1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 MARCH 30, 2016 10 11 12 13 14 15 PROPERTY TAX COMMITTEE 16 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 Committee: Jerome Horton Chairman 4 Fiona Ma 5 Member 6 Diane Harkey Member 7 George Runner 8 Member 9 Yvette Stowers Appearing for Betty T. 10 Yee, State Controller (per Government Code 11 Section 7.9) 12 Joann Richmond 13 Chief Board Proceedings 14 Division 15 16 For Board of Equalization Staff: David Yeung 17 Chief County-Assessed 18 Properties Division 19 Richard Moon Tax Counsel IV 20 Legal Department 21 Richard Reisinger Business Tax 22 Administrator III State-Assessed Properties 23 Division 24 Lisa Thompson Manager, Property Taxes 25 County-Assessed Properties Division 26 27 ---oOo--- 28 2 1 INDEX OF SPEAKERS 2 SPEAKERS PAGE 3 Peter Michaels Attorney 4 Peter Michaels Law Firm 6 5 Don Gaekle Stanislaus County Assessor 6 California Assessors' Association 7, 10 7 Joel Rice Attorney 8 Law Office of Peter Sabelhaus 11 9 ---oOo--- 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 MARCH 30, 2016 4 ---oOo--- 5 MS. MA: Thank you very much. I'd like to 6 just manage expectations. We are going to hear the 7 next Property Tax Committee, then we will take a 8 45-minute break for lunch. So whenever we are done 9 with the committee, 45 minutes later, and then we 10 will come back for the remainder of the afternoon. 11 MR. HORTON: Thank you, Madam Chair. The 12 meeting of the Property Tax is hereby called to 13 order. 14 Mr. Yeung, I believe. 15 MR. YEUNG: Yes. 16 MR. HORTON: Will you please introduce the 17 issues in this case? 18 MR. YEUNG: Yes. Hello, Property Tax 19 Committee Chairman Horton and Committee Members of 20 the Board. My name is David Yeung and I'm the Chief 21 for the County-Assessed Property Division in the 22 Property Taxes Department. With me is Mr. Richard 23 Moon of our Legal Department and Mr. Richard 24 Reisinger of our State-Assessed Properties 25 Division. 26 I bring before you today three items for 27 your consideration. The first is the adoption of 28 the State Assessment Manual. The State Assessment 4 1 Manual provides the principles and procedures used 2 by the Board in the assessment of State-assessed 3 properties. This revision updates the State 4 Assessment Manual to reflect additions necessitated 5 by statutory changes. The revision was developed 6 through the interested parties process involving 7 State assessees, industry representatives and 8 assessors. As a consequence, we believe there are 9 no unresolved issues remaining. 10 I'm available to answer any questions you 11 may have. 12 MR. HORTON: Welcome to the Board. Please 13 introduce yourself for the record. And, let's see, 14 we have two witnesses. Please -- to both of you, 15 please introduce yourself for the benefit of the 16 Board and the record. 17 MR. MICHAELS: All right. My name is Peter 18 Michaels. 19 MR. GAEKLE: Don Gaekle, Stanislaus County 20 Assessor and Chair of the California Assessors' 21 Association Standards Committee. 22 MR. HORTON: Should I assume the two of you 23 are together or separate? 24 MR. GAEKLE: We are separate. 25 MR. HORTON: All right. 26 MR. MICHAELS: Separate checks. 27 MR. RUNNER: Separate checks. 28 MR. HORTON: I'm going to leave that one 5 1 alone, Mr. Michaels. 2 Mr. Michaels, please. 3 ---oOo--- 4 PETER MICHAELS 5 ---oOo--- 6 MR. MICHAELS: Thank you. Yeah, we have 7 worked collegially with the staff for the last year, 8 pretty much, on this State Assessment Manual. And 9 so, first and foremost, I want to say that we 10 support it. Industry supports it. And I worked 11 with a coalition of leading industry, trade 12 associations, and taxpayers. So, bottom line is we 13 encourage you to approve and adopt the manual as 14 revised. 15 And this, I guess, there were -- there was 16 one impasse between industry and the staff, and 17 we're -- that involves the discussion that's on 18 pages 13 and 14 of the manual. Ultimately, we 19 agreed to disagree, or we agreed to just sort of 20 park it and go forward with adoption of the manual 21 as is. 22 But there were differences between industry 23 and staff on the characterization of the treatment 24 of intangible assets and rights under section 110(e) 25 of the Revenue and Tax Code. 26 And we're happy that there are now in the 27 glossary two important citations. This manual was 28 first adopted and has not been updated since 2003. 