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California Property Tax Relief Options in the Wake of COVID-19

Posted on Apr. 13, 2020
Elle Kaiser
Elle Kaiser
Troy Van Dongen
Troy Van Dongen
Charles J. Moll III
Charles J. Moll III

Charles J. Moll III and Troy Van Dongen are partners and Elle Kaiser is an associate in the San Francisco office of McDermott Will & Emery.

In this article, the authors discuss California property tax relief measures available to taxpayers in lieu of an extended payment deadline during the COVID-19 emergency.

In the wake of the COVID-19 pandemic, some California tax officials have acted swiftly to provide state taxpayers with some much-needed relief. On March 13, for example, the Franchise Tax Board extended the corporate and personal income filing and payment tax deadlines to June 15, and then on March 18 the FTB further postponed the deadlines to July 15. The California Department of Tax and Fee Administration (CDTFA) and the California Office of Tax Appeals also have implemented measures designed to support taxpayers amid the COVID-19 outbreak. The OTA granted an automatic 60-calendar-day extension of the deadline for appeals that have a briefing or other deadline that falls between March 1 and May 18. The CDTFA published a statement on its website indicating that sales tax relief including return and payment extensions and penalty and interest waivers may be available to taxpayers on request.

But what about property tax? Under California Revenue and Taxation Code (R&TC) section 2619, if the tax collector’s office is closed on the date of the property tax deadline, the next business day that it is open is the deadline that applies.1 Although many — if not all 58 — of California’s county treasurer and tax collector offices have effectively been closed to the public, the April 10 deadline for making the second installment of property tax payments for 2019-2020 remained unchanged.

With the April 10 property tax deadline having passed, and absent new relief offered for property tax payers in the majority of counties who are struggling amidst the COVID-19 pandemic, this article lays out the property tax relief measures that are available in lieu of an extended payment deadline.

The Governor’s Authority — What Could Have Been Done

Although the county tax collectors and the state comptroller do not have the power to change the property tax return filing deadline, without a resolution from the board of supervisors, the governor does. California Government Code section 8571 grants the governor the authority to suspend a statute during a state of emergency if he determines that strict compliance with the statute would “in any way prevent, hinder, or delay the mitigation of the effects of the emergency.”2

Over the past several weeks, Gov. Gavin Newsom (D) has exercised this power by issuing several executive orders in response to the COVID-19 pandemic. In an order issued on March 30, Newsom announced:

In order to quickly provide relief from interest and penalties for businesses impacted by the proclaimed emergency of COVID-19, the provisions of the Revenue and Taxation Code that apply to the taxes and fees administered by the Department of Tax and Fee Administration requiring a request for an extension and the filing of a statement under penalty of perjury may be suspended by the Department for a period of up to three months after the due date of the return or payment for individuals or businesses filing a return for less than $1,000,000 in tax.3

The order provides taxpayers with a 60-day extension to file a claim for refund that must otherwise be filed by July 31.4 Even more recently, the governor announced that effective April 2, small business taxpayers with less than $5 million in taxable annual sales can take advantage of a 12-month, interest-free payment plan for up to $50,000 of sales and use tax liability.5

In an open letter to Newsom, dated March 21, the California Association of County Treasurers and Tax Collectors, along with city, county, and school district government groups urged the governor to retain the April 10 deadline. They argued that “extending the deadline by 60 or 90 days would have a dramatic impact on local funding, as almost all local agencies rely on the property tax for the majority of their general funds,”6 which, they said, would consequently affect local agencies’ ability to respond to the pandemic.7

In a separate letter to Newsom on April 3, members of the California Taxpayers Association urged the governor to extend the property tax deadline to July 15 for all property tax payers except those using impound accounts. They wrote:

We are aware that property taxes are primarily a local revenue source, and we are sensitive to the needs of local government at this extraordinary time . . . When considering the balance between the needs of the taxpayers and the needs of local government, we ask you to consider the following:

  • Taxes on all business personal property already have been fully paid;

  • The first installment (50 percent) of property taxes on the secured roll was paid in December. Some taxpayers paid their entire property tax at that time for income tax reasons;

  • About 57 percent of homeowners use impound accounts, and local government would receive that money as well.8

The group further argued that this partial suspension would be an effective means of providing property tax payers with relief while also ensuring that counties receive a vast majority of the property tax revenue they otherwise would have been paid on April 10. As such, they asserted that “a 90-day delay in receiving the remaining tax is a reasonable share of the burden for local government to bear when balanced against the daily fight to survive that taxpayers are facing.”9 As of the date of this writing, however, Newsom has declined to exercise this power.

