (Hertzberg) As Introduced February 23, 2001 Majority vote REVENUE AND TAXATION 7-0 -------------------------------- IAyes: ICorbett, Harman, Aroner, I I ICedillo, Koretz, I (Matthews, Wyland I I I I -------------------------------- SUMMARY Gives local assessees the right to trial de novo in claims for refund arising from questions of fact. Specifically, this bill provides that in a suit for the refund of locally-assessed property taxes, the trial court may not be restricted to the administrative record, but shall consider all evidence relating to the valuation of the property admissible under the rules of evidence. EXISTING LAW 1) Provides state assessees the right to a trial de novo in a suit for the refund of state-assessed property taxes. In these refund actions, the trial court is required to consider all admissible evidence relating to the valuation of the subject property and to make its decision based on the preponderance of the evidence before it. 2) Provides local assessees the right to a trial de novo in refund actions arising from questions of law. Examples of issues whose challenge is eligible for trial de novo by local assessees include whether the transfer of a property meets the definition of a change in ownership, whether a property qualifies for a specific property tax exemption, whether a particular item is real or personal property, whether a particular statute is constitutional, and/or whether the proper method of valuation has been used. 3)Classifies questions of property valuation by county assessors as questions of fact. Local assessees are not provided a trial de novo in refund actions arising from questions of fact. 0 AB 934 Page 2 http://ww",.Ieginfo.ca.gov/pubibill/asm/ab_0.../ab_934_cfa_20010516_170941_asm_floor.htm 6/13/01 AB 934 Assembly Bill - Bill Analysis Page 2 of 6 4) Provides for the establishment of boards of equalization (BOEs) in each of the state's 58 counties. The elected county board of supervisors may sit as the county BOE (as is the case in 19 counties) or may create one or more assessment appeals boards (AABs) to provide that function (as is the case in the remaining 39 counties) . County BOEs are quasi-judicial agencies that function as fact-finding bodies designated by law to remedy excessive assessments. These BOEs have the duty to determine the value of locally assessed property and the fairness of its assessment. In discharging this duty, a BOE's determination regarding the merits of a valuation case are conclusive. Thus, the decision of a county BOE is equivalent to the determination of a trial court and may be reviewed only for arbitrariness, abuse of discretion, or failure to follow the standards prescribed by law. Any superior court asked to review a valuation decision is limited to inquiry into whether the county BOE's findings are supported by substantial evidence (i.e. , whether the findings are supported by some credible evidence in the administrative record) . Thus, the superior court sits as an appellate tribunal that reviews the AAB record for reversible error. FISCAL EFFECT Unknown and dependent on the extent to which courts make valuation determinations different from those currently being made by AABs and the extent to which county assessors settle cases with taxpayers in order to avoid litigation. It is logical to infer that this bill will result in property tax revenue losses by giving taxpayers a new mechanism for challenging valuation issues with which they disagree and, in turn, giving them more leverage to use in negotiations with county assessors if they wish to settle out of court. Both assessors and the business community agree with this inference. County assessors fear that their costs to litigate valuation issues will drain county coffers and force them to settle with taxpayers for amounts much lower than they believe are fair simply in order to avoid even more costly litigation. Members of the business community believe that they can realize significant reductions in their property tax bills if they are allowed to pursue independent judicial review. Slightly over one-half of the property tax revenue losses that result from this bill will require state backfill due to the AB 934 Page 3 state's school funding requirement. COMMENTS : 1)Throughout its lengthy history, trial de novo has been the subject of considerable debate, and participants on both sides of the issue have developed a long list of arguments in support of their positions and rebuttals to the arguments http://www.leginfo.ca.gov/pub/bill/asm/ab_0.../ab_934_cfa_20010516_170941_asm_floor.htm 6/13/01 AB 934 Assembly Bill -Bill Analysis Page 3 of 6 advanced by those with whom they disagree. 