6 1 In 2008 a very important case was decided on the 2 exemption for embedded software; that's the Cardinal 3 Health case, and it is now in the glossary. And in 4 2013 an important case, at least in my opinion, on 5 intangible assets and rights was decided, the Elk 6 Hills Power case; that, also, is in the glossary. 7 Last thing I would observe -- and this 8 handbook goes back to 2003 -- we have two other very 9 important handbooks in my view and in the view of 10 the courts. These handbooks reflect not only court 11 precedence but legislation that's been effected over 12 the course of the decades. 13 Assessors Handbook five -- Assessors 14 Handbook number -- section 501 was adopted -- its 15 basic appraisal was adopted in 2002. And Assessors 16 Handbook 502, which is advanced appraisal, goes back 17 to 1998. 18 So it would be, I think, helpful to the 19 community, both assessors and assessees and 20 consultants who try to give advice to taxpayers, to 21 update those manuals which definitely are outdated. 22 Thank you. 23 MR. HORTON: I would concur. 24 Next witness, please. 25 ---oOo--- 26 DON GAEKLE 27 ---oOo--- 28 MR. GAEKLE: Chair Horton, Board Chair Ma 7 1 and Members of the Board, my first time before the 2 Board, and as I was going through the process this 3 morning, I signed up to speak on these things so I 4 thought I should come forward. 5 But I will say, to make it simple, the 6 California Assessors were part of the interested 7 parties process and have no ongoing issues with the 8 manual or your Item 2. I'm here today to speak 9 about your Item 3. 10 MR. HORTON: Thank you. 11 Discussion, Members? 12 Hearing none, is there a motion? 13 Moved by Member Runner. 14 MR. RUNNER: Mm-hmm. 15 MR. HORTON: Second by Member Ma, to adopt 16 staff recommendation. 17 Mr. Yeung, Item 2. 18 MR. YEUNG: Yes. The second item is 19 Property Tax Rule 462.040, Change in Ownership - 20 Joint Tenancies. We are seeking authorization to 21 initiate the rulemaking process for Property Tax 22 Rule 462.040. This rule prescribes which 23 transactions involving joint tenancies are 24 reassessable events for property taxation purposes. 25 This revision amends the rule to include 26 additional examples and rearranges examples for ease 27 of use. It has been through an extensive interested 28 parties process involving county assessors, county 8 1 counsels and industry representatives. 2 I ask for your authorization -- I ask that 3 you authorize starting the rulemaking process. 4 I am here to answer any questions you may 5 have. 6 MR. HORTON: Discussion, Members? 7 Hearing none, Member Ma moves to authorize 8 the hearing process. Second by Member Runner. 9 Without objection, Members, such will be 10 the order. 11 Mr. Yeung, to Item Number 3. 12 MR. YEUNG: The third item I bring before 13 the Property Tax Committee for discussion and to 14 seek direction on is an opportunity to streamline 15 the Property Tax Welfare Exemption clearance 16 certificate process. 17 Nonprofit entities seeking an exemption 18 from property taxation must apply and be issued an 19 organizational clearance certificate. Limited 20 partnerships have an additional requirement that 21 their general managing partners must also receive a 22 supplemental clearance certificate. 23 Staff has prepared and distributed a white 24 paper describing the duplicative requirements an 25 applicant must fulfill to obtain a supplemental 26 clearance certificate and to apply for an exemption 27 with the county assessors. 28 I ask that you direct this issue to the 9 1 interested parties process to discuss options to 2 reduce the duplication of effort and to expedite the 3 exemption process. 