1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 SEPTEMBER 20, 2011 10 11 12 13 14 15 ITEM F2 16 PROPERTY TAXPAYERS' BILL OF RIGHTS HEARINGS 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 Michelle Steel 5 Vice-Chairwoman 6 Betty T. Yee Member 7 George Runner 8 Member 9 Marcy Jo Mandel Appearing for John 10 Chiang, State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief 13 Board Proceedings Division 14 Board of Equalization Staff: Todd Gilman 15 Chief Taxpayers' Rights Advocate 16 Office 17 Mark Sutter Technical Adviser 18 Taxpayers' Rights Advocate Office 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 INDEX OF SPEAKERS 2 ---oOo--- 3 NAME PAGE 4 Joe Kelly 4 5 Kimberlee Kay 13 6 Gina Rodriguez 22 7 Lee Martin 29 8 ---oOo--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 SEPTEMBER 20, 2011 4 ---oOo--- 5 MR. GILMAN: We'll move on to the property tax 6 hearings. 7 Um, the purpose of the hearing is to provide 8 individuals the opportunity to present their ideas, 9 concerns, and recommendations regarding legislation, the 10 quality of agency services, and other issues related to 11 the Board's administration of its tax programs, 12 including state and county property tax programs, and 13 any other programs identified in the Taxpayers' Bill of 14 Rights Annual Report. 15 Our first speaker is Mr. Joe Kelly. 16 Mr. Kelly. 17 MR. HORTON: Mr. Kelly, please introduce 18 yourself for the record. 19 ---oOo--- 20 JOE KELLY 21 ---oOo--- 22 MS. KELLY: Joe Kelly. Uh, Cal -- I live in 23 Calaveras County. 24 Uh, Chairman, Board Members, um, I've got about 25 five items to present for you. Your staff has my 26 information. I'm not sure that you've -- you have it 27 and have had sufficient time. 28 Uh, but last year -- number one is last year I 4 1 was here to request the addition of a chapter of the 2 Assessment Appeals Board Manual, basically a Chapter 10, 3 providing the information needed and steps to properly 4 process a rehearing request and superior court filing. 5 Today I request the status update of last year's 6 request. 7 My second item: May of 2010 I sent an 8 information package to the Taxpayers' Rights Advocate's 9 Office. It was forwarded to the Board's Investigations 10 Division. The Investigation -- Investigations Division 11 forwarded my complaint to the Department of Justice for 12 further handling and investigation, as stated in a 13 November 18th, 2010 letter from the Investigations 14 Division. And a copy of that letter was included. 15 Um, the information was regarding Calaveras 16 County's interim assessor, now elected assessor's home 17 purchase price and subsequent basis appraised value 18 reduction of $40,000. 19 The package contained written information 20 presented for the record, verbally and written, to the 21 Calaveras County Board of Supervisors as to the alleged 22 improprieties. The most damning issue was the interim 23 assessor stating publicly the $40,000 was the purchase 24 of personal property from the sellers. A declaration by 25 Aaron Alan Unger was included. Mr. Ungen -- Unger, 26 excuse me, was the seller's agent. Mr. Unger's 27 declaration states there was not any personal property 28 included in the sale. 5 1 Calaveras Enterprise, Friday, May 7, 2010 -- 2 see assessor's page A5 -- Jones suggested that the State 3 Board of Equalization and the Fair Political Practices 4 Committee be consulted about the allegations. "Jones" 5 is Jim Jones. He's now the former County Counsel. 6 A statement contained in the newspaper's 7 report: 8 "The FPP said that it could not comment on 9 a situation that has already occurred. And the 10 State Board of Equalization has failed to 11 provide an opinion on the issue despite several 12 calls." 13 The packet contained Calaveras Enterprise news 14 articles. 15 Um, excuse me. 16 Within this, also, there was a, uh -- uh, at 17 the end of a very heated public comment time frame, 18 approximately three weeks, uh, that the BOE -- that 19 Calaveras County, Jim Jones, came forward and stated 20 that the BOE had reviewed the issue and there was 21 nothing wrong. 