2) Proponents' arguments include the following: a) Trial de novo is afforded to taxpayers under all of the state's other tax and fee laws and to state assessees. Failure to allow trial de novo for local assessees violates the due process rights of these taxpayers. It is also inequitable to allow state assessees the right to a trial de novo but to deny the same right to local assessees. b) Members of some AABs are not adequately qualified to sit in judgement of property valuation questions. Members of boards of supervisors are not necessarily knowledgeable about property valuation and can be biased by budgetary concerns. Furthermore, the ability of a member of the board of supervisors in any county with a population under 200, 000 or less to appoint an AAB member leaves open the possibility of appointment based on political rather than technical considerations. According to the most recent Statistical Abstract prepared by the California Department of Finance, 31 counties have populations less than 200, 000. c) The possibility of independent judicial review of the administrative record will improve the quality of AAB hearings. 3)Opponents' arguments include the following: a) Trial de novo will result in multiple assessment standards, one for average property taxpayers, usually homeowners, without the means to pursue superior court litigation, and another for those taxpayers who can afford these legal challenges. This will lead to an increase in . the percentage share of total property taxes borne by homeowners relative to the business community. AB 934 Page 4 b) Trial de novo will be extremely costly to counties and the state. Counties will have to hire more lawyers and bear the costs of litigation. The state's court system will be flooded with new, complex cases. c) Furthermore, many trial judges are unfamiliar with valuation issues and will be ill-prepared to handle the complex valuation arguments that will be raised. d) This measure is unfair to counties. Counties receive a relatively small percentage of property tax revenue (approximately 20% to 25% on average) but would be responsible for the full cost of defending these valuation cases in court. When the high cost of litigation is weighed against the amount of property tax revenue at stake, many counties are likely to settle their cases out http://www.leginfo.ca.gov/pub/bill/asm/ab_0.../ab_934_cfa_20010516_170941_asm_floor.htm 6/13/01 AB 934 Assembly Bill - Bill Analysis Page 4 of 6 of court at property values below those which they believe to be reasonable, simply to avoid more costly litigation. e) This bill only allows local assessees trial de novo. It does not extend the same rights to assessors. Assessors would remain limited to an administrative mandamus action in which they would bear the burden of a substantial evidence standard of review. Although they wish to see this bill fail, opponents of this bill have requested that this bill be amended to allow assessors the same rights as taxpayers under the bill's provisions. f) Trial de novo for local assessees is unconstitutional. By authorizing a superior court to ignore the findings of an AAB and try issues de novo, this bill is irreconcilable with the constitutional requirement that AABs be the tribunals for property tax valuation disputes. Furthermore, the court culture, which encourages compromise and settlement, is not consistent with the constitutional requirement of equalization. 4) Proponents rebut some of the opponents' arguments as follows: a) The cost barrier of litigating a tax matter in superior court is not unique to property tax matters. Furthermore, when valuation decisions are favorable to taxpayers with the means to litigate, some of these cases may set precedents that could indirectly benefit all taxpayers. 0 AB 934 Page 5 b) Trial court judges already decide extremely complex issues of taxation, including those relating to unitary tax matters, inheritance cases involving income taxes, bankruptcy, eminent domain, the application of the Employees Retirement Insurance and Security Act of 1994 to insurance gross premiums taxpayers, and many others. There is no justifiable reason to believe that they will be unable to fairly rule on property valuation cases. c) Trial de novo will not significantly increase the court's workload. Trial de novo is allowed to taxpayers under the Personal Income, Bank and Corporation, and Sales and Use Tax Laws, and the courts are not overwhelmed with litigation of these tax laws. Furthermore, when the state approved trial de novo for state assessees in 1988, there was no significant increase in the number of cases taken to court. d) Trial de novo is not unconstitutional. When the state Legislature was considering adopting trial de novo for state assessees, the same concerns were raised. The constitutionality of allowing trial de novo to state assessees was upheld in AT&T Communications of California v. State Board of Equalization , Sacramento Superior Court http://www.leginfo.ca.gov/pub/bill/asm/ab_0.../ab_934_cfa_20010516_170941_asm_floor.htm 6/13/01 AB 934 Assembly Bill - Bill Analysis Page 5 of 6 Case No. 500802, 1989. Furthermore, while supporters agree that the constitution grants value-setting authority to appeals boards, they note that trial de novo merely changes the judicial standard of review. Article XIII, Section 33 of the state Constitution states, "The Legislature shall pass all laws necessary to carry out the provisions of this article. " And, Article XIII, Section 32 states in part, "After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as provided by the Legislature. " Proponents also note that the Legislature has modified other aspects of property tax administration without incident. 