1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 REPORTER'S TRANSCRIPT 7 APRIL 30, 2019 8 9 10 ITEM K1.3 11 PROPERTY TAX DEPUTY DIRECTOR'S REPORT; 12 ITEM K1.3(a) 13 WELFARE EXEMPTION 14 15 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Jillian M. Sumner 28 CSR NO. 13619 1 1 P R E S E N T 2 3 For the Board of Honorable Malia S. Cohen Equalization: Chair 4 Honorable Antonio Vazquez 5 Vice Chair 6 Honorable Ted Gaines First District 7 Honorable Mike Schaefer 8 Fourth District 9 Yvette Stowers Appearing for Betty T. 10 Yee, State Controller (per Government Code 11 Section 7.9) 12 For the Board of 13 Equalization Staff: David Yeung Chief 14 County-Assessed Properties Division 15 Toya Davis 16 Clerk Board Proceedings 17 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 APRIL 30, 2019 4 ---oOo--- 5 MS. DAVIS: Madam Chair, our next item is 6 Item K1.3(a), the Property Tax Director's Report. 7 This item is informational only. It does 8 not require a vote. 9 Mr. Yeung, please come forward at this time. 10 MS. COHEN: Welcome, Mr. Yeung. 11 MR. YEUNG: Thank you. Thank you very much. 12 Hello, Chair Cohen and Honorable Members of 13 the Board. My name is David Yeung, Chief of the 14 County-Assessed Properties Division. 15 This presentation will provide an overview 16 of the Welfare Exemption and the Board's role in 17 co-administering this exemption. 18 In general, the Welfare Exemption exempts 19 property of organizations formed and operated 20 exclusively for qualifying purposes from property 21 taxation. 22 Section 4(b) of Article 13 of the California 23 Constitution authorizes the Legislature to exempt 24 property that is used for religious, hospital, or 25 charitable purposes -- 26 (Whereupon Mr. Schaefer was present.) 27 MR. YEUNG: -- that is owned or held in 28 trust by a nonprofit organization operating for those 3 1 purposes. 2 This constitutional amendment was adopted by 3 voters on November 7th, 1954. Implementing 4 legislation was enacted in 1945 with the addition of 5 Section 214 of the Revenue and Taxation Code. 6 The legislation parallels the constitutional 7 provisions, except for expanding purposes to include 8 scientific as a qualifying purpose. 9 To qualify for the Welfare Exemption, the 10 organization must be a community chest, fund, 11 foundation, corporation, or an eligible limited 12 liability company. 13 Also, the organization's primary purpose 14 must be religious, hospital, charitable, or 15 scientific in nature. 16 MS. COHEN: Mr. Yeung. 17 MR. YEUNG: Yes, Madam -- 18 MS. COHEN: May I interject a question, 19 please? 20 MR. YEUNG: Of course. 21 MS. COHEN: Just in the last bullet, you 22 said, on page 4, an organization must be a community 23 chest -- 24 MR. YEUNG: Yes. 25 MS. COHEN: -- fund, foundation, 26 corporation, or eligible limited liability company. 27 MR. YEUNG: Yes. 28 MS. COHEN: Who determines that eligibility? 4 1 MR. YEUNG: The -- those are -- those are 2 types of entities that would fit under the nonprofit 3 501(c)(3) requirements. 4 And when they submit the forms, as I will go 5 on later, the Board staff will take a look to see if 6 the the formative documents actually do qualify. 7 MS. COHEN: So when you say "eligible," does 8 that mean like within good standing within the state? 9 You have to file -- 10 MR. YEUNG: Yes, you have to file -- 11 MS. COHEN: -- state and federal. 12 MR. YEUNG: You have to be a qualified 13 nonprofit -- 14 MS. COHEN: Yes. 15 MR. YEUNG: -- of those -- of those 16 construct. And then when you file, we actually have 17 to take a look and scrutinize the form of the 18 documents. 19 MS. COHEN: So you're gleaning this 20 information from the Secretary of State? 21 MR. YEUNG: We are. Secretary of State and 22 IRS also. 23 MS. COHEN: Perfect. Thank you. 24 MR. YEUNG: Okay. 25 The term "welfare," within the context of 26 the Welfare Exemption, refers to the welfare of the 27 community. 28 The activities of the nonprofit must not 5 1 only be meaningful and significant, but must benefit 2 the welfare of the community as a whole. 3 As stated, the organization's primary 4 purpose must be either religious, hospital, 5 charitable, or scientific. 6 To determine the purpose, one must look at 7 the organization's activities. The activities are 8 reviewed through the lens of what is known as the 9 community benefits test. 10 The community benefits test first applied by 11 the courts in the Lundberg and the Stockton Civic 12 Theater court cases were to exempt activities found 13 to be charitable or educational. 14 Also, this test has been applied for courts 15 to exempt other activities within the broad 16 definition of charitable. 17 Under the community benefits test an 18 organization's activity are charitable when they are 19 a benefit to the community as a whole, or an 20 unascertainable and indefinite portion thereof. 21 What this means is that the class benefited 22 must be sufficiently large that a gift to it may be 23 considered a benefit to an un -- to an indefinite 24 portion of the community. 