22 Did Jim Jones -- did Jim Jones, County Counsel 23 of Calaveras County, ever contact in writing, letter or 24 e-mail, the responsible BOE agency for the review of 25 such complaint? Was a "nothing wrong" or any response 26 given to Jim Jones, County Counsel, Calaveras County, in 27 writing, letter or e-mail? Is my assumption correct 28 that a letter or e-mail response would have been sent to 6 1 County Counsel, Jim Jones? Why wasn't a CC of 2 Mr. Silva's letter sent to County Counsel Jim Jones 3 regarding the forwarding of the complaint to the DOJ? 4 Another subject: How are assessment appeal 5 applicants protected after hearing? What are the 6 consequences to the County Board of Equalization or a 7 County Assessment Appeals Board Members for reopening 8 discussion of the applicant's closed hearing? The 9 applicant and court reporter had left, thinking the 10 hearing was over. 11 What is a Board of Equalization -- what is the 12 Board of Equalization policy regarding reopening 13 discussion of applicant's closed hearing? What 14 protection does California Revenue and Taxation Law 15 provide regarding reopening discussion of applicant's 16 closed hearing? 17 The Brown Act, before it was specifically 18 removed from the 2003 Assessment Appeals Board Manual, 19 Board of Equalization Assessment Appeals Board Meetings, 20 gave protection. 21 The Board's policy on Revenue and Taxation Code 22 regarding consequences for reopening a closed hearing 23 should be added to Chapter 10 or appropriate chapter 24 regarding hearing procedures of the Assessment Appeals 25 Board Manual. There needs to be protection and 26 assurance of training requirements for County Board of 27 Equalization Members so this doesn't happen again. 28 Calaveras County Board of Equalization Member 7 1 Wilensky, December 16, 2008, Board of Equalization 2 quarterly hearing, made a public statement: 3 "I haven't thoroughly mastered the Tax Code 4 and have no interest in doing so." 5 Next subject: A clarification of Proposition 6 8, calamity property value reduction, is needed. I will 7 express two different scenarios I am well acquainted 8 with, the first being real estate transactions requiring 9 a natural hazards disclosure. The first page states a 10 disclaimer: "No physical inspection of the property." 11 This issue is about flooding, high risk areas, 12 special flood hazard area, or SFHA. 13 Excuse me. 14 High risk areas have at least a one percent 15 annual chance of flooding, which equates to a 26 percent 16 chance of flooding over the life of a 30-year mortgage. 17 All homeowners in these areas with mortgages from 18 federally regulated or insured lenders are required to 19 buy flood insurance. 20 Under current ownership, the flood -- the 21 property has flooded five out of the last six years due 22 to an illegal, never permitted by the county or state, 23 water retention facility downstream. State Water 24 Resources Board Agency have been involved, Complaint 25 Division, almost six years. The Division of Water 26 Rights became involved earlier this year through a 27 Notice of Application, Stream System; County Code 28 Enforcement complaint, under adopted International Code, 8 1 Public Nuisance, from mid-year; last, but not least, 2 FEMA, two years ago. 3 Meanwhile, due to environmental laws concern 4 the loss of use 15 acres of 20 acres goes on, to the 5 detriment of the property owner. And by the way, I am 6 the property owner. 7 This flood problem has been in effect since 8 1980 when the illegal dam raised road bed and bridge 9 abutments, and bridge structures were constructed. 10 Prior to the purchase, the county issued a "not in flood 11 plain" statement. I included that in the packet. 12 Written on the Complaint Division -- waiting -- 13 I'm sorry. Waiting on the Complaint Division to compile 14 and issue their report, took over three years, exceeded 15 the statute of limitations to sue the seller and broker. 16 There was no personal disclosure by the seller or broker 17 of a flooding issue. The seller owned the property 18 since 1972. 19 Due to the illegal water retention facility, 20 this property being flooded is included in the National 21 Wetland Inventory and lists it as an Emergent Wetland 22 Code PEMC, palustrine, emergent, seasonally flooded, not 23 man-made. That's an unusual statement with that. 24 The environmental side is stating it is 25 possible that increased seasonal flooding of this 26 riparian area due to presence of the pond, illegal 27 dam -- illegal water retention facility, has an 28 enhancing effect on this wetland environment. 9 1 Reduction of the seasonal flooding of the 2 riparian area upstream of the pond could constitute a 3 negative environmental impact on this natural resource. 4 Unfortunately, this information is not recorded. 5 A buyer in California is subject to unknown 6 negative environmental impacts when purchasing property 7 without full disclosure by the seller and recorded 8 complete title history reports. 