CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill
No. 320

Introduced by Senator Skinner

February 06, 2023

An act to add Section 107.5 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 320, as introduced, Skinner. Property taxation: possessory interests: independent: publicly owned housing project.
Existing property tax law requires that all property subject to tax be assessed at its full cash value, and includes certain possessory interests among those property interests that are subject to tax. Existing property tax law defines a taxable possessory interest to be a use that is independent, durable, and exclusive. Existing property tax law specifies that, for purposes of the definition of a taxable possessory interest, a possession or use is not independent if it is pursuant to a contract that includes, but is not limited to, a long-term lease for the private construction, renovation, rehabilitation, replacement, management, or maintenance of housing for active duty military personnel and their dependents, if specified criteria are met.
This bill would provide that there is no independent possession or use of land or improvements if the possession or use is for a tenancy, as defined, in a residential unit, as defined, in a publicly owned housing project, as defined, is part of a governmental assistance program, and directly fulfills the governmental, public purpose of providing the housing, as described in the governmental assistance program. The bill would also provide that there is no independent possession or use of land or improvements if the possession or use is for onsite managerial duties for a publicly owned housing project, is necessary for the administration of the governmental assistance program, and directly fulfills the governmental, public purpose of the provision of housing under the governmental assistance program. The bill would make related findings and declarations. By imposing additional duties on local tax officials, the bill would impose a state-mandated local program.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill also would state the intent of the Legislature to comply with these requirements.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) California has a housing supply and affordability crisis of historic proportions. The consequences of failing to effectively and aggressively confront this crisis are hurting millions of Californians, robbing future generations of the chance to call California home, stifling economic opportunities for workers and businesses, worsening poverty and homelessness, and undermining the state’s environmental and climate objectives.
(b) Lack of supply and rising costs are compounding inequality and limiting advancement opportunities for many Californians.
(c) The majority of California renters, who represent more than 3,000,000 households, pay more than 30 percent of their income toward rent. Nearly one-third of renters, who represent more than 1,500,000 households, pay more than 50 percent of their income towards rent.
(d) There is continued need for housing at all income levels, including missing middle-income housing that will provide a variety of housing options and configurations to allow every Californian to live near where they work.
(e) Since the New Deal era, when the California Supreme Court concluded in Housing Authority of Los Angeles County v. Dockweiler (1939) 14 Cal.2d 437, that publicly owned affordable housing projects are public uses and purposes, publicly owned affordable housing has served as a partial solution to the unaffordability of housing in California.
(f) Recent innovations have led to the creation of publicly owned affordable housing projects that meet the state’s interest in addressing what is now a critical issue. That is, creating affordable housing for the “missing middle-income” population, or median- and moderate-income households, for whom such housing has lagged, to go along with the highly successful publicly owned affordable housing for low- and very low income households.
(g) Because they are publicly owned, publicly owned affordable housing projects are exempt from property taxation under Section 3 of Article XIII of the California Constitution.
(h) Private possessory interests in publicly owned property are generally subject to property taxation. However, it had been the long-standing opinion of the State Board of Equalization (board), since prior to 1995, that the possessory interest assessments should not be made against those tenants because it would defeat the purpose of publicly owned affordable housing and undercut the property tax exemption under Section 3 of Article III of the California Constitution.
(i) The board relied on English v. County of Alameda (1977) 70 Cal.App.3d 226, which held that the possessory interests of beneficiary residents of property exempt under the welfare and the college exemptions, including housing for elderly persons, hospital staff, and college and university staff, were not taxable because it would frustrate the public charitable or educational goal for which the exemptions were granted. The California Supreme Court agreed with this principle in Connolly v. County of Orange (1992) 1 Cal.4th 1105, 1118.
(j) Accordingly in 1995, concluding that the principle in English v. County of Alameda was “equally applicable” to public housing, the board reaffirmed its existing opinion that publicly owned affordable housing tenants do not have taxable possessory interests because imposing the tax on those tenants would defeat the very purpose of the publicly owned affordable housing.
(k) In 2010, the Chair of the Assembly Committee on Housing and Community Development requested the board’s opinion, and the board came to the same conclusion after reevaluating its 1995 opinion. Given the board’s long-standing opinion, the Legislature has not found it necessary to enact legislation addressing this topic.
(l) In October 2022, the board issued a legal opinion, relying on the definition of “possessory interest” in Section 107 of the Revenue and Taxation Code, that indicates that public housing tenancies “create taxable possessory interests.” While the opinion suggests that county assessors refrain from taxing possessory interests held by low-income tenants in public housing projects based on the board’s prior opinions, the opinion has created uncertainty with respect to the taxability of the possessory interests of all tenants in publicly owned affordable housing. This uncertainty can most expeditiously and efficiently be resolved through legislation.
(m) English v. County of Alameda (1977) 70 Cal.App.3d 226, predated the 1995 amendments to Section 107 of the Revenue and Taxation Code. Those amendments were intended to narrow the types of possessory interests that may be assessed, rather than expand what may be assessed under preexisting case law, such as English v. County of Alameda (1977) 70 Cal.App.3d 226.
(n) It is the intent of the Legislature to clarify that under existing law, the tenancies in publicly owned affordable housing and other publicly owned housing occupied by public beneficiaries are not subject to possessory interest taxation.
(o) In addition, the Legislature indicates that Section 107.5 of the Revenue and Taxation Code, as added by this act, is solely to the extent necessary to ensure its validity, adopted pursuant to the authority given to it under subdivisions (a), (b), and (e) of Section 3, and subdivision (b) of Section 4, of Article XIII of the California Constitution.