4 Once again, I'm available to answer any 5 questions you may have. 6 MR. HORTON: Thank you. As the witness 7 comes forward, we would ask that they introduce 8 themselves for the record. And we'll go to our 9 second witness after that, then return to you, sir. 10 MR. RICE: I'm not sure who's 1 or 2, but 11 I'm -- 12 MR. HORTON: You are. 13 MR. RICE: I'm Joel Rice, Law Offices of 14 Patrick Sabelhaus, representing California Council 15 for Affordable Housing. 16 MR. HORTON: Welcome. 17 ---oOo--- 18 DON GAEKLE 19 ---oOo--- 20 MR. GAEKLE: Chair Horton and Members of 21 the Board, the assessors received the white paper 22 approximately 10 days ago. And at that time it 23 was the -- we hadn't had any prior discussion on the 24 issue with Board staff. It did generate some 25 interest among assessors, and we have submitted that 26 to our exemptions subcommittee, in our standards 27 committee, for review and a report back to the 28 committee. 10 1 The assessors are meeting next week in 2 conference. And all our committees will be meeting, 3 and this issue will be on our -- on our agenda. 4 To the extent that this hearing today is to 5 decide if the Board should go forward at this time 6 with the interested parties process, the Association 7 suggests it would be maybe helpful to the Board to 8 have input from the Assessors' Association prior to 9 beginning that process, to flush out any issues that 10 are outstanding. 11 MR. HORTON: Thank you, sir. 12 Now it's your turn. 13 ---oOo--- 14 JOEL RICE 15 ---oOo--- 16 MR. RICE: Actually, if the purpose is only 17 to consider putting the issue before the interested 18 parties process, I think I've spoken to people who 19 are in the industry from all over the State on the 20 applicant side for this exemption, and there's 21 really no opposition per se. I had some discrete 22 issues to speak about as far as the forms themselves 23 and so forth, but I think I'm ahead, I'm way ahead 24 of the game here with those specific comments. 25 So if we're just deciding whether to move 26 forward with the interested parties process, we're 27 not opposing that. 28 MR. HORTON: Mr. Yeung, can you -- can you 11 1 share with us the process and the timing? And maybe 2 the assessors will be satisfied that sufficient time 3 would be available to them to finalize their process 4 and provide their input, which we value immensely. 5 MR. YEUNG: Yes, sir. Our interested 6 parties process would involve gathering both 7 industry and assessors in -- in -- in getting their 8 opinions. Unfortunately, the meeting that we're -- 9 CA's meeting is next week. We will not be able to 10 accomplish that before the meeting. 11 So, but our normal processes run probably 12 about 3 to 6 months in the full vetting of the 13 issues. 14 MR. HORTON: So 3 to 6 months, would that 15 be sufficient time for the committee to meet and 16 share with the Department their views? 17 MR. GAEKLE: Oh, yes. 18 MR. HORTON: Okay. And the -- and the 19 request today is to start that process? 20 MR. YEUNG: Yes, sir. 21 MR. HORTON: Okay. 22 Discussion, Members? 23 Member Ma moves to direct staff to start 24 the interested parties process. Second by Member 25 Stowers. 26 Without objection, Members, such will be 27 the -- the order. And we very much look forward to 28 the assessors' input in that regard. 12 1 (Music playing.) 2 MS. HARKEY: Whose music? 3 MR. RUNNER: I think that was the lunch 4 bell. 5 MS. MA: Does this conclude your committee? 6 MR. HORTON: We got one more. 7 MS. MA: Does this conclude your committee? 8 One more? 9 MS. HARKEY: State Assessed Manual -- 10 MR. HORTON: The ringing threw me off a 11 little bit. 12 Does that conclude your presentation, Mr. 13 Yeung? 14 MR. YEUNG: Yes. 15 MR. HORTON: We've got one more? We're 16 good. 17 MS. THOMPSON: I was here to answer 18 questions -- 19 MR. HORTON: Oh, okay. 20 MS. THOMPSON: -- if they had any in 21 respect to the SAC process. 22 MR. HORTON: Members, the meeting of the 23 Property Tax Committee is hereby adjourned. 24 Thank you for your engagement and 25 involvement. 26 ---oOo--- 27 28 13 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on March 30, 2016 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 13 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: April 8, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 14