9 It is my opinion, due to the amount of time and 10 activities that come into play, years down the road 11 property taxes are assessed not illegally but 12 improperly. I'm in my sixth year trying to stop the 13 flooding on my -- of my property caused by an illegal 14 water retention facility, trying to cause four 15 government agencies to enforce their rules, regulations, 16 and coming across more problems. 17 So what is the Board of Equalization's role and 18 responsibility in this kind of a quagmire? How do 19 Revenue and Taxation laws protect property owners, 20 taxpayers, where insufficient disclosure information has 21 occurred? What should be the proper appraisal 22 methodology for five usable acres and 15 acres that are 23 subject to environmental issues, inclusion in National 24 Wetland Inventory and listed as an emergent wetland? 25 The property is owned agriculture. The General 26 Plan shows future single-fam -- excuse me -- future 27 single-family five-acre zoning. The property is subject 28 to Public Resources Code 4290/4291, which includes a 10 1 limitation of distance on a single ingress and egress 2 road from a paved county road. The distance limitation 3 is not expressed in the General Plan or the General Plan 4 map. It is also not expressed in the title report. 5 Public Resources Code 4290/4291 mandates a 6 hundred foot -- hundred feet defensible space around 7 buildings without reimbursement, notification, and title 8 report. The entitlements offered in the General Plan 9 are false enticements. What is the correct appraisal 10 methodology? 11 The second scenario is foreclosed property. To 12 my knowledge, a bank foreclosed property is not subject 13 to California disclosure laws as they do not have 14 knowledge of ongoing property disputes and sell at-risk 15 buyers. 16 The property was purchased as a foreclosure. I 17 received notice when the Complaint Division of State 18 Waters sent me a copy of the letter to the buyer, 19 stating the buyer had inherited a complaint. The 20 buyer's currently going through preliminary motions of a 21 Notice of Application, Stream System. If they continue 22 with the application, the cost will far exceed the value 23 of their property. On top of this, according to the 24 2010-11 tax records, the assessor raised their tax basis 25 $10,000. 26 Scenario one, the property is owned 27 agriculture. Should Assessor's Handbook 521 be used for 28 valuing the five acres usable under the concept of 11 1 homestead? Should the value be used on the per acre 2 price, per five acres, rather than comparable properties 3 without comparable flooding problems? 4 Scenario one and two, who is responsible for 5 protecting the property rights, entitlements of 6 ownership and enforcing state laws for the benefit of 7 property owners and potential buyers of affected 8 properties? 9 And I believe you have the copy of the 10 September 22nd, 2010 issue of Leslie Davis, complete 11 packet and other things. 12 MR. HORTON: Thank you very much for your 13 presentation here today. We will take all of those 14 matters under consideration. 15 I'm going to ask that Mr. Gilman reach out to 16 you and set up the meetings with the appropriate 17 individuals, uh, so that we can bring some resolution, 18 one way or the other, uh, to the issues that you've 19 addressed. 20 Members, any comments? 21 Hearing none, uh, thank you, Mr. Gilman. 22 Thank you again so very much for coming before 23 us today. 24 MR. KELLY: Thank you, sir. 25 MR. GILMAN: Thank you, Mr. Kelly. 26 Our next speaker is Miss Kimberlee Kay from 27 Sherman and Boone Realtors. 28 Ms. Kay. 12 1 ---oOo--- 2 KIMBERLEE KAY 3 ---oOo--- 4 MS. KAY: Good afternoon. 5 MR. HORTON: Good afternoon, Ms. Kay. 6 MS. KAY: So I just jump right in, huh? 7 MR. HORTON: Yes. Please introduce yourself 8 for the record and -- 9 MS. KAY: Oh. Name is a Kimberlee Kay. I'm 10 with Sherman and Boone Realtors. And we are the 11 property management company for a lender in California 12 called Omni Financial. 13 MR. HORTON: Mm-hmm. 14 MS. KAY: Omni Financial foreclosed on a 15 26-acre commercial development in July '09. And one of 16 my jobs is to make sure that the property values are in 17 accordance with what I believe they are, and then to 18 file appeals in the event I think the values are lower. 19 And what I included -- do you have this folder? 20 MS. YEE: Yes. 21 MR. HORTON: Yes. 22 MS. KAY: What I included in the folder is a 23 copy of an overhead picture. This was taken fairly 24 recently. And if you put the -- these are ball fields 25 up here. If you hold it like this and put the ball 26 fields up to your right, just about everything left of 27 the ball fields, down to right about there, if you can 28 see, um, belongs to Omni Financial. 