25 An organization may still be considered 26 charitable even if the benefits are confined to 27 members of a certain segment of the public, provided 28 no special advantages given to members of the 6 1 organization or to a particular individual. So it's 2 usually a very broad test. 3 The Board of Equalization jointly 4 administers the Welfare Exemption with county 5 assessors. The BOE's role in administering these 6 exemptions is to determine if the organization is 7 organized and operated exclusively for the qualifying 8 purposes, and otherwise meets the requirements of 9 Revenue and Taxation Code 214. 10 The assessors' role in administering these 11 exemptions is to determine whether the use of the 12 specific property qualifies for the exemption. So 13 it's a two-part test. The organization, and then the 14 actual property itself. 15 The process to file the Welfare Exemption is 16 basically two parts. One, they must file with the 17 BOE for what we call an OCC, or an organizational 18 clearance certificate. And in some cases a 19 supplemental clearance certificate if they're filing 20 for low-income housing. 21 And, two, filing with the local county 22 assessor where the property is actually located. 23 Our County-Assessed Properties Division 24 staff determines whether the organization is eligible 25 for an exemption based under organization's formative 26 documents and their financial statements. 27 Staff also confirms their eligibility based 28 on the organization's tax exempt status with the 7 1 Franchise Tax Board and the IRS. 2 More importantly, staff reviews the 3 activities of the organization to determine whether 4 they fall within the parameters of one of the exempt 5 purposes. 6 If all the conditions are met, the exemption 7 unit will issue the OCC, organizational clearance 8 certificate, and/or supplemental clearance 9 certificate to the claimant. 10 Now, a little look into our function and our 11 unit that actually administers the Welfare Exemption. 12 The Welfare Exemption Unit is comprised of a 13 supervisor and ten staff positions. Of the staff 14 positions two are senior specialists, five are 15 journey-level associates, and three are support 16 staff. 17 MS. COHEN: I'm sorry, one more time. You 18 said supervisor -- 19 MR. YEUNG: Yes. supervisor, two senior 20 staff that handle -- that act as leads and handle the 21 most technically challenging filings, five 22 journey-level staff, and three support. 23 Of the ten staff, there's currently -- we 24 currently have two vacant. We are -- we are in the 25 process of recruitment. So they are -- they are 26 being -- they are being actively recruited right 27 now. 28 For the past three years, the Exemptions 8 1 Unit has received approximately 1,035 claims per 2 year. They process a little bit more than that. 3 They process about 1,630 claims, and issue about 4 1,030 certificates. 5 Staff has made a concerted effort to reduce 6 the number of pending claims. So we are processing a 7 little more than we're getting in. 8 Most claims are reviewed for completeness 9 within one/two months of receipt, and worked within 10 five. That's our goal. 11 If staff determines the organization is 12 eligible, an OCC and/or supplemental clearance 13 certificate is issued to the claimant. The claimant 14 is responsible for providing a copy of the 15 certificate when filing to exempt specific property 16 with the county assessor. 17 Upon receiving a claim form, BOE 267, claim 18 for Welfare Exemption, the assessor reviews the claim 19 form and attaches documents for completeness. 20 The assessor then would typically conduct a 21 field inspection to verify the accuracy of the 22 information on the claim, and to verify the property 23 is used for that exempt purpose. 24 The county assessor then determines whether 25 all or a portion of the organization's property is 26 exempt, and makes the appropriate adjustments on the 27 roll. 28 And the last thing we have is a listing of 9 1 some resources that we have on -- that we have on the 2 issue on our Board Web site. We actually have a 3 section dedicated to the Welfare Exemption. It is 4 quite -- it has actually quite a lot of guidance on 5 it. 6 We also -- many assessor's sites also have 7 quite a informative section on the Welfare Exemption, 8 the application of, and how they look at it. And we 9 also have a handbook. The handbook is Section 267 10 that is -- that talks extensively about the Welfare 11 Exemption. 12 And this concludes my presentation today. 13 I'm available to answer any questions you may have. 14 MS. COHEN: Thank you very much for your 15 presentation. I actually found it very informative. 16 And I'm grateful for this -- for you taking the time 17 to walk us through this. 18 I have one quick question. 19 MR. YEUNG: Of course. 