Late-Payment Penalty Waivers

Under existing law, county tax collectors have the authority to waive late-payment penalties under two circumstances. First, as mentioned above, if the offices of any county tax collector are closed and, as a result, taxpayers are unable to make property tax payments to that county by April 10, in accordance with an order of the board of supervisors, the law permits taxpayers to make payments on the next business day that the county offices are open without incurring a penalty.10

As of the date of this writing, two counties — San Francisco County and San Mateo County — have acted to extend the property tax deadline for certain taxpayers. On April 3 the San Francisco Treasurer’s Office issued a statement extending the property tax payment deadline to May 4, 2020, the first business day after the shelter in place order is lifted.11 San Mateo County followed a few days later by also extending its deadline for property tax payments to 5:00 PM on May 4, 2020.12 As the letter from the San Mateo Treasurer-Tax Collector explains, the tax collector needed the board of supervisors to adopt a resolution under R&TC section 2619 in order to close the office of the treasurer-tax collector and to extend the due date to the next business day that the office was open. We applaud San Francisco and San Mateo for their actions and encourage other counties to follow suit.

Unfortunately, most tax collectors — apparently to avoid being deemed closed — have quickly updated their websites to provide a comprehensive explanation of the “no contact payment methods” that their office accepts online, over the phone, or via the mail.

Second, tax collectors also have the authority to waive late-payment penalties under R&TC section 4985.2 upon a finding that failure to timely pay is because of “reasonable cause and circumstances beyond the taxpayer’s control, [] occur[ring] notwithstanding the exercise of ordinary care in the absence of willful neglect.”13 Taxpayers generally may begin submitting penalty cancellation requests starting the day after property tax payment becomes delinquent, which in this case was April 11.

In response to the COVID-19 pandemic, the California State Association of Counties and the California Association of County Treasurers and Tax Collectors issued a joint statement indicating that “[c]ounties will use all existing will use all existing authority to cancel penalties and other charges for homeowners, small businesses, and other property owners that are unable to pay their property taxes due to circumstances caused by COVID-19 . . . However, property owners who can pay or that haven’t been directly affected by COVID-19, including international corporations and out-of-state landlords, still need to pay on time to keep critical government services running.”14

Notably, some counties, such as Orange County, have said that penalties will not be waived for taxpayers who are affected financially by COVID-19. Other county tax collector offices (for example, Contra Costa and Los Angeles) have set up special teams to process requests from those who demonstrate that they were affected by the outbreak. Importantly, penalty waivers provided under R&TC section 4985.2 are not automatic but are provided at the tax collector’s discretion. And it is unclear, from most of the counties’ statements, what standards apply to taxpayers seeking to demonstrate that they were “affected by the outbreak.” In other words, most counties have yet to provide guidance explaining how they will exercise their discretion regarding the penalty waiver.

For example, on March 31, Alameda County issued the following statement providing additional information about the types of taxpayers who may be granted penalty cancellation relief:

The Alameda County Treasurer-Tax Collector (TTC) plans to work with taxpayers on an individual basis to address hardships caused by the coronavirus and the shelter-in-place order. Beginning after the property tax delinquent date, which remains as April 10, the TTC office will make available a penalty cancellation request form specifically related to COVID-19. The taxpayers will need to submit the appeal form and to sign a statement, under penalties of perjury, to represent that they were unable to pay on time for reasons related to the impacts of the coronavirus from “reasonable cause and circumstances beyond the taxpayer’s control” under current state law. Valid reasons to seek penalty cancellation, which may change if state law changes, may include illness, recent effects from under- or unemployment, and business losses (including loss of rental income). Eligible taxpayers will include homeowners, small businesses and small landlords. Documentation will be required, specific to COVID-19.15

What is unclear from the TTC’s statement is how an affected property tax payer proves an illness, underemployment, or business losses. Moreover, must the taxpayer prove that COVID-19 caused these things?