13 1 What happened was, in 2007, a CPA filed a 571-L 2 form outlining and describing the cost of construction, 3 the cost of construction of buildings. 4 Um, I don't know if you can see on the picture, 5 but there's four little white buildings on the right 6 there. 7 MR. HORTON: I see it. 8 MS. KAY: The Zone Sports Center was a 9 developer. They were never in operation at business at 10 these parcels other than for the purpose of building a 11 shell and then selling the shells off. So, for example, 12 Me and Ed's Pizza bought one Panda Express bought one, 13 and so forth. 14 In 2007, when the assessor filed the 571-L 15 form, which I provided you a copy with. On page one 16 there, where I've circled in red, the construction in 17 progress was 4.149 million. 18 MR. HORTON: Mm-hmm. 19 MS. KAY: That construction in progress was for 20 all of the off-site improvements; it was for grading the 21 parking lots, putting in the asphalt, building the shell 22 buildings. And the personal property assessor 23 attributed that value to personal property. And then, 24 of course, added a 10 percent penalty, so the property's 25 been assessed for $4.6 million since 2007 and there's no 26 personal property. 27 I have tried everything I can think of to try 28 and prove something doesn't exist. I mean, here's 14 1 pictures of aerial photos in September of '06, in March 2 '07. It clearly shows that our parcel has been a 3 parking lot and zoned that way since 2005. 4 I -- I -- I've tried everything. 5 MS. MANDEL: Did you -- did you say -- 6 I'm sorry, Mr. Chairman. 7 MR. HORTON: No. Go right ahead, please. 8 MS. MANDEL: Did you say they took the 9 construction in progress number from the property 10 statement and put that on the roll for personal 11 property? 12 MS. KAY: Personal property. Yes, in addition 13 to the already assessed -- 14 MS. MANDEL: In addition to the fact that 15 they -- and they -- 16 MS. KAY: They will not provide me with an 17 itemized list of what they're calling the personal 18 property tax. They -- every time I ask them a different 19 question, please give me an itemized list, what are you 20 charging us for, and they say I cannot answer your 21 questions at this time. 22 MS. MANDEL: Um -- and, uh, they have something 23 on there for improvements to the property, separate from 24 the land? 25 MS. KAY: When we first foreclosed on the 26 property, I've called on the values. And I've got just 27 under $10 million that all of the real property is 28 assessed for. 15 1 So every time a building was completed, a new 2 parcel number was issued, the real property assessor 3 would go out and increase the value of, you know, 4 fixtures, improvements, the asphalt -- 5 MS. MANDEL: Right. 6 MS. KAY: -- the amount of the building. 7 MS. MANDEL: Right. 8 MS. KAY: Then issue a new separate property 9 tax statement to the owner of that shell building. 10 MS. MANDEL: Okay. 11 MS. KAY: Well, what's left, I mean most of it, 12 you know, 10 or 12 acres or so of it is parking lot. 13 MS. MANDEL: Okay. 14 MS. KAY: And -- and we're not allowed to store 15 personal property equipment on a parking lot, so -- 16 MS. MANDEL: Is this a new one that walked in 17 today, or have you guys -- 18 MR. GILMAN: No. No. Ms. Kay has been in 19 contact with my office for -- 20 Mark, how long? Mark Sutter of my staff. 21 MR. SUTTER: Uh, several months. 22 MS. MANDEL: Oh, okay. 23 MR. GILMAN: Yeah, we've been working with her 24 and Fresno County for, oh, off and on, for at least four 25 or five months. 26 MR. SUTTER: At least. And we're kind of at 27 the same point Ms. Kay is as far as getting 28 information. 16 1 MR. HORTON: Can you tell us what that means? 2 MR. SUTTER: Yes. My first concern is that 3 it's being double assessed. 4 MS. MANDEL: Mm-hmm. 5 MR. SUTTER: It's assessed as personal property 6 and also as real property. Entirely possible. I can't 7 get the records to show one way or another. 8 However, in discussions -- 9 MR. HORTON: When you say you can't get the 10 records, you can't get them from whom? 11 MR. SUTTER: From the county. 12 MS. KAY: Well, they refused to provide me a 13 copy of the 571-L statement that was filed until June of 14 this year. 15 MR. HORTON: So is the county not cooperating 16 with you? 17 MR. SUTTER: Well so far, we've been getting 18 cooperation partially. Unfortunately, I don't have all 19 the cooperation I feel I need for my due diligence to 20 determine whether it's been appraised for both real and 21 personal. 