5)Opponents rebut some of the .proponents' arguments as follows: a) Providing trial de novo to state assessees without providing it to local assessees is not inequitable. Because BOE sets the value of state-assessed property and acts as the appeals board, it is reasonable for the courts E AB 934 _. Page 6 to provide the first independent level of review in these cases. However, in the case of local assessees, the first independent level of review on the valuation decisions of county assessors is provided by AABs. b) Allowing trial de novo will not improve the quality of AAB hearings. Instead, it will minimize the importance of the administrative review functions filled by the AABs. Analysis Prepared by Eileen Roush / REV. & TAX. / (916) 319-2098 FN: 0000776 littp://www.leginfo.ca.gov/pub/bill/asm/ab_0.../ab_934_cfa_20010516_170941_asm_floor.htm 6/13/01 AB 934 Assembly Bill - Bill Analysis Page 1 of 8 AB 934 - - — _ — Page 1 Date of Hearing: May 14, 2001 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Ellen M. Corbett, Chair AB 934 (Hertzberg) - As Introduced: February 23, 2001 Majority vote. SUBJECT-. Property Tax: Trial de Novo SUMMARY Gives local assessees the right to trial de novo in claims for refund arising from questions of fact. Specifically, this bill provides that in a suit for the refund of locally-assessed property taxes, the trial court may not be restricted to the administrative record, but shall consider all evidence relating to the valuation of the property admissible under the rules of evidence. EXISTING LAW 1) Provides state assessees the right to a trial de novo in a suit for the refund of state-assessed property taxes. In these refund actions, the trial court is required to consider all admissible evidence relating to the valuation of the subject property and to make its decision based on the preponderance of the evidence before it. 2) Provides for trial de novo under all of the state's other major tax laws (e.g. , the Personal Income Tax Law, Sales and Use Tax Law, and Bank and Corporation Tax Law) and under all of the special tax and fee laws administered by the Board of Equalization (BOE) . 3) Provides local assessees the right to a trial de novo in refund actions arising from questions of law. Examples of issues whose challenge is eligible for trial de novo by local assessees include whether the transfer of a property meets the definition of a change in ownership, whether a property qualifies for a specific property tax exemption, whether a particular item is real or personal property, whether a particular statute is constitutional, and/or whether the proper method of valuation has been used. 4)Classifies questions of property valuation by county assessors as questions of fact. As discussed immediately below, local G AB 934 - Page 2 http://www.leginfo.ca.gov/pub/bill/asm/ab_.../ab_934_cfa_20010516_153228_asm_comm.htm 6/13/01 . 'AB 934 Assembly Bill - Bill Analysis Page 2 of 8 assessees are not provided a trial de novo in refund actions arising from questions of fact. 5) Pursuant to the State Constitution, provides for the establishment of boards of equalization in each of the state's 58 counties. Article XIII, Section 16 imposes on county boards of equalization the duty to equalize the values of locally assessed property within each county by the adjustment of individual assessments. In practice, county boards of equalization discharge this duty by reviewing contested assessments. Under current law, the elected county board of supervisors may sit as the county board of equalization or may create one or more assessment appeals boards (AABs) to provide that function. According to the Board of Equalization (BOE) , there are nineteen counties in California in which the board of supervisors also sits as the county board of equalization. In the remaining 39 counties, AAB members are appointed by a majority vote of the board of supervisors. Each AAB member's term is three years long, and there is no limit on the number of terms an AAB member may serve. Individual terms are staggered in order to ensure that a board will not be comprised of members with no prior AAB experience. Eligibility requirements for appointment to an AAB vary depending on the size of the county. In counties of less than 200,000 people, the board of supervisors may appoint any person who is believed to possess "competent knowledge of property appraisal and taxation. " In larger counties, an appointee must have a minimum of five years' professional experience in California in one of the following roles: public accountant, licensed real estate broker, attorney, property appraiser accredited by a nationally recognized professional organization, or property appraiser certified by the California Office of Real Estate Appraisers. The