The Week Ahead in Sacramento

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    NEWSLETTERS

    TK
    ASSOCIATED PRESS

    Democratic lawmakers are determined to close tax loopholes they say cost state and local governments hundreds of millions of dollars each year, as they search for ways to trim California's enormous deficit.

         A report by the union-funded California Tax Reform Association found that the share of property tax paid on residential property has increased since two-thirds of voters approved California's landmark Proposition 13 tax law in 1978, while the share paid on commercial property has decreased.

         In Contra Costa County, for example, taxes on residential properties now make up 73 percent of property taxes collected, up from 48 percent in 1978.

         Democrats and unions say many corporations are using loopholes when they buy and sell properties to avoid having them reassessed and their property taxes go up.

         "The system is an incredible mess," said the association's executive director, Lenny Goldberg. "People are constantly changing their share of ownerships, figuring out ways to avoid reassessment."

         Republicans strongly oppose efforts to tinker with the system. They see such moves as an effort to undermine Proposition 13, the initiative that capped property tax increases and remains popular with voters.

         Under the current system, when property changes owners, its land value is reassessed and the new owner pays taxes based on the new value, which is often higher.

         But it only applies when a person or legal entity obtains more than 50 percent of the property, allowing corporations to structure sales to avoid a reassessment. For example, three new owners can join together to buy a property so none owns more than 50 percent, allowing them to continue paying lower taxes.

         A bill by Assemblyman Tom Ammiano, D-San Francisco, AB 2492, would redefine an ownership change to 100 percent of a property being sold, regardless of the number of new owners.

         The CTRA report said many major properties have gone without reassessment in the last 30 years, such as when a a group of investors including Goldman Sachs and Bain Capital acquired Burger King in 2002. The group avoided having any of its San Diego County franchises reassessed; one hadn't been reassessed since 1985.

         "We're leaving millions of dollars on the table every day by these really arcane, inapplicable rules," Goldberg said.

         While many homeowners are taxed at a rate of $5 to $6 per square foot of land, corporations pay pennies per square foot, said Assemblyman Pedro Nava, D-Santa Barbara.

         But Republicans whose votes are needed to reach the two-thirds legislative approval to pass any tax increase are opposed, along with the California Taxpayers Association. The group says the switch would increase taxes on business owners and that CTRA is relying on false data.

         "To imply that Proposition 13 has shifted the tax burden to residential property is an incredible sophistry," the group wrote in a newsletter.

         Seth Unger, a spokesman for Assembly Republican Leader Martin Garrick, R-Carlsbad, said the Democrats' bill could end up costing the state tax income as property values decline.

         "This could actually almost encourage those businesses to create a legal entity to reset their property tax base," Unger said.

         Nava laughed at that idea. He said most of the corporations targeted by the bill haven't been assessed for decades.

         "To make the argument that the state of California would lose revenue because commercial property has gone down in value since the passage of Prop. 13 is absurd," Nava said.

         The Assembly Revenue and Taxation Committee will take up AB 2492 Monday.


         Some of the other bills the Legislature will hear next week include:

    •  Animal abusers may soon join sex offenders and arsonists on the list of publicly registered felons under a bill scheduled for a hearing Monday in the Senate Appropriations Committee.
    •  SB1277, by Sen. Dean Florez, D-Shafter, would make California the first state in the country to require any individual over 18 convicted of felony animal abuse to register with police. An offender's home address, photograph and place of employment would be posted online for a 10-year period after their conviction.
    •  Phone books would become the next victims of the digital age under a bill scheduled to be heard Monday by the Senate Appropriations Committee. SB920 would allow Californians to opt out of receiving the classified and alphabetical phone directories known as yellow pages and white pages.
    •  Companies that produce the directories would have to provide a toll-free number and a website with instructions on how to decline future delivery.
    •  The bill's author, Sen. Leland Yee, D-San Francisco, says the more than 78 million phonebooks distributed annually in California are wasteful, costly and increasingly irrelevant, thanks to the Internet.
    •   Republicans are promoting their job creation proposals in hearings before the Assembly Revenue and Taxation Committee on Monday and the Senate Revenue and Taxation Committee on Wednesday. Their proposals include offering tax credits for vehicle and equipment purchases, research, capital gains, job training, and for employers that hire veterans, parolees, or the unemployed.