22 MR. HORTON: And you've been dealing with -- 23 MR. SUTTER: Well, actually, I have talked to 24 the assessor himself, and he assures me that, um, if 25 there's a change that needs to be made, they'll make 26 them. 27 And consequently, after that we did find some 28 more information that the construction in progress 17 1 actually shows on the 571 statement. So that's when I 2 contacted them again to try to find out if it is in fact 3 real property or personal property. There's been sort 4 of a -- a changing story as to what that personal -- 5 that $4 million originally represented. 6 MS. MANDEL: Changing story from who, from the 7 assessor? 8 MS. KAY: Well -- 9 MS. MANDEL: Well, wait a minute. 10 MR. SUTTER: The county. 11 MS. MANDEL: From the county. 12 MR. SUTTER: Originally, it was for a roller 13 coaster that was never completed. That at some point -- 14 we were told emphatically that that was not for the 15 roller coaster. So then we'd asked what is it exactly 16 for, and we never really got a straight answer on that 17 or a clear answer. 18 And to this day, um, I'm not sure whether it's 19 been assessed as personal, as real, or as both or 20 neither. So it's certainly been assessed as one or the 21 other. But it's possible it's been assessed by both 22 real and personal. 23 And, frankly, I don't have enough information 24 to determine whether that's the case. And I need to see 25 some more of the records, I think, in order for me to 26 feel comfortable which one has been done. And we've 27 been in conversation up until just before this hearing. 28 So I expect that we're going to get the information. 18 1 Unfortunately, I don't know when and I don't know to 2 what extent. So I can't promise much at this point 3 until I see more. 4 MR. HORTON: Mr. Runner. 5 MR. RUNNER: Yeah, um, we -- we understand that 6 the assessor is at least re-engaging or engaging as 7 opposed to -- I think it's a new assessor. 8 MR. GILMAN: It is, right. And we've been in 9 contact with the assessor, and the assessor has been 10 amenable to work with us, up to an extent, so -- 11 MS. KAY: Mr. Dictos asked me why we paid the 12 tax in the first place. 13 MR. HORTON: Okay. 14 MS. KAY: He said, "If it was personal property 15 tax and there was no personal property, why did you pay 16 it?" Well, we paid it because we were -- 17 MS. MANDEL: Excuse me. Sorry. 18 MS. KAY: We paid it because, you know, when we 19 foreclosed on the development, I mean, we had no choice 20 really but to move forward with the development or have 21 the whole thing completely tank. So we had to make lot 22 line adjustments, form a homeowner's association. There 23 were legal issues, 26 different mechanics liens. I 24 mean, it really was a mess. 25 And, um, so in order to make any of those lot 26 line adjustments legal, we had to bring all of the 27 property taxes current. And of course the borrower 28 hadn't paid the taxes in several years. So we wrote 19 1 them a check for $241,000; 134,000 of it, I think, was 2 only for the personal property tax. 3 MS. MANDEL: Was the personal property tax on 4 the secured tax bills? 5 MS. KAY: Yes. 6 MR. GILMAN: Right. 7 MS. MANDEL: Okay. It's not like you were 8 paying a separate personal bill that wasn't tied to the 9 real estate. 10 MR. SUTTER: And there's a slightly new issue. 11 We, uh, found out today, or I found out today that the 12 owner of what we think the personal property is, is not 13 the person they assessed it to. They assessed it to the 14 real property owner and we believe it should have been 15 assessed to the owner of the personal property. So we 16 haven't had a chance to discuss that with the county yet 17 either. 18 MS. KAY: Well, and then the personal property 19 person -- and I could kind of show you the plan. There 20 was a plan to put in a small amusement park. 21 MR. HORTON: Mm-hmm. 22 MS. KAY: And there's those ball fields again. 23 And you can see that -- you know, the ironic thing is 24 that all that property to the right of our property 25 belongs to the City of Fresno. And all of the roller 26 coaster equipment was delivered on boom trucks and 27 parked on the city's property. And it was owned by 28 another company, and so they attached the farthest most 20 1 corner of our property to send the personal property 2 statement to the property owner. 3 MR. HORTON: Okay. 4 MR. GILMAN: Mr. Chair -- 5 MR. HORTON: Sounds like we have a Cool Hand 6 Luke situation. 7 MR. GILMAN: Mr. Chair, there's a few moving 8 parts. 