roles and duties of county boards of equalization have been litigated repeatedly. Among the courts' findings: County boards of equalization are quasi-judicial agencies that function as the fact-finding bodies designated by law to remedy excessive assessments. These boards have the duty to determine the value of locally assessed property and the fairness of its assessment. In discharging this duty, a board's determination regarding the merits of a valuation case U AB 934 Page 3 are conclusive. Thus, the decision of a county board of equalization is equivalent to the determination of a trial court and may be reviewed only for arbitrariness, abuse of discretion, or failure to follow the standards prescribed by law. Any Superior Court asked to review a valuation decision is limited to inquiry into whether the county board's findings http://www.leginfo.ca.gov/pub/bill/asm/ab_.../ab_934_cfa_20010516_153228_asm_comm.htm 6/13/01 'AB 934 Assembly Bill - Bill Analysis Page 3 of 8 are supported by substantial evidence (i.e. , whether the findings are supported by some credible evidence in the administrative record) . Thus, the Superior Court sits as an appellate tribunal that reviews the AAB record for reversible error. Over time, three types of reversible errors have been identified: a) Denial of procedural due process to a party by an AAB; b) Utilization of an unlawful appraisal methodology by an AAB; and c) Issuance of findings and/or decisions by an AAB that are not supported by substantial evidence. FISCAL EFFECT Unknown and dependent on the extent to which courts make valuation determinations different from those currently being made by AABs and the extent to which county assessors settle cases with taxpayers in order to avoid litigation. However, it is logical to infer that the bill will result in property tax revenue losses by giving taxpayers a new mechanism for challenging valuation issues with which they disagree and, in turn, giving them more leverage to use in negotiations with county assessors if they wish to settle out of court. Approximately one-half of the property tax revenue losses that result from the bill will require state backfill due to the state's school funding requirement. A quantitative estimate of the revenue impact on state and local governments is unknown. However, given the degree to which businesses have sought and continue to seek trial de novo and the degree to which assessors and other local government representatives have fought the proposal, it is reasonable to believe that the measure stands to have a significant fiscal impact on both sides. Members of the business community believe that they can realize significant reductions in their property tax bills if they are allowed to pursue independent judicial review; county assessors fear that their costs to litigate valuation issues will drain county coffers and force them to settle with taxpayers for amounts much lower than they believe are fair simply in order to avoid even more costly litigation. AB 934 Page 4 COMMENTS 1)The issue of trial de novo for property taxpayers has a long history. State assessees were granted trial de novo pursuant to SB 2601, (Garamendi) Chapter 1372, Statues of 1988. Legislation to extend trial de novo to local assessees has been introduced many times (e.g. , in 1989, 1991, 1995, 1996, 1997, and 1999) , but all prior measures have failed. Despite the failure of prior trial de novo legislation, the rules applicable to local assessees have not remained unchanged. For example, when the last bill that would have allowed trial de novo at the state level failed (SB 1293, Schiff) , Senator Schiff also authored SB 1234, Chapter 943, Statutes of 1999 to require mandatory training for new AAB members. SB 1234 also reduced from 1 million to 200, 000 the http://www.leginfo.ca.gov/pub/bill/asm/ab_.../ab_934_cfa_20010516_153228_asm_comm.htm 6/13/01 AB 9.34 Assembly Bill - Bill Analysis Page 4 of 8 population threshold of counties in which a person can be appointed to the AAB upon the recommendation of a member of the board of supervisors of the county. 2)Throughout its history, trial de novo has been the subject of considerable debate, and participants on both sides of the issue have developed a long list of arguments in support of their positions and rebuttals to the arguments advanced by those with whom they disagree. The analysis below summarizes some of the key arguments and rebuttals advanced by both proponents and opponents. 3) Proponents' arguments include the following: a) Trial de novo is afforded to taxpayers under all of the state's other tax and fee laws and to state assessees. Failure to allow trial de novo for local assessees violates the due process rights of these taxpayers. It is also inequitable to allow state assessees the right to a trial de novo but to deny the same right to local assessees. b) Members of some AABs are not adequately qualified to sit in judgement of property valuation questions. Members of boards of supervisors are not necessarily knowledgeable about property valuation and can be biased by budgetary concerns. Furthermore, the ability of a member of the board of supervisors in any county with a population under 200, 000 or less to appoint an AAB member leaves open the possibility of appointment based on political rather than AB 934 Page 5 technical considerations. According to the most recent Statistical Abstract prepared by the California Department of Finance, 31 counties have populations less than 200, 000. c) The possibility of independent judicial review of the administrative record will improve the quality of AAB hearings. 