CalTax Commentary:
Assessors Should Be Proactive in Reducing Assessments of Fire-Damaged Properties

By David R. Doerr, CalTax Chief Tax Consultant

January 1 is just around the corner. This date is the lien date for property tax purposes and all property must be assessed at its “value” on this date.

Value for locally assessed real property is the lower of its Proposition 13 base-year value or its fair market value. The Proposition 13 base-year value is the property’s 1975 fair market value or, if it has changed ownership or been newly constructed, its subsequent acquisition or construction value, plus an inflation value not to exceed 2 percent per year (for 2018, the inflation factor is 2 percent).

Due to the widespread damage to properties by wildfires this year in many areas of the state – in Sonoma, Napa, Ventura, Los Angeles, San Diego, Mendocino, Mariposa, Butte and other counties – there will be many “decline in value” assessments to reflect the lower value after the fires.

When there were significant numbers of “decline in value” properties during the recent deep recession – particularly of then recently purchased property with high acquisition-value assessments – assessors took two different approaches in reassessing such property. Some were proactive, and tried to identify and reassess such property, while others, according to the State Board of Equalization’s county assessment practices surveys, sat back and waited for property owners to come in and ask for a reassessment.

Since a number of property owners assumed their property values would be reduced by assessors, they did not come in and ask. Since no notice is required when assessments are not changed by other than the inflation factor, some of these taxpayers did not find out they had not been appropriately reassessed downward until they got their tax bills.

Considering the heartache and devastation this year’s fires have caused, we strongly urge all assessors to proactively reassess these properties downward. Assessors, please do not wait for a request. It should be fairly easy to identify damaged properties, as fire agencies know the perimeters of the blazes.

A bigger problem is determining the value of such properties. It is doubtful that enough of these properties have been or will be sold in their damaged condition on or around the lien date to constitute a market.

Of course, the acquisition value can be used for any that actually are sold. The value of improvements can be reduced to zero in most cases. What is the value of a brick chimney, surrounded by charred rubble?

The residual land value will need to be assessed downward, as buyers may no longer want such damaged property because of the condition of the neighborhood, fear of future fires, etc. Further, local government red tape may make it difficult to use the property in the near future … or ever.

Another problem for the impacted property owners is that they may owe large parcel taxes, imposed by school districts and other jurisdictions, on the destroyed properties, as the parcels are still there. There is no current mechanism to reduce or remove such taxes from these properties. Legislation should be introduced and speedily passed to provide that such properties are exempt from these taxes.

Californians should give thanks to the president, governor, local officials, volunteers and particularly those fighting the fires, as all have provided some assistance to fire victims. Now, help is needed on the tax front, too.

 

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