9 MR. HORTON: And did you see the movie, Cool 10 Hand Luke? 11 MS. MANDEL: What we have here is -- 12 MR. HORTON: He says, "What we have here is a 13 failure to communicate." 14 MR. GILMAN: Right. 15 MR. HORTON: Anyway. Mr. Runner. 16 MR. RUNNER: Yeah. What -- we'll continue 17 to -- we've had some conversation with our office in 18 regards to this particular issue. We'll continue. I 19 think -- I think there's a lot of time or a lot of room 20 for additional clarification on this issue. And so I 21 would suggest we continue to have those. 22 I don't know if you've -- have you met with our 23 office yet? I know there have been phone calls. 24 MS. KAY: Phone calls. 25 MR. RUNNER: Uh, I would suggest that maybe on 26 your way out, we've got some staff here that can 27 actually go through the documents and see them, for us, 28 for the first time at that point. And then we can, I 21 1 think, continue to work through this. There seems to be 2 room for a lot of -- 3 MS. KAY: Oh, I see. You can't just pick up the 4 phone and ask them to give us our money back? That'd be 5 really nice. 6 MR. RUNNER: That would be a good call, but I 7 don't think we're the ones that would make that one. 8 But we can assist, and that's, I think, we'll continue 9 to do that. So I think if we can see the materials, I 10 think if one of our staff will help you, catch you on 11 the way out there with the material that you brought. 12 MS. KAY: All righty (sic). 13 MR. HORTON: Excellent. Thank you. Thank you 14 very much. 15 MS. KAY: Thank you so much for your time. 16 MR. HORTON: Thank you, Mr. Runner. 17 MR. RUNNER: Thank you. 18 Mr. Gilman. 19 MR. GILMAN: Okay. Our next speaker is Gina 20 Rodriguez. 21 MR. HORTON: Welcome. 22 MR. GILMAN: Ms. Rodriguez. 23 ---oOo--- 24 GINA RODRIGUEZ 25 ---oOo--- 26 MR. HORTON: Please introduce yourself for the 27 record. 28 MS. RODRIGUEZ: Thank you, Mr. Chair, Members. 22 1 Gina Rodriguez with the California Taxpayers' 2 Association. 3 CalTax is a nonpartisan, nonprofit association 4 that supports good tax policy, opposes unnecessary 5 taxes, and promotes government efficiency. 6 Thank you very much for allowing me to speak 7 today. I have three issues that I'd like to present. 8 They include embedded software, change in ownership 9 penalties, and filing fees for assessment appeals. 10 All three of these issues fall under the realm 11 of one Rev and Tax Code Section 169 which contains these 12 ten words -- it's probably the shortest statute I've 13 read. And the ten words are: 14 "The Board shall encourage uniform 15 state-wide appraisal and assessment 16 practices." 17 So the first issue, embedded software. You're 18 probably familiar with Section 995; it generally exempts 19 from property tax application software that is sold with 20 equipment that is embedded. This exemption is more 21 important now than in previous years because application 22 software has been, um -- been increasingly embedded in 23 more and more kinds of machinery and equipment, 24 including aircraft, computers, telecommunications 25 equipment, hospital and medical equipment, and vehicles, 26 just to name a few. 27 Moreover, the proportion of the value 28 attributable to application software is steadily rising 23 1 as the capabilities, speed, and efficiency of such 2 equipment become increasingly dependent on this 3 software. 4 The problem is Rev and Tax Code Section 995 5 does not specify how a person claiming the exemption 6 would show the existence or the value of the application 7 software. This is a difficult task because the price 8 for the software is not generally separately stated, and 9 determining the value of the software, uh, may have to, 10 uh, include using several appraisal techniques. 11 Industry and assessors both clearly need 12 guidance in this area as the exemptions are applied 13 inconsistently throughout the state. While industry and 14 assessors tried to work on a compromise this year, the 15 unfortunate result, as reflected in AB 832, would have 16 prohibited taxpayers from showing the existence and 17 value of nontaxable application software by a fair and 18 reasonable evidentiary start. The bill was held in the 19 Assembly, but industry wants to continue to work with 20 the assessors on a standard. 21 At your last Board Meeting on August 23rd, the 22 Board the did approve staff's request to conduct a study 23 to evaluate the feasibility of developing an optional 24 percentage to reasonably estimate the fair market value 25 of tangible personal property dealing with technology 26 transfer agreements. 27 CalTax does believe this same process might be 28 beneficial for, um, embedded software valuation. 