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What Can You Do About Your California Property Tax Payment – COVID -19’s Impact on California Property Tax Deadlines and Planning Considerations

In the wake of the COVID-19 pandemic, certain California taxing officials have acted swiftly to provide state taxpayers with some much needed relief. On March 13, for example, the Franchise Tax Board (FTB) extended the corporate and personal income filing and payment tax deadlines to June 15, and then again on March 18, FTB further postponed the deadlines to July 15. The California Department of Tax and Fee Administration (CDTFA) and the California Office of Tax Appeals (OTA) also has acted to implement measures aimed at supporting taxpayers amid the COVID-19 outbreak. The Office of Tax Appeals granted an automatic 60-calendar-day extension of the deadline for appeals that have a briefing or other deadline that falls between March 1, 2020 and May 18, 2020. In addition, 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 upon request.

But what about property tax? Pursuant to California Revenue and Taxation Code (R&TC) section 2619, if the Tax Collectors office is closed on the date of the property tax deadline, the next business day that is open is when the deadline applies.[1] But yet, although many – if not all 58 – of California’s county treasurer and tax collector offices have closed to the public, county tax collectors have indicated that the April 10 deadline for making the second installment of the 2019-20 property tax payments, still stands.

With the April 10 property tax deadline fast approaching, and absent new relief offered for property taxpayers, this article lays out the property tax relief measures that are available in lieu of an extended payment deadline.

Late Payment Penalty Waivers

Under existing law, county tax collectors do not have the authority to extend the property tax deadline. County tax collectors do, however, have the authority to waive late-payment penalties under one of 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, pursuant to 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.

Although this relief section seems promising, 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. Generally, payments can still be made online, over the phone, or via the mail. Given that payment method information for each county varies, however, we recommend checking the website for your specific county prior to the April 10 due date. The California Association of County Treasurers and Tax Collectors (CACTTC) has published a comprehensive list of the county websites. That list is available here.

Second, tax collectors also have the authority to waive late payment penalties pursuant to R&TC section 4985.2 upon a finding that failure to timely pay is due to “reasonable cause and circumstances beyond the taxpayer’s control, [] occur[ing] notwithstanding the exercise of ordinary care in the absence of willful neglect[.]” Taxpayers may begin to submit penalty cancellation requests starting on April 11 (the day after property tax payment becomes delinquent).

In response to the COVID-19 pandemic, a number of counties have released statements that they intend to provide penalty waivers to affected taxpayers. In addition, some county tax collector offices (e.g. Contra Costa and Los Angeles) have set up special teams to process requests for those who demonstrate that they were affected by the outbreak. Notably, though, penalty waivers provided pursuant to R&TC section 4985.2 are not automatic but are provided at the tax collector’s discretion. And what is not clear, from a majority of the counties’ statements, is 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 with regard to the penalty waiver.

For example, on March 31, Alameda County issued the following statement providing some 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.

What is not clear from the Alameda County Treasurer-Tax Collector’s statement is how an affected property taxpayer proves an illness, under-employment, or business losses, and must the taxpayer prove that COVID-19 caused these things? Similarly, pursuant to 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 impacted by the virus and how that interfered with their ability to deliver the payment by April 10 (e.g. hospitalization). However, even though evidence of hospitalization may be required to prove that a taxpayer qualifies for penalty relief, 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 provides that at the moment, COVID-19 testing is being considered for only a select group of people.

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

Moreover, for affected property taxpayers, 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. To access the form, however, taxpayers must first read a page of “instructions” which provide that “[t]he California Revenue and Taxation Code (R&TC) grants the Treasurer and Tax Collector the authority to cancel penalties in limited circumstances.” The instructions also provide examples of requests that the Tax Collector will deny. For instance, Step #1 provides that “[t]he 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.”

As Step #2, the taxpayer must select the R&TC section that applies to his/her request. Once a code section is selected, the taxpayer has only 500 characters including spaces and returns to describe the nature of his/her request.

Disaster Relief

Taxpayers who find themselves hard pressed to receive a penalty waiver may have other, albeit different, options for pursuing some form of property tax relief. Pursuant to 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” if certain 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.” 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.”

Considering that disaster relief is only available 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. However, counties haven’t made it easy for inquiring property owners to determine whether or not this type of relief is available. In fact, most do not mention section 170 or “disaster relief” on their website. Rather, inquiring property taxpayers must review the applicable county’s municipal code.

The Governor’s Authority

Although the county tax collectors and the state comptroller do not have the power to change the property tax filing deadline, 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.”

In an open letter to Governor Newsom penned on 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 of the April 10 deadline. In their letter, they argued that “[e]xtending 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.” Which, they said, would consequently impact local agencies ability to respond to the pandemic.

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

We are not unaware 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%) 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% of homeowners use impound accounts, and local government would receive that money as well.

The group further argued that this partial suspension is an effective means of providing property taxpayers some relief while also ensuring that counties receive a vast majority of the property tax revenue they otherwise would have gotten on April 15. 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.”

What’s Next?

In response to the COVID-19 pandemic, California’s political leaders have acted at both the state and local level to provide assistance to many of those who are suffering from the resulting economic impact. So why should property owners be any different? Although advocating for penalty relief waivers is a step in the right direction, the issuance of unambiguous guidance is a necessary next step.

© 2020 McDermott Will & Emery

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About this Author

Charles Moll tax attorney McDermott
Partner

Charles (Chuck) Moll focuses his practice on state and local tax (SALT), primarily concentrating on the resolution of tax controversies. He regularly appears before the various California tax authorities—including the State Board of Equalization, the California Franchise Tax Board, the California Department of Tax and Fee Administration, and the Office of Tax Appeals—as well as local authorities such as assessors and assessment appeals boards. He has litigated at all levels of California’s courts, the US Tax Court, and the US Supreme Court.

Chuck’s practice includes tax matters in...

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Troy Van Dongen Tax Lawyer McDermott
Partner

Troy Van Dongen focuses his practice on the resolution of state and local tax (SALT) controversies through negotiation and litigation. He advises clients across the country in a variety of state and local tax matters, including income, franchise, sales, and use taxes, and he has a particularly strong background in property taxation.

 

Troy’s experience includes a wide range of industries, including: manufacturing and software; banking and finance; biotechnology; hospital management; non-profit organizations; commercial office leasing; solar and geothermal power production; lodging; education; security services; oil and gas; telecommunications; paper manufacturing; and sports and entertainment. He also counsels clients on the tax consequences of new forms of communications technology and the unique tax challenges in the telecommunications industry.

He is also a member of our legal cannabis industry group. Our Cannabis Industry group is a multidisciplinary team of lawyers providing clients with regulatory, litigation, intellectual property, trade and tax services with respect to their investments and participation in the cannabis industry, all subject to the Firm’s obligations under federal and state laws and bar licensure rules.

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Elle Kaiser McDermott Will Emery SF Tax  State & Local Tax  Tax Controversies
Associate

Elle Kaiser focuses her practice on state and local tax (SALT) matters. She advises clients in various industries, including technology, banking, consumer products, energy, insurance, retail and transportation. Elle is experienced in both tax planning and tax disputes.

Elle has been involved in all phases of the discovery process through administrative appeals and in court. Elle identifies audit strategies, coordinates factual and legal development of issues, and drafts responses to multiple information document requests and audit issue presentation sheets from tax authorities.

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