4)Opponents' arguments include the following: a) Trial de novo will result in multiple assessment standards - one for average property taxpayers, usually homeowners, without the means to pursue Superior Court litigation, and another for those taxpayers who can afford these legal challenges. This will lead to an increase in the percentage share of total property taxes borne by homeowners relative to the business community. b) Trial de novo will be extremely costly to counties and the state. Counties will have to hire more lawyers and bear the costs of litigation. The state' s court system will be flooded with new, complex cases. c) Furthermore, many trial judges are unfamiliar with http://www.leginfo.ca.gov/pub/bill/asm/ab_.../ab_934_cfa_20010516_153228_asm_comm.htm 6/13/01 AB 934 Assembly Bill - Bill Analysis Page 5 of 8 valuation issues and will be ill-prepared to handle the complex valuation arguments that will be raised. d) This measure is unfair to counties. Counties receive a relatively small percentage of property tax revenue (approximately 20% to 25% on average) but would be responsible for the full cost of defending these valuation cases in court. When the high cost of litigation is weighed against the amount of property tax revenue at stake, many counties are likely to settle their cases out of court at property values below those which they believe to be reasonable - simply to avoid more costly litigation. e) This bill only allows local assessees trial de novo. It does not extend the same rights to assessors. Assessors would remain limited to an administrative mandamus action in which they would bear the burden of a substantial evidence standard of review. Although they wish to see the bill fail, opponents of this measure have requested that the bill be amended to allow assessors the same rights as taxpayers under the bill's provisions. 0 AB 934 Page 6 f) Trial de novo for local assessees is unconstitutional. By authorizing a Superior Court to ignore the findings of an AAB and try issues de novo, this bill is irreconcilable with the constitutional requirement that AABs be the tribunals for property tax valuation disputes. Furthermore, the court culture, which encourages compromise and settlement, is not consistent with the constitutional requirement of equalization. 5) Proponents rebut some of the opponents' arguments as follows: a) The cost barrier of litigating a tax matter in Superior Court is not unique to property tax matters. Furthermore, when valuation decisions are favorable to taxpayers with the means to litigate, some of these cases may set precedents that could indirectly benefit all taxpayers. b) Trial court judges already decide extremely complex issues of taxation, including those relating to unitary tax matters, inheritance cases involving income taxes, bankruptcy, eminent domain, the application of the Employees Retirement Insurance and Security Act of 1994 to insurance gross premiums taxpayers, and many others. There is no justifiable reason to believe that they will be unable to fairly rule on property valuation cases. c) Trial de novo will not significantly increase the court's workload. Trial de novo is allowed to taxpayers under the Personal Income, Bank and Corporation, and Sales and Use Tax Laws, and the courts are not overwhelmed with litigation of these tax laws. Furthermore, when the state http://www.leginfo.ca.gov/pub/bill/asm/ab_.../ab_934_cfa_20010516_153228_asm_comm.htm 6/13/01 AB 934 Assembly Bill - Bill Analysis Page 6 of 8 approved trial de novo for state assessees in 1988, there was no significant increase in the number of cases taken to court. d) Trial de novo is not unconstitutional. When the state Legislature was considering adopting trial de novo for state assessees, the same concerns were raised. The constitutionality of allowing trial de novo to state assessees was upheld in AT&T Communications of California v. State Board of Equalization, Sacramento Superior Court Case No. 500802, 1989. Furthermore, while supporters agree that the constitution AB 934 Page 7 grants value-setting authority to appeals boards, they note that trial de novo merely changes the judicial standard of review. Article XIII, Section 33 of the state Constitution states, "The Legislature shall pass all laws necessary to carry out the provisions of this article. " And, Article XIII, Section 32 states in part, "After payment of a tax claimed to be illegal, an action may be maintained to recover the tax paid, with interest, in such manner as provided by the Legislature. " Proponents also note that the Legislature has modified other aspects of property tax administration without incident. 