24 1 Therefore, CalTax respectfully requests that the Board 2 direct staff to begin holding interested parties 3 meetings on this issue to listen to concerns by both 4 assessors and, um -- and industry, in order to 5 determine whether or not we should proceed in using 6 percentage ranges, or perhaps some other method, to be 7 used as appropriate standard for determining the 8 exemption for embedded software for personal property 9 tax purposes. 10 My second issue deals with change in ownership 11 penalties. Um, CalTax does recognize that a healthy tax 12 administration includes a fair and balanced enforcement 13 effort. However, one clear and recurring problem with 14 existing law is that many assessors apply the change in 15 ownership failure to file penalty to each location in 16 each county in which a legal entity owns real property. 17 And this occurs even if no change in ownership occurred 18 and no property escaped assessment. 19 So I have an example. We have McJacks Burgers. 20 It has locations in 43 counties in California. And 21 McJacks has $500 -- a $500 million value in LA County, 22 in property. They have another two billion overall. So 23 the total property subject to assessment is valued at 24 $2.5 billion, with a total statewide property tax bill 25 of 25 million. That's -- and that's exclusive any 26 special assessments or bond indebtedness. 27 McJacks' current failure to file penalty in LA 28 County is $2.5 million, which is the 10 percent of the 25 1 2.5 billion. And that penalty applies even if the 2 property did not escape assessment or is underassessed 3 and even if no change in ownership actually occurred. 4 So this is neither fair nor balanced. Um, it doesn't 5 meet the, uh, enforcement effort that CalTax does 6 believe in. 7 Now, not all counties apply the penalty 8 calculation in this manner. Therefore, CalTax 9 respectfully requests that this Board, um, direct staff 10 to work with assessors and industry in order to review 11 the inconsistent application of the penalty among the 12 counties and provide a recommendation to the Board. 13 The final issue I have deals with filing fees 14 for assessment appeals. And I gave you a couple of 15 handouts for this one. But BOE Property Tax Rule 305(c) 16 deals with application for changed assessment that is 17 filed with local Assessment Appeals Boards. The opening 18 statement of that rule says: 19 "Forms and contents: The county shall 20 provide, free of charge, forms on which 21 applications are to be made." 22 As you may know, Assessment Appeals Boards came 23 into existence in the late 1960s. The "free of charge" 24 language in Rule 305(c) probably first appeared in that 25 version of the property tax rules that the BOE 26 promulgated in the 1960s. 27 Um, I've provided you with the 1971 version of 28 Rule 305(c) which contains the same language, the "free 26 1 of charge" language. That's as far back as we had in 2 our library. 3 Um, CalTax does believe that when the BOE 4 included the language "free of charge" in the rule, the 5 intent was that there would not be an application fee 6 for filing an assessment appeal. The BOE has had a 7 long-standing policy of making access to Assessment 8 Appeals Boards free to everyone, which was part of the 9 intent of establishing the Assessment Appeals Boards. 10 Charging a fee for admission, whether you call 11 it a fee for the application form or a fee to file the 12 application form, seems to go against this long-standing 13 policy. 14 The second handout I gave you provides a page 15 from the BOE's website that shows the application, um, 16 of filing fees for assessment appeals. And as you can 17 see, not all counties charge a filing fee. And the ones 18 that do charge, the fees range from $26.75 to $65. In 19 the case of Santa Barbara County, they charge -- they 20 also charge a fee of a thousand dollars for properties 21 with values in excess of $30 million. 22 Again, CalTax respectfully requests that the 23 Board direct staff to work the assessors and industry in 24 order to review the inconsistent application of the fee 25 among the counties and provide recommendations to the 26 Board. 27 In conclusion, the Board is mandated by Rev and 28 Tax Code Section 169 to encourage uniform statewide 27 1 appraisal and assessment practices, and CalTax believes 2 the time is right for this encouragement. We're happy 3 to continue to work with Senator Runner's Property Tax 4 Committee on all three of these issues and any others 5 that he deems necessary. 6 Thank you. 7 MR. HORTON: Mr. Runner. 