Minutes from the 2017 Meeting of Eagle Lodge West

JurisdictionCalifornia,United States
CitationVol. 26 No. 4
Publication year2017
Minutes from the 2017 Meeting of Eagle Lodge West

May 5-6, 2017


On May 5-6, 2017, the Taxation Section of the State Bar of California, including the State and Local Tax Committee of the Taxation Section, sponsored the 2017 Eagle Lodge West Conference at the Vintner's Inn located in Sonoma County. Eagle Lodge West is an annual assembly of government and private tax practitioners brought together for the purpose of discussing current topics in California taxation and suggesting reforms. In 2017, two committees convened at Eagle Lodge West, namely, the Property and Sales Tax Committee and the Franchise and Income Tax Committee. The Property and Sales Tax Committee included Leslie Ang, Richard Ayoob, Christopher Campbell, Scott Claremon, Bradley Marsh, Mike Shaikh, Robert Tucker, Roburt Waldow, and Sonya Yim. The Franchise and Income Tax Committee included Valerie Dickerson, Ben Elliott, Scot Grierson, Annie Huang, Ciro Immordino, Carl Joseph, Bruce Langston, Jenna Lewis, Doug Powers, Craig Swieso, and Jaclyn Zumaeta. The following represents the minutes of the committees:

A. Sales and Use tax—Creating a More Comprehensive Bulk Sale Exemption to Put California on Par with Other States

Background. Under California law, there exists an "occasional sale" exemption applicable to certain limited sales of property. The exemption is intended to apply to sales—including some sales of entire business enterprises—that are infrequent in nature. In practice, because there is no all-encompassing exclusion for the sale of a business, this exemption has led to disparate treatment between purely service businesses and businesses that sell tangible personal property. The goal of the committee was to explore simplification of the occasional sale exemption.

Discussion. Revenue and Taxation Code ("R&TC") section 6006.5 defines an "occasional sale" to include, in part, "[a] sale of property not held or used by a seller in the course of activities for which he or she is required to hold a seller's permit or permits... provided that the sale is not one of a series of sales sufficient in number, scope, and character to constitute an activity for which he or she is required to hold a seller's permit.... " When applied, this exemption generally acts to exempt sales tax when a service enterprise that is not required to hold a seller's permit sells its business in an asset sale. The exemption does not extend to sellers of tangible goods because, of course, they are required to hold a seller's permit.

Other states, including Florida, Idaho, Minnesota, Texas, and Virginia, have adopted an exemption that applies more broadly. These states exempt sales of all or substantially all of a trade or business. Thus, an asset sale would not trigger the sales tax. By not having such an exemption in California, small retail businesses owners may be surprised by a substantial sales tax burden on the sale of a business.

Conclusion. The committee discussed potential regulatory means of applying the exemption in a fair and equitable manner. However, the language of the statute was inescapable. Thus, the committee concluded that, while the occasional sale exemption may need to be amended in the future, resolution of the issue would need to wait.

The committee also explored certain alternatives to a broad exemption for the sale of a business. These alternatives would expand the occasional sale exemption in ways to make it more equitable without a large-scale statutory change. Ultimately, the committee concluded that the language of the statute was clear and any reasonable alternative that would have an impact would also require statutory changes. Thus, the committee agreed to table the issue and revisit it at another time.

B. Property Tax—Change in Ownership Appeal Filing 1. Appeals of Base Year Value

Background. The R&TC permits appeals of base year values during a certain window of time each year. When taxpayers miss that window, they must file a new appeal in the next window. Thus, taxpayers who are unaware of these limitations may miss the opportunity to appeal their base year value.

Discussion. California Constitution Article XIIIA, section 1(a) limits the maximum amount of property tax to one percent of the "full cash value of [the] property." Under Article XIIIA, section 2(a), the "full cash value" is the appraised value "when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." This appraised value at the time of change in ownership or new construction is known as the "base year value." Under Article XIIIA, section 2(b), to reflect increases in property value, absent a purchase, new construction, or change in ownership, the value of property may be increased by up to two percent per year. Generally, that increased value is the factored base year value upon which the property tax is imposed.

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R&TC sections 80(a)(3), 80(a)(4) and 1603 allow a taxpayer to appeal the base year value during the regular filing period: July 2 to September 15 (or November 30 in some counties), for the year in which the assessed value was placed on the assessment roll, or in any of the three succeeding years. If a property owner files an appeal in December of a given year, for example, the appeal is too late for review that year, and the taxpayer must wait until the window for the following year opens on July 2 for the base year value to be reviewed. If the taxpayer misses the next filing window, he or she will lose the opportunity for review of the base year value in that next year; and if that is the fourth filing window after the value was placed on the assessment roll, he or she will lose the opportunity to appeal the base year value at all.

Conclusions. Since the legislative history appears to show an intent to retain the regular filing period, the committee discussed that an equitable solution may be to deem any filings outside of the filing period to be deemed filed the first day of the next filing period, as long as those taxpayers demonstrate at a validity hearing that filing the first day of the following filing period would satisfy the section 80 statute of limitations for filing the base year value appeal. Of course, any relief on base year value would apply prospectively only, per section 80(a)(5). The result would be that taxpayers who miss the filing period but still...

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