SEC. 2.

 Section 107.5 is added to the Revenue and Taxation Code, to read:

107.5.
 (a) For purposes of paragraph (1) of subdivision (a) of Section 107, there is no independent possession or use of land or improvements if either of the following criteria are met:
(1) That possession or use is all of the following:
(A) For a tenancy in a residential unit in a publicly owned housing project.
(B) A part of a governmental assistance program.
(C) Directly fulfills the governmental, public purpose of providing the housing, as described in the governmental assistance program.
(2) That possession or use is all of the following:
(A) For onsite managerial duties for a publicly owned housing project.
(B) Necessary for the administration of the governmental assistance program.
(C) Directly fulfills the governmental, public purpose of the provision of housing under the governmental assistance program.
(b) For purposes of this section, the following definitions apply:
(1) “Enforceable restriction” means a recorded covenant or other enforceable mechanism that restricts the occupancy of the residential units, except as may be required to avoid displacement of tenants, to public beneficiaries.
(2) “Public beneficiary” means a person or household that is the beneficiary of a state or local governmental assistance program available to the general public that offers housing in the publicly owned housing project. Beneficiaries of these governmental assistance programs exclude employees of the public agency owner of the publicly owned housing project. However, beneficiaries of these governmental assistance programs include, and are not limited to, the following:
(A) Seniors.
(B) Persons and families of low or moderate income, as defined in Section 50093 of the Health and Safety Code.
(C) Students attending college or university.
(3) “Publicly owned housing project” means a housing project owned by an agency that is exempt from taxation under either subdivision (a) or (b) of Section 3 of Article XIII of the California Constitution and that contains residential units that are subject to enforceable restrictions.
(4) “Residential unit” means a residential unit, whether attached or detached, in a publicly owned housing project.
(5) “Tenancy” means a tenancy in or possession of, claim to, or right to the possession of a residential unit.
(c) The provisions of this section are severable. If any provision of this section or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 3.

 (a) It is the intent of the Legislature in enacting this act to provide legislative direction to county assessors, the State Board of Equalization, the courts, and other involved parties regarding the intended interpretation of the term “independent,” as that term is used in Section 107 of the Revenue and Taxation Code and as it relates to publicly owned housing projects.
(b) Section 2 of this act, which adds Section 107.5 to the Revenue and Taxation Code, does not constitute a change in, but rather is declaratory of, existing law. It is the intent of the Legislature that reimbursement to any entity for the loss of any ad valorem property tax revenue as a result of this act not be required, as the act is declaratory of existing law.

SEC. 4.

 It is the intent of the Legislature to comply with Section 41 of the Revenue and Taxation Code.

SEC. 5.

 If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.

SEC. 6.

 Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.

SEC. 7.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.