Similarly, in accordance with a statement issued by the San Diego County Treasurer-Tax Collector’s office, penalty cancellation requests related to COVID-19 require documentation of how the taxpayer was affected by the virus and how that interfered with their ability to deliver the payment by April 10 (for example, hospitalization).16

This lack of a clear standard likely will prove troubling for many taxpayers who are seeking a penalty wavier in the months to come. Simply implying that the county is willing to provide penalty waivers isn’t enough. Counties need to provide taxpayers with information about the standards for qualifying for the waiver in the first place.

Moreover, for affected property tax payers, even obtaining a penalty waiver request form is no simple task. The Los Angeles County Treasurer and Tax Collector, for example, has provided a downloadable form on its website. But to access the form taxpayers must first read a page of instructions stating that the R&TC “grants the Treasurer and Tax Collector the authority to cancel penalties in limited circumstances.”17 The instructions provide examples of requests that the Tax Collector will deny. For instance, Step No. 1 provides that “the Tax Collector will deny a request to cancel a penalty based on the financial circumstances of a taxpayer, which prevented the taxpayer from paying the amount due prior to the delinquency date. Under the R&TC, there is no provision to cancel penalties due to financial circumstances that prevented a timely payment.”18

Then the taxpayer must identify the R&TC section that applies to his request out of selected choices. Once a code section is selected, the taxpayer has only 500 characters, including spaces and returns, to describe the nature of his request.

Disaster Relief

Taxpayers who find themselves hard pressed to receive a penalty waiver may have other, albeit different, options for pursuing property tax relief. Under R&TC section 170, a county’s board of supervisors, by ordinance “may provide that every assessee of any taxable property, or any person liable for the taxes thereon, whose property was damaged or destroyed without his or her fault, may apply for reassessment of that property”19 if conditions are met. To be eligible for reassessment under section 170, damage to the property must have been caused by “a major misfortune or calamity, in an area or region subsequently proclaimed by the Governor to be in a state of disaster, if that property was damaged or destroyed by the major misfortune or calamity that caused the Governor to proclaim the area or region to be in a state of disaster.”20 Section 170(a)(1) defines damage to include “a diminution in the value of property as a result of restricted access to the property where that restricted access was caused by the major misfortune or calamity.”21 Generally, an application for reassessment must be filed “within 12 months of the misfortune or calamity.”22

Considering that disaster relief is available only in counties that have adopted R&TC section 170, this option may not be available for all taxpayers. At least 15 counties have adopted this section including: Alameda, Contra Costa, Fresno, Kern, Los Angeles, Napa, Orange, Riverside, Sacramento, San Bernardino, San Diego, San Luis Obispo, Santa Clara, Solano, and Sonoma. Additional counties may have adopted section 170, but counties haven’t made it easy for inquiring property owners to determine whether this type of relief is available. In fact, most do not mention section 170 or “disaster relief” on their website. Rather, taxpayers must review the applicable county’s municipal code. Also, to apply for reassessment, many counties require the applicant to “deliver[] to the assessor a written application requesting reassessment and showing the condition and value, if any, of the property immediately after the damage or destruction, and the dollar amount of the damage.”23 Moreover, some counties also require the damage or destruction to be over a specific dollar amount. In Sacramento County, for example, the damage must be over $10,000.24

Notably, many counties that provide for section 170 relief also grant the assessor the discretion to initiate reassessment without first receiving an application from a property owner if conditions are met. For example, in Alameda County, the county municipal code provides:

Any assessee of any taxable property or any person liable for taxes thereon, whose property was damaged or destroyed by such a misfortune or calamity that was not his or her fault, may apply for reassessment of that property as provided in Section 170. Additionally, the assessor may initiate the reassessment pursuant to the provisions of Section 170 where he or she determines that within the preceding twelve (12) months, such a misfortune or calamity damaged or destroyed taxable property located within the county.25

Although many county assessors are unlikely to exercise their discretion to initiate reassessment, a review of the municipal codes of the 15 counties mentioned above reveals that this option is available in some form to assessors in 14 of the 15 counties, with Solano County being the lone outlier.26

What Comes Next?

In response to the COVID-19 pandemic, California’s policymakers have acted at both the state and local level to assist many of those who are suffering from the resulting economic impact. So why should property owners be any different? As Newsom has acknowledged, “the COVID-19 pandemic is having cascading effects for millions of California families and small businesses . . . Through no fault of their own, more than a million Californians have lost a job and countless more are seeing their businesses fail.”27 This statement applies to both business property owners and homeowners across the state. Although advocating for penalty relief waivers is a step in the right direction, the issuance of unambiguous guidance by county tax collectors and assessors regarding available relief measures and the standards that apply is a necessary next step to ensure that even more California families and businesses are not displaced.

