Tax assessors cry foul over property transfers

This, unfortunately, I do is a good step for a property owner.  In the past I have seen the state and local municipalities step up and re-assess a building when a partner was bought out thereby raising our property tax basis, after all it is a transfer albeit to the remaining partners.  We were not happy as the remaining partners did not receive the benefit the state did.  Live by the sword die by the sword.  California take notice this is the wave of tactics we will see.-Sean

SACRAMENTO – County assessors are increasingly worried that the historic drop in property values in the Inland area and around the state will turn out to be more than just a temporary blow to government coffers.

Millions of properties statewide have been temporarily reassessed to reflect their lower market value. Under state law, property owners will pay reduced taxes until the market recovers and the property returns to its base value.

But assessors and other tax officials say there are signs that some property owners are going a step further: using back-and-forth ownership transfers to trigger a property reassessment and lock in a much lower level of property taxes.

Court rulings give assessors the power to ignore such transfers. But identifying them is not easy, they say. They worry that large numbers of changes could cost governments significant amounts of future property-tax revenue, a major part of government budgets.

“It’s a little scary, actually,” said Larry Ward, the assessor in Riverside County, where the assessed value is down $16.2 billion for 2009-10. “Theoretically, somebody changing ownership could mean a lot of difference in tax value.”

There are no estimates on how many properties have been permanently reassessed to lower values after change-of-ownership transfers.

Assessors, though, have started reviewing their records and recently asked state tax authorities to weigh in.

Three weeks ago, the state Board of Equalization issued an advice letter telling assessors they could decline to reassess a property if they conclude it was little more than a paper shuffle meant to trigger a reassessment.

But officials said detecting such transfers would take hundreds of staff hours.

“It’s kind of a loophole in the law,” said Dennis Draeger, the assessor of San Bernardino County, which also has seen large drops in assessed value. “We’ve got our eyes open but some of them may order prescription drugs never be discovered.”

property taxes

Under Prop. 13, the landmark 1978 ballot measure, properties are reassessed when they change ownership. That typically happens when a property is sold.

Assessors’ concern stems from a twist on the process. According to the Board of Equalization, the actions involve a property owner transferring property to someone else through a deed, and then that person transferring the property back to the original owner with another deed, sometimes on the same day, with no one moving in or out.

Some property-rights activists take issue with tax officials’ concern about change-of-ownership transactions that don’t involve moving trucks.

In particular, skeptics contend that assessors are reversing the stance they took during the real-estate surge of the late 1990s and earlier this decade.

According to the California Taxpayers Association, the goal of assessors then was to detect as many change-of-ownership transactions as possible — not to prevent them, but to make sure they triggered reassessments and locked in the higher market values then common, which meant more tax revenue.

“The law says change of ownership triggers a reassessment. If you can trigger a reassessment in high market, why can’t you trigger it in a low market?” asked Valerie Faltas, who advises property owners how to lower their property tax bills.

Faltas runs one of several Web sites that advertise services to reduce property tax bills. She said she thinks the actions she recommends are legal and dismisses as scare tactics tax officials’ warnings of nose-diving revenue.

The state law that temporarily reduces some properties’ assessed values during down markets, known as Prop. 8, is complicated and unfair and still leaves people owing high tax bills after the market recovers.

“I don’t think people should be penalized just because they bought in a high market,” said Faltas, who said she used to work for the Los Angeles County Assessors Office.

STATEWIDE DROP

The state’s housing market was roaring in the late 1990s and throughout much of this decade.

California’s assessed value grew from $2.57 trillion in 2001-02 to $4.56 trillion in 2008-09, thanks to a construction surge and fast-rising home prices.

In Riverside County, the assessed value grew from $98.8 billion to $243 billion during that time. San Bernardino County’s assessed value grew from $85.3 billion to $181.8 billion.

But for 2009-10, the statewide assessed value is $4.4 trillion, a 2.4 percent decline. It was the first year-to-year drop since records started being kept in 1933.

The hit in the Inland area was much greater — Riverside County had a 10.5 percent drop and San Bernardino County had a 6 percent decline.

The drop in property tax revenue has been a big part of local government budget woes.

California’s treasury relies much less on property tax revenue, but the state has to make up some of what schools lose in local property tax money.

In past real estate downturns, such as in the early 1990s, tax officials were confident that assessed values would recover. But they said there was no fear then of large numbers of change-of-ownership transactions permanently reducing the tax base.

RIGHT OF REFUSAL

State officials said a 1991 court decision gives county assessors the ability to refuse to reassess the property in such cases. But finding them amid hundreds of thousands of properties — Riverside and San Bernardino counties together have about 1.6 million parcels — is another matter.

“Quite frankly, they don’t know. They don’t analyze each property,” Faltas said.

Dan Goodwin, Ventura County’s assessor and the head of the statewide assessors association, said he thinks such transactions are happening on a small scale so far.

“But I can’t afford to have 10,000 or 20,000 people doing this,” Goodwin said. “This is a small window of opportunity. And it’s going to close when property values rebound. And they always rebound.”

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