8 MR. RUNNER: Yeah, I think that a couple of the 9 issues -- one, yes, we'd be glad to sit down and see 10 how -- what kind of an agenda we can work out and 11 properly deal with particularly two and three. 12 Number one, we actually, as you -- as we've 13 talked about, have our annual meeting, as the Board's 14 been working and planning on, on October 19th and 15 embedded software is one of the items of agenda for that 16 day. 17 Uh, and so I think we'll be able to have a very 18 complete discussion at that point. And then I think 19 we'll be prepared then to move on, uh, at least with 20 some direction and thoughts at that point. 21 But we'd be glad to continue to work with, 22 uh -- with CalTax and go through these and determine 23 what is maybe the best path for us to try to address 24 some of these issues through the Property Tax 25 Committee. 26 MR. HORTON: Thank you very much, Mr. Runner. 27 Thank you, Ms. Rodriguez. 28 MS. RODRIGUEZ: Thank you. 28 1 MR. HORTON: Mr. Gilman. 2 MR. GILMAN: Thank you. Our last speaker, I 3 believe, is Ms. Lee Martin. 4 Ms. Martin, would you please come up. 5 ---oOo--- 6 LEE MARTIN 7 ---oOo--- 8 MS. MARTIN: Hello. 9 MR. HORTON: Hi, Ms. Martin. Please introduce 10 yourself for the record. 11 MS. MARTIN: My name is Lee Martin, and I'm 12 from Alameda County. And I have two issues. 13 My first issue is I paid property tax, um, for 14 '09 -- two '08 and '09, and two '09-'10. Um, what 15 happened here, I didn't get credit for some of the 16 taxes, which was $3,000. 17 The second issue was -- is that I inherited 18 this property from my mom, and I am not getting the same 19 credit that she did. This was taxes. 20 MR. HORTON: Okay. Uh, Mr. Gilman -- 21 Um, relative to the property tax law and the 22 exemptions and the continuation and holding of those, 23 there is some additional information that -- that -- 24 that we may need from you. 25 Mr. Gilman, is this your first time hearing of 26 this case? 27 MR. GILMAN: Um, we had the pleasure of having 28 Ms. Martin here last year on a slightly different issue. 29 1 But we found out just this morning that 2 Ms. Martin would be here to address the Board on this 3 concern. Mr. Sutter from my staff has had the 4 opportunity to go down and meet with Ms. Martin, 5 actually this morning, and talk to her about some of the 6 concerns. 7 MR. HORTON: Okay. 8 MR. GILMAN: We're planning on working with the 9 Alameda County Assessor's office to resolve some of the 10 issues. 11 MR. HORTON: Mr. Sutter, any thoughts you want 12 to share with the Board? 13 MR. SUTTER: Yes, sir. Actually, what we'd 14 like to be able to do is break these numbers down and 15 show where they came from, so Ms. Martin can understand 16 them; and also, determine whether or not all of the 17 amounts that she paid were credited properly. And 18 unfortunately, it's hard to do with the information that 19 we have right now. 20 MR. HORTON: Yeah. There may also need to be 21 some clarity on the law, uh, as the inheritance issue. 22 I think it's Prop 99 that deals with, uh -- 23 MS. MANDEL: Parents. 24 MR. HORTON: -- parents and so forth. 25 MR. SUTTER: 98. 26 MR. HORTON: 98, okay. Um, so -- 27 MS. YEE: There's also going to be an issue 28 with the Treasurer-Tax Collector's office. 30 1 MR. SUTTER: Correct. That's our main one at 2 this point is the tax collector. 3 MR. HORTON: Any further thoughts, Ms. Yee? 4 MS. YEE: No. 5 MR. HORTON: No. Okay. 6 MS. MARTIN: Thank you. 7 MR. HORTON: Thank you very much for appearing 8 before us today. We appreciate it. 9 MR. GILMAN: Thank you, Ms. Martin. 10 MR. HORTON: Mr. Gilman. 11 MR. GILMAN: Um, we have no written submissions 12 for property tax. So, I'd also like to extend the same 13 opportunity, Mr. Chairman, with your permission, to 14 anyone in the audience that would like to come forward 15 now and speak on a property tax matter. 16 MR. HORTON: Okay. Thank you. Could you pull 17 up a few more chairs? Uh, gotcha. 18 MR. GILMAN: That concludes our hearing -- 19 thank you. That concludes our hearing for today for 20 both business and property taxes. 21 MR. HORTON: Thank you very much, Mr. Gilman. 22 MR. GILMAN: Thank you. 23 ---oOo--- 24 25 26 27 28 31 1 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, KATHLEEN SKIDGEL, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 September 20, 2011 I recorded verbatim, in shorthand, to 11 the best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding pages 1 14 through 31 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: October 5, 2011 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 32