6)Opponents rebut some of the proponents' arguments as follows: a) Providing trial de novo to state assessees without providing it to local assessees is not inequitable. Because BOE sets the value of state-assessed property and acts as the appeals board, it is reasonable for the courts to provide the first independent level of review in these cases. However, in the case of local assessees, the first independent level of review on the valuation decisions of county assessors is provided by the AABs. b) Allowing trial de novo will not improve the quality of AAB hearings. Instead, it will minimize the importance of the administrative review functions filled by the AABs. REGISTERED SUPPORT / OPPOSITION Support BP BreitBurn Energy Company LLC Building Owners & Managers Association (BOMA) California Chamber of Commerce California Manufacturers and Technology Association California Retailers Association California Taxpayers Association Calpline Corporation Cisco Systems http://www.leginfo.ca.gov/pub/bill/asm/ab_.../ab_934_cfa_20010516_153228_asm_comm.htm 6/13/01 AB 934 Assembly Bill - Bill Analysis Page 7 of 8 Construction Materials Association of California Equity Property Tax Group LLC Gangloff & Gangloff, Attorneys at Law Hewlett-Packard Company Intel Corporation AB 934 Page 8 Lockheed Martin Missiles & Space Morrison & Foerster, LLP Pillsbury Madison & Sutro LLP Property Tax Assistance Co. , Inc. Semiconductor Equipment & Materials International The Chevron Companies Valero Energy Corporation Verizon Western States Petroleum Association (WSPA) William Kilgarlin Worldcom Xilinx Opposition Alameda County, Office of the Assessor Board of Supervisors, County of Kern Board of Supervisors, County of Modoc Board of Supervisors, County of Santa Clara California Assessors' Association California Tax Reform Association County Counsel's Office, Contra Costa County County of Humboldt, County Assessor County of Los Angeles Office of the Assessor County of Mendocino, Office of the Assessor County of Placer, Office of the Assessor County of Sacramento Office of the Assessor County of San Bernardino, Office of the Assessor County of San Diego, Assessor/Recorder/County Clerk County of Tulare, Assessor/Clerk-Recorder County of Yolo, Office of the County Assessor Napa County Assessor Placer County Assessor Stanislaus County Assessor Ventura County Assessor Analysis Prepared by Eileen Roush / REV. & TAX. / (916) 319-2098 http://www.leginfo.ca.gov/pub/bill/asm/ab_.../ab_934_cfa_20010516_153228_asm_comm.htm 6/13/01 REQUEST TO SPEAR FORM (THREE (3) MINUTE LIMIT) S' Complete this form and place it in the box near the speakers'O rostrum before addressing the Board. Name: -,�O1-*J OLPhone: (`>Z6) Z 26j 5-E- i0 Address: 60vcis JJ:.� ,�a�s 5'i nrF� City: MPrfZ i&Jr z-," I am speaking for myself or organization: ��'� +Riaxyays 0� �1�T.v�J (name of organization) CHECK ONE: I wish to speak on Agenda Item # ' � Date: My comments will be: general for against • I wish to speak on the subject of I do not wish to speak but leave these comments for the Board. to consider: 0 SPEAKERS 1 .1. Deposit the "Request to Speak" form (on the reverse side) in" the box next to the speaker's microphone before your agenda item is to be considered. 2 . You will be called on to make your presentation. Please speak into the microphone at the podium. 3 . Begin by stating your name and address and whether you are speaking for yourself or as the representative of an organization. 4 . Give the Clerk a copy of your presentation or support documentation if available before speaking. 5. Limit your presentation to three minutes. Avoid repeating comments made by previous speakers. (The Chair may limit length of presentations so all persons may be heard) . REQUEST TO SPEAR FORM ��► (THREE (3) MINIITE LIMIT) 3 Complete this form and place it in the box near the speakers' rostrum befCore addressing the Board. (� I Name: S0-CS& �� CA \ Phone: Address:4. ��2— City: G C� r�C� z-1 I am speaking for myself or organization: Lo, 6�� (name of organization) CHECK ONE: Cel, I wish to speak on Agenda Item # s Date: D � My comments will be: general for agai st I wish to speak on the subject of I do not wish to speak but leave these comments for the Board to consider: SPEAKERS y v 1. Deposit the "Request to Speak" form (on the reverse side) in the box next to the speaker's microphone before your agenda item is to be considered. 2. You will be called. on to make your presentation. Please speak into the microphone at the podium. 3. Begin by stating your name and address and whether you are speaking for yourself or as the representative of an organization. 4. Give the Clerk a copy of your presentation or support documentation if available before speaking. 5. Limit your presentation to three minutes. Avoid repeating comments made by previous speakers. (The Chair may limit length of presentations so all persons may be heard) .