20 MS. COHEN: And it's just a definition word. 21 OCC and/or SCC. 22 MR. YEUNG: Yes. 23 MS. COHEN: SCC is supplemental claimant -- 24 MR. YEUNG: Clearance certificate. 25 MS. COHEN: Clearance certificate. 26 And OCC is -- 27 MR. YEUNG: Is the organizational clearance 28 certificate. 10 1 The OCC is the main -- is the main 2 certificate after we take a look at the application, 3 the formative documents, financial statements. If 4 they fall within the parameters of the organization, 5 the entity parameters of 214, we will issue that. 6 That's the main certificate. 7 In special cases where they deal with 8 low-income housing, they -- especially if they have a 9 limited liability company acting as managing partner, 10 they'd require a supplemental. And in those cases, 11 they would apply for that, and we would look at that 12 also. And we would issue that if they meet all the 13 requirements. 14 MS. COHEN: I will say this, that this is 15 actually one aspect that I believe the public, at 16 least when I was talking to them as a candidate -- 17 MR. YEUNG: Yes. 18 MS. COHEN: -- understood -- 19 MR. YEUNG: Right. 20 MS. COHEN: -- the Welfare Exemption. 21 MR. YEUNG: Right. 22 MS. COHEN: Particularly churches and 23 nonprofit organizations. 24 And one thing that I heard that was pretty 25 consistent in the district that I was -- where I was 26 talking to people, sometimes there was -- the rules 27 were unclear -- 28 MR. YEUNG: Right. 11 1 MS. COHEN: -- only where -- on what should 2 be collected, what tax should be collected, and what 3 should be withheld. 4 I don't know if I'm -- am I characterizing 5 this correctly? 6 Possibly, possibly not. 7 Because your presentation primarily focused 8 on who qualifies -- 9 MR. YEUNG: Right. 10 MS. COHEN: -- for an exemption. 11 How do we get this information out to new 12 and/or growing organizations? 13 MR. YEUNG: Well, our Web site actually does 14 have a fair amount of information on it. It actually 15 has a lot of information on it. And it takes a 16 little bit to walk through. But there is -- there is 17 a good -- there is a good explanation of what it is. 18 We have Q and As, questions and answers also, that I 19 think is very informative. It walks a first-time 20 applicant through the process. 21 We've worked really, really hard on making 22 our forms so that they give a pretty good description 23 as to what documents are required when you file. A 24 lot of times, yes, the -- the file -- 214 has very 25 specific requirements. And a lot of times we 26 actually do walk applicants through what is needed, 27 and we consult with them, and tell them, "Hey, look, 28 you're missing one document," or "Some of your former 12 1 documents aren't quite what's required." And we work 2 with them to address some of those issues. 3 MS. COHEN: Okay. And -- so there are -- 4 Section 4(b) of Article 13 of the California 5 Constitution basically lays out two key points in 6 order for an exemption to happen. 7 First, if they're exclusively religious, 8 hospital, or charitable purposes, and owned or held 9 by a trust by nonprofit organizations operating for 10 those purposes. 11 MR. YEUNG: Correct. 12 MS. COHEN: What happens if the organization 13 that owns the property is dissolved? What happens to 14 that property? 15 MR. YEUNG: If it's dissolved, it would 16 depend on who actually gets the property. If it's 17 dissolved and it's now owned by somebody who would 18 not qualify, it would become taxable again. 19 MS. COHEN: Okay. 20 MR. YEUNG: So usually there is a provision 21 in their documents that they -- that these properties 22 that they're asking for an exemption is dedicated to 23 a certain use. 24 So usually they plan ahead and they will 25 either transfer it or sell it to somebody who is 26 qualified. 27 In the cases where that does not happen, 28 then it becomes taxable. 13 1 MS. COHEN: And the reassessment happens. 2 MR. YEUNG: Yes, and the reassessment 3 happens. So you need to qualify and apply and get 4 the exemption for it to be tax exempt. 5 MS. COHEN: All right. Thank you. 6 MR. YEUNG: Of course. 7 MS. COHEN: Thank you very much. 8 Any questions on my left down here? 9 Mr. Schaefer, do you have any questions for 10 Mr. Yeung? 11 MR. SCHAEFER: No, Member Chair. 12 MS. COHEN: Okay. 13 Mr. Vazquez. 14 MR. VAZQUEZ: Yes, just a couple quick ones. 15 MR. YEUNG: Yes. 16 MR. VAZQUEZ: Do you keep certificates on 17 the amount of requests for like approvals, denials 18 that the BOE/assessors have? 19 MR. YEUNG: We keep -- it's a very 20 qualitative one. Our computer system was designed to 21 implement it many years ago. So we have the 22 ability -- quest to query information out there, but 23 it's a little bit of a process. So we do keep some 24 qualitative statistics on it. 25 The majority of the applicants actually do 26 end up getting a certificate. So I do not have the 27 exact number or percentage, but it is a majority. If 28 you look at some of the statistics, about 1,035 we 14 1 get on average per year, and we approve somewhere 2 around 1,000. So the majority of them do get it. 3 MR. VAZQUEZ: That's interesting. 