FOOTNOTES

1 “If December 10 or April 10 falls on Saturday, Sunday or a legal holiday, the time of delinquency is at 5 p.m., or the close of business, whichever is later, on the next business day. If the board of supervisors, by adoption of an ordinance or resolution, closes the county’s offices for business prior to the time of delinquency on the ‘next business day’ or for that whole day, that day shall be considered a legal holiday for purposes of this section.” Cal. Rev. & Tax. Code section 2619.

2 Cal. Gov’t. Code section 8571.

3 Exec. Order. N-40-20 (Mar. 30, 2020).

4 Id.

5 See Office of Gov. Gavin Newsom, “Governor Newsom Announces New Help for Small Businesses & Workers Displaced by COVID-19,” Apr. 2, 2020.

6 Letter from California Association of County Treasurers and Tax Collectors to Gov. Newsom, “Retaining the April 10 Property Tax Deadline” (Mar. 21, 2020).

7 Id.

8 Letter from Robert Gutierrez, CalTax President and CEO, and Jon Coupal, Howard Jarvis Taxpayers Association President, to Gov. Newsom, “Request Executive Order Partially Suspending Revenue and Taxation Code Sections 2618 and 4103” (Apr. 3, 2020).

9 Id.

10 Id.

11 See Jose Cisneros, San Francisco Treasurer, “Important News About Property Tax Services and the Second Installment Deadline From the San Francisco Treasurer’s Office,” Apr. 3, 2020.

12 See Sandie Arnott, San Mateo County Treasurer-Tax Collector, “Prop Tax Extension Date Letter,” Apr. 6, 2020.

13 Cal. Rev. & Tax. Code section 4985.2.

14 See California State Association of Counties and California Association of County Treasurers and Tax Collectors, “Joint CSAC / CACTTC Statement on COVID-19 and the April 10 Property Tax Deadline,” Apr. 4, 2020.

15 See Alameda County Office of the Treasurer and Tax Collector, “Property Tax Penalty Waivers for Eligible Taxpayers: Part of the COVID-19 Financial Relief Effort,” Mar. 31, 2020.

16 See San Diego County Treasurer-Tax Collector, “COVID-19 and Property Taxes,” Mar. 24, 2020. (Yet even though evidence of hospitalization may be required to prove that a taxpayer qualifies for penalty relief, paradoxically, San Diego County is advising persons who are sick to “stay home for seven days to avoid getting others infected whether you have COVID-19 or not.” The website further acknowledges that at the moment, COVID-19 testing is being considering for only a select group of people.)

17 County of Los Angeles Treasurer and Tax Collector, “Instructions for Completing the Penalty Cancellation Request Form” (Apr. 2020) (emphasis added).

18 Id.

19 Cal. Rev. & Tax. Code section 170.

20 Cal. Rev. & Tax. Code section 170(a)(1).

21 Cal. Rev. & Tax. Code section 170(a)(1).

22 See, e.g., L.A. County Muni. Code section 4.64.020; Riverside County Muni. Code section 4.20.010; and Sacramento County Muni. Code section 3.28.020.

23 L.A. County Muni. Code section 4.64.020.

24 Sacramento County Muni. Code section 3.28.020.

25 Alameda County Muni. Code section 4.20.020(C).

26 See Contra Costa County Muni. Code section 66-6.602; Fresno County Muni. Code section 4.57.020; Kern County Muni. Code section 4.24.090; L.A. County Muni. Code section 4.64.020(B); Napa County Muni. Code section 3.16.025; Orange County Muni. Code section 1-4-52(b); Riverside County Muni. Code section 4.20.010(B); Sacramento County Muni. Code section 3.28.030; San Bernardino County Muni. Code section 14.0503; San Diego County Muni. Code section 15.102(c); San Luis Obispo County Muni. Code section 3.15.020; Santa Clara County Muni. Code section A30-81; Sonoma County Muni. Code section 12-46; but see Solano County Muni. Code section 11-14.

27 See Office of Newsom, supra note 5.

END FOOTNOTES

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