BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 2 |Hearing |4/15/15 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Anderson |Tax Levy: |Yes | |----------+---------------------------------+-----------+---------| |Version: |4/6/15 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Grinnell | |: | | ----------------------------------------------------------------- PROPERTY TAXATION: EXEMPTIONS: VETERANS' ORGANIZATIONS Provides that assessors can't deny the welfare exemption on property owned by veterans' organizations used for fraternal, lodge, or social club purposes. Background and Existing Law Section One of Article XIII of the California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law, but allows the Legislature to exempt property used for religious, hospital, or charitable purposes, so long as its owned by nonprofit entities organized and operated for charitable purposes, none of whose income inures to the benefit of any private shareholder or individual. The Legislature enacted this exemption in law, commonly known as the "welfare exemption." To be eligible, the Legislature required the owner and property to meet the standards in the Constitution, in addition to other requirements, such as: The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to accomplish the exempt purpose, The property is not used to benefit the owner or any other person. SB 2 (Anderson) 4/6/15 Page 2 of ? The property is not used for fraternal, lodge, or social club purposes, except to the extent that the use is clearly incidental to its charitable purpose, and The property is irrevocably dedicated to charitable purposes, and will not inure to the benefit of a person upon sale or dissolution, except in specified circumstances. Property owned by a veterans' organization chartered by the United States Congress is eligible for the welfare exemption, so long as the organization complies with the requirements above, is tax-exempt under federal and state law, and has a "veterans' organization exemption" certificate of compliance on file with the county assessor. However, this exemption conflicts with the welfare exemption's general prohibition on exempting property used for fraternal, lodge, or social club purposes, because buildings owned by Veterans of Foreign Wars (VFW) and the American Legion often have many uses, some of which are social in nature. As a result, the application of the veterans' organization exemption can vary across counties, where independent, elected assessors enforce property tax law. Some assessors don't apply the exemption at all, others exempt just the office and facilities that directly serve veterans, while others don't assess the property at all. Veterans' groups seek clarity that property owned by VFW and American Legion that serve veterans' unique need should be eligible for the welfare exemption from property tax. Proposed Law Senate Bill 2 provides that the welfare exemption shall not be denied to property owned by veterans' organizations that is used for fraternal, lodge, or social club purposes. However, the exemption doesn't apply to any portion of a property where alcoholic beverages are sold, as defined. The measure also states legislative findings and declarations. State Revenue Impact SB 2 (Anderson) 4/6/15 Page 3 of ? According to BOE, SB 2 results in annual property tax revenue losses of $575,000. Comments 1. Purpose of the bill . According to the author, "Veteran halls in communities across our country are an invaluable resource for millions of active military, veterans, and their families. Due to skyrocketing operation and business costs, the number of veteran halls has declined and fewer military families are receiving the much-needed services that they provide. This bill would ensure that as non-profit organizations, existing property tax exemptions for veteran halls are preserved so that they can continue to provide high quality and important services to the heroes who have served our country." 2. Next best . The Constitution prohibits the Legislature from enacting changes to the property tax that conflict with its provisions. SB 2 stretches the Constitutional welfare exemption to apply to veterans' organizations by defining a veterans' organization's lodge, fraternal, and social uses as central to its Constitutionally required charitable purpose. While the Legislature has some discretion to interpret Constitutional provisions, statutory changes to the property tax are always a second best option. The most effective and direct way to clearly exclude property owned by veterans' organizations is to amend the Constitution. 3. Precedent . While SB 2 would help veterans' organizations, the measure creates a precedent by applying the exemption more broadly to veterans' organizations' property than to other groups. Under the bill, a building owned and used by the Elks' Club would be taxed differently than the same building owned and used for the same purposes by the American Legion. Given this difference, nonprofit social clubs and lodges that perform considerable community services may want similar treatment. The Committee may wish to consider the precedent SB 2 sets. 4. Do it again . SB 2 is largely identical to SB 1152 (Anderson, 2014), which was approved by the Committee on Governance and Finance by a vote of 6-0 last year. However, SB 1152 was held on the Assembly Revenue and Taxation Committee's SB 2 (Anderson) 4/6/15 Page 4 of ? suspense file. SB 2 (Anderson) 4/6/15 Page 5 of ? Support and Opposition (4/9/15) Support : The American Legion - Department of California; AMVETS - Department of California; California Assessors Association; California Association of County Veterans' Service Officers; California Council of Chapters; California State Commanders Veterans Council; Military Officers Association of America; San Diego Military Advisory Council; VFW Department of California; Vietnam Veterans of America - California State Council. Opposition : Unknown]. -- END --