4 Going back you mentioned it's pretty 5 antiquated. And as I was looking through the Web 6 site, you know, there's still a lot of things where 7 you check the boxes, and you fill it out, and you 8 have to print it and mail it. 9 MR. YEUNG: Right. 10 MR. VAZQUEZ: Are we getting close to doing 11 this so it's paperless? 12 MR. YEUNG: That is -- that is the goal. 13 As to how close we're getting to it, I think 14 we're a little bit off. But we're trying to make the 15 system as user-friendly as possible. 16 We are a little bit behind the curve on 17 basically to file it online, fully electronic. We're 18 right now trying -- we just implemented a system 19 which our Executive Director gave you a report on in 20 her Executive Director's Report. 21 We just updated a system for our LEOP, 22 another function. So hopefully this is in the queue, 23 and we can at least have, if not exactly e-filing, a 24 better management tool, a better tool where we can 25 actually track in realtime how we're processing 26 things, where we are in the process, and what needs 27 to be worked next. 28 MR. VAZQUEZ: Thank you. 15 1 MR. YEUNG: Of course. 2 MS. COHEN: Ms. Stowers. 3 MS. STOWERS: Thank you, Madam Chair. 4 What's the recourse if a claimant's request 5 for Welfare Exemption is denied? 6 MR. YEUNG: If it's denied, their ultimate 7 recourse is to actually bring it before the Board. 8 They can ask the Board to reconsider. They can 9 appeal it before the Board. 10 But we work -- staff, as a matter of course 11 and practice, we work with the claimants. We try to 12 help them with -- if they're lacking certain 13 documents, if certain things are not dedicated 14 properly, we will work with them. 15 And if you look -- part of steps that I gave 16 you, the processing time is, on average, about five 17 months. And a lot of that is actually back and 18 forth, in which we engage with them in order to get 19 them to meet the requirements. And some do not. But 20 the vast majority do. 21 MS. STOWERS: Now, I know in the past when 22 Controller Yee was the First District Member -- 23 MR. YEUNG: Yes. 24 MS. STOWERS: -- we actually received a lot 25 of inquiries from our constituents regarding the 26 status of their exemption. And you all were very, 27 very helpful -- 28 MR. YEUNG: Thank you. 16 1 MS. STOWERS: -- in getting it resolved and 2 getting their response back to them. I'm assuming 3 you still have the resources to provide that 4 service. 5 MR. YEUNG: We try really, really hard. We 6 are -- we are -- we do have two vacancies. It's 7 under -- it's currently under recruitment. We do 8 have -- we get a relatively high volume of filings. 9 We try to be fair to everyone as they come in. We 10 tend to work them. Unless there's an extenuating 11 circumstance where something happened, we will work 12 through to try to resolve it as quickly as possible. 13 But, yeah, it's -- I understand that this is 14 one of the core functions that the Board does that is 15 not just an oversight function. It's an actual 16 co-administering of an exemption. We actually have a 17 part in it. We take a look at -- before they can 18 even apply to the assessor's office, they have to 19 have that certificate from us. Without the 20 certificate, they can't -- they don't get to step 21 two. So we try really hard to work with them. 22 MS. STOWERS: You said something about if 23 BOE denies -- staff denies a certificate, they have a 24 right to file an appeal and come before this Board. 25 MR. YEUNG: Yes. Right. 26 MS. STOWERS: Do you have any stats off the 27 top of your head? 28 MR. YEUNG: No, not off the top of my head. 17 1 But it's been a little bit since we've had such an 2 appeal before the Board. 3 I know -- I've been in this position for 4 three years, and I know we haven't had one since. 5 And I think part of that is that we actually do work 6 very, very closely with the applicants in trying to 7 get them through the -- guide them through the 8 process all the way through. 9 MS. STOWERS: I would tend to agree with you 10 that you guys are doing an excellent job in working 11 with the constituents and resolving any issues so 12 that they can receive their certificates. So thank 13 you very much for that service. 14 MR. YEUNG: Thank you. 15 MS. COHEN: All right. Looks like we don't 16 have any other questions or comments. 17 Mr. Yeung, I appreciate your time. 18 MR. YEUNG: Thank you. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 18 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Jillian Sumner, Hearing Reporter for 8 the California State Board of Equalization, certify 9 that on April 30, 2019 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 19 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: October 17th, 2019 18 19 20 ____________________________ 21 JILLIAN SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 19