California lawmakers and regulators are taking on the question of whether the coronavirus pandemic is a disaster worthy of quick property tax relief, but the question will likely get settled in court whether they decide or not.
At the crux of proposals before the Legislature and State Board of Equalization: Do restricted access to property due to stay-home orders or contamination from coronavirus constitute forms of physical damage that the state constitution requires for a reduced property value?
In the Legislature, a bill (S.B. 1431) to give apartment building owners a disaster reassessment to help make up for pandemic-induced lost rents passed its first committee on Thursday. The California Apartment Association is seeking the measure, saying it would mainly benefit small apartment owners facing financial difficulties.
But the California Assessors’ Association argues the bill would require them to reassess buildings without physical damage or market data to support changes in value.
Reassessments triggered by the bill would take time and would conflict with the constitution, Don Gaekle, group president and Stanislaus County assessor, told the Senate Governance and Finance Committee.
Bill author Sen. Steve Glazer (D) said he would amend the measure to be clear it only applies to Covid-19 and not other emergencies. He would also prohibit property tax relief for owners benefiting from other tax relief related to the pandemic, and require that assessed values return to their pre-pandemic amounts as soon as the emergency is over.
Glazer compared coronavirus to an environmental contaminant that causes property damage. But he recognized the constitutional questions the bill raises.
“Those things will get debated and fought over, perhaps in the court, if this bill moves ahead, but it is about having a balanced response,” Glazer told the committee.
The bill passed the committee 4-3 and will move next to the Senate Appropriations Committee.
Meanwhile, the five elected members of the equalization board are weighing whether to endorse the idea that restricted property access attributable to stay-home orders amounts to a diminution in value triggering disaster relief provisions of the state constitution.
Some tax practitioners are asking the board to propose or support legislation on the topic, or to ask Gov. Gavin Newsom (D) to issue an executive order.
Alternatively, the practitioners are asking the board to issue guidance encouraging county assessors to accept claims of midyear declines in value due to Covid-19.
The board, which oversees rules for assessors in California’s 58 counties, is to discuss the proposals at a May 29 meeting.
Board members are also considering proposals from a practitioner group called the California Alliance of Taxpayer Advocates for moving the annual lien date on which values are set from Jan. 1, 2020, to later in the year to capture declines in value due to the pandemic and allowing comparable sales from a wider time frame to be a factor in valuations.
The group’s members, who represent taxpayers before county assessors and assessment appeals boards, say the options would provide relief more quickly than would be possible under the current assessment appeal process.
The move would “encourage taxpayers by showing that state and local governments support taxpayers’ efforts to reopen their businesses, which includes being able to pay their property taxes during a period of reduced revenues,” Cris K. O’Neall, chair of the advocacy group and an attorney with Greenberg Traurig in Irvine, Calif., said in a letter to two board members who are leading the effort.
Board members first discussed the proposals at a May 13 meeting but haven’t indicated whether they support them. The board’s chief counsel and its deputy director for property tax both said the state constitution requires physical damage for property tax relief in a disaster or calamity.
“These proposals are dangerous, irresponsible, and downright illegal in many cases,” Marcy L. Berkman, deputy county counsel for Santa Clara County, told Bloomberg Tax.
Path to Supreme Court
Berkman, who represents the county’s assessment appeals boards, represented the county in a successful challenge in 2005 to a rule the state board adopted after the Sept. 11, 2001, terrorist attacks. That rule would have allowed airlines to reduce their property valuations, without physical damage to their property, because of the halt in air travel.
She warned the board May 13 that if S.B. 1431 were to become law, or if state law remained the same but assessors denied claims for relief that didn’t include physical damage, litigation would result.
“I think those two routes will be fighting for which makes their way to the Supreme Court first,” she said.
A member of the taxpayer advocacy group, Marty Dakessian of Dakessian Law Ltd. in Los Angeles, told the board it is up to the assessors to file their own legal challenges in state trial court seeking a ruling that relief claims based on restricted access are invalid. In the meantime, he said, they must process such claims.
“The assessors association doesn’t get to just sit up there and say, ‘We’re not going to enforce this statute because we believe it’s invalid,’” Dakessian said.
An attorney who represented the airlines in the 2005 appellate court ruling said he agrees with the assessors that physical damage is required, and that the proposals for the board and Legislature are improper.
“Absent physical damage, the Legislature and board have no real ability to grant relief,” Eric Miethke, president and CEO of Capitol Law and Policy Inc., told Bloomberg Tax. “It’s a constitutional problem that can’t be addressed by a statute or rule.”
Lawmakers should consider placing a measure on the ballot to amend the constitution and allow disaster-related property tax relief without physical damage, he said.
But Dakessian and several other practitioners said the 2005 ruling left open the question of whether restricted access or calamities that lack physical damage could still give rise to disaster relief for property tax purposes.
“It’s as novel as the coronavirus,” Douglas Mo, an attorney with Eversheds Sutherland, said. “This hasn’t been debated before.”