Are You Paying More Than You Owe?: Property Tax Relief and the California Wildfires

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Faegre Drinker Biddle & Reath LLP

Data confirm what Californians already know: Wildfires are getting worse every year, and the 2020 fire season has been the worst on record. If you own commercial or industrial property that has been damaged or destroyed because of a wildfire, you might owe less property tax than you’re being charged. Experienced property tax counsel can help you explore your options to lower your tax exposure.

More acreage has already burned this year than in the last three years combined. In October, the August Complex Fire became California’s first ever “gigafire,” burning more than a million acres. And as dry winds (called Diablo in the northern part of the state and Santa Ana in the south) speed across the state, the crisis could continue through the end of November. As of November 18, 2020, over 9,200 individual fires have burned more than 4.1 million acres and 10,400 structures. Among those losses are businesses across the state, from Wine Country resorts to Central Valley cattle ranches. Even a destination three-Michelin-starred restaurant and a beloved 157-year-old working farmhouse were consumed.

Owners of commercial or industrial property that has been damaged or destroyed because of a natural disaster have received a lot of bad news lately. One small piece of good news, though, is that California law provides an avenue for diligent property owners to obtain relief on their property tax bills. Property taxes are one of the largest recurring expenses of owning commercial property, as Californians know well.

Property taxes are calculated as of a “lien date,” which is when your obligation to pay taxes on the property attaches (even though you do not have to pay them until later).1 In California, as in many other states, tax assessments for a given calendar year are normally determined as of January 1 of that year. So, you would typically owe 2020 property taxes based on the value of your property on January 1, 2020. But when your property is destroyed, say, in a fire, different rules apply.2

If your property is damaged or destroyed by a calamity, such as a fire, earthquake or flood, you may be eligible for property tax relief.3 You may also qualify if you own damaged business equipment and fixtures; orchards or other agricultural groves; or aircraft, boats and certain manufactured homes. The damaged or destroyed property can be reappraised based on its current condition, and your tax burden will be adjusted accordingly.4 Property owners may be able to apply for a deferral of property taxes owed without penalties or interest until the county assessor has had time to reassess the property and correct the tax bill.

Tax relief is also available to homeowners. To be eligible, you must have suffered at least $10,000 in property damage, or at least 10% of your property’s value, whichever is less. Once you rebuild your home, the tax basis will return to its pre-damage value.5 And if you’d rather move, the base year value of your damaged home may even be transferred in some circumstances.6

The tax relief offered by these statutes provides an exception to the usual short assessment appeal deadlines. Usually taxpayers have to file a petition by September 15 or November 30, depending on the county, in order to reduce a property’s tax assessment. To qualify for disaster-related property tax relief, however, you or your attorney can file a claim with your county assessor’s office any time within 12 months of the date of the damage or destruction.7 Each county can also extend that deadline.8 A list of California county assessors’ offices can be found here.

FOOTNOTES

  1. Cal. Rev. & Tax. Code §§ 117; 401.3.
  2. See, e.g. Cal. Const. art. XIII, § 15 (“The Legislature may authorize local government to provide for the assessment or reassessment of taxable property physically damaged or destroyed after the lien date to which the assessment or reassessment relates.”).
  3. Cal. Rev. & Tax. Code § 170. The governor must also have declared a state of disaster, which he did on August 18, 2020: https://www.gov.ca.gov/2020/08/18/governor-newsom-declares-statewide-emergency-due-to-fires-extreme-weather-conditions-2
  4. Cal. Rev. & Tax. Code § 170.
  5. Id.
  6. See Cal. Rev. & Tax. Code § 69 (applying to another home in the same county); § 69.3 (applying to another home in a different county).
  7. Cal. Rev. & Tax. Code § 170.
  8. Id.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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