The realm of housing and taxation often intertwines in complex ways, and the recent legislative proposal, Senate Bill (SB) 440, in California is sparking discussions about its potential impact on renters. The implications of SB 440 could lead to possessory interest (PI) property tax bills for hundreds of thousands of tenants residing in subsidized housing, increasing the number of those who currently are (and purportedly) subject to PI tax. Further, millions, if not billions, of property values are being removed from California’s property tax rolls, at a time when local jurisdictions, including schools, have expressed need for the money.
SB 440, introduced by Senator Nancy Skinner, authorizes the formation of Joint Powers Authorities (JPAs) for all 58 counties in California. Currently, a handful of counties like Alameda, Los Angeles, Orange, and San Diego have the authority to form JPAs. These JPAs partner with private companies, the “project administrators,” to purchase mostly luxury apartment buildings and to run the financing and property management—with significant fees attached. The acquisitions, which started in 2019, are done through the issuance of bonds worth hundreds of millions of dollars. After 15 years, the city that approved the JPA purchase can sell the property or borrow against the building to recover the lost property tax revenue.
These buildings, now owned by government entities, become exempt from property taxes, and their value is removed from the tax rolls. The savings are passed on to tenants in the form of lower rent. The exemption from property taxes for buildings owned by JPAs introduces a complex scenario for tenants. If the government leases part of its property to a private entity, that entity can have a “possessory” interest that must be taxed. This means that tenants might face tax bills for their “possessory interest” in the government-owned property they are leasing.
SB 440 has stirred varied reactions from stakeholders. Organizations like the California Taxpayers Association (CalTax) and the California Apartment Association (CAA) oppose the bill. The CAA, representing property owners and managers, has apprehensions because of the administrative complexities and potential burden of billing tenants, a responsibility that falls on elected assessors. The California Assessors’ Association has asked the California Legislature to clarify that project administrators—not tenants—have the responsibility for paying PI taxes and are awaiting an answer. There have been several bills proposed to exempt low- and middle-income tenants, but none have made it through the legislative process. SB 440 appears to be dead for this year but can be resurrected next legislative session. Currently, there is no reporting mandate in the bill—or any current reporting mandate—for the billions of dollars being removed from county tax rolls when the luxury apartment buildings are purchased by the JPAs.
The potential for thousands of California tenants receiving PI tax bills raises significant questions about housing affordability, tenant rights, and the role of government. SB 440’s proposal to expand JPAs across California’s counties introduces the possibility of PI tax bills for tenants in subsidized housing across the state.
Ryan’s local tax experts will continue to monitor the future potential impact of this bill and are available to answer questions.
TECHNICAL INFORMATION CONTACTS:
Scott Donald
Principal
Ryan
949.556.9001
scott.donald@ryan.com
Nick Fogle
Principal
Ryan
415.692.8518
nick.fogle@ryan.com
Marc Hartley
Principal
Ryan
442.244.2426
marc.hartley@ryan.com
Susan Orloff
Principal
Ryan
818.543.4760
susan.orloff@ryan.com
Gina Rodriquez
Principal
Ryan
279.600.3261
gina.rodriquez@ryan.com
The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.