CC - Item 7A - Possible Opposition to Assembly Bill 1771 (Ward) - The California Housing Speculation ActROSEMEAD CITY COUNCIL
STAFF REPORT
TO: THE HONORABLE MAYOR AND CITY COUNCIL
FROM: BEN KIM, ACTING CITY MANAGER
DATE: APRIL 12, 2022
SUBJECT: POSSIBLE OPPOSITION TO ASSEMBLY BILL 1771 (WARD) — THE
CALIFORNIA HOUSING SPECULATION ACT
SUMMARY
Mayor Pro Tem Sean Dang requested the City Council discuss and provide direction regarding
Assembly Bill (AB) 1771, authored by Assembly Member Christopher M. Ward.
DISCUSSION
Assembly Member Ward introduced Assembly Bill (AB) 1771 to the California Legislature on
February 2, 2022. As proposed, the California Housing Speculation Act would create a 25% tax
on the capital gain produced by selling a residential property within three years of buying it. The
tax rate would then decline by 5 percentage points each year until reaching zero after seven years,
as follows:
• <3 years:
25%
• 3-4 years:
20%
• 4-5 years:
15%
• 5-6 years:
10%
• 6-7 years:
5%
• >7 years:
None
The proposed bill makes several exemptions for traditional homeowners, including first-time
homebuyers, military service members who are ordered to move every few years, affordable
housing properties, and newer properties with inclusionary housing built in. It also includes
properties where homeowners subdivide a lot and choose to stay on site.
AB 1771 would create the Speculation Recapture Community Reinvestment Fund and would
deposit the revenues received as a result of this increase in tax in the fund. The bill would require
the Franchise Tax Board, upon appropriation by the Legislature, to allocate moneys in the fund,
AGENDA ITEM 7.A
City Council Meeting
April 12, 2022
Page 2 of 2
as described. The Legislature will only use 30% of the allocated amounts to create affordable
housing.
A hearing date for AB 1771 has been set for April 25, 2022, in the Assembly Revenue and Taxation
Committee. Staff will continue to monitor this bill as it goes through the legislative process and
update the City Council as the Legislature makes amendments to the bill and once a policy analysis
is created.
STAFF RECOMMENDATION
It is recommended that the City Council discuss and provide further direction to staff, including
submitting an objection letter to the Legislature on the said bill.
FISCAL IMPACT
There is currently no fiscal impact to report on this bill.
STRATEGIC PLAN IMPACT
None.
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process.
Prepared by:
)" D
Daisy Gu nior Management Analyst
Attachment A: Assembly Bill .1771 Text
Attachment A
Assembly Bill 1771 Text
AMENDED IN ASSEMBLY MARCH 22, 2022
AMENDED IN ASSEMBLY MARCH 7, 2022
CALIFORNIA LEGISLATURE -2021-22 REGULAR SESSION
ASSEMBLY BILL No. 1771
Introduced by Assembly Member Ward
(Coauthor: Assembly Member Mullin)
February 2, 2022
An act to amend Sections 19602 and 19604 of, to add Article 1
(commencing with Section 18200) to Chapter 14 of Part 10 of Division
2 of, to add Article 1.5 (commencing with Section 19609) to Chapter
8 of Part 10.2 of Division 2 of, and to add Article 6 (commencing with
Section 25000) to Chapter 15 of Part 11 of Division 2 of, the Revenue
and Taxation Code, relating to taxation, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 1771, as amended, Ward. The California Housing Speculation
Act: income taxes: capital gains: sale or exchange of qualified asset:
housing.
The Personal Income Tax Law and Corporation Tax Law impose
taxes upon income, including income generated from any gain from
the sale or exchange of a capital asset.
This bill would, for taxable years beginning on or after January 1,
2023, impose an additional 25% tax on that portion of a qualified
taxpayer's net capital gain from the sale or exchange of a qualified
asset, as defined. The bill would reduce those taxes depending on how
many years has passed since the qualified taxpayer's initial purchase
of the qualified asset. The bill would create the Speculation Recapture
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Community Reinvestment Fund and would deposit the revenues received
as a result of this increase in tax in the fund. The bill would require the
Franchise Tax Board, upon appropriation by the Legislature, to allocate
moneys in the fund, as described.
This bill would include a change in state statute that would result in
a taxpayer paying a higher tax within the meaning of Section 3 ofArticle
XIIIA of the California Constitution, and thus would require for passage
the approval of Z/ of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State -mandated local program: no.
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The people of the State of California do enact as follows:
SECTION 1. This act shall be known, and may be cited, as
The California Housing Speculation Act.
SEC. 2. The Legislature finds and declares all of the following:
(a) According to the California Association of Realtors'
quarterly index, California's median price for a single-family home
increased 17 percent to $814,580 in the third quarter of 2021 while
near -record lows of 42 percent of Californians could meet
home -buying qualification standards. Further, prices of
condominiums and townhomes are at an all-time high, reaching
an average of $620,000 in November 2021 or 19.2 percent over
12 months.
(b) During the same period, market analysis estimates that
investor -buyers represented approximately 51 percent growth of
sales year over year from 2020 to 2021 of sales in southern
California alone, compared to a national average of 18 percent.
(c) The share of total sales of investor -buyers has increased
significantly in recent years in the state and across the nation.
Investor -buyer interest is not limited to recent years. Increased
interest was present in 2006 to 2008, ahead of the market collapse,
which decimated home equity and public revenue, and during other
periods in market cycles over recent decades.
(d) Individual homebuyers find it increasingly difficult to obtain
a home because cash -rich investor -buyers have added additional
demand for housing, even as supply has remained the same, causing
home prices to skyrocket. Additionally, direct competition from
investor -buyers, often presenting cash -only offers or higher offers,
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is further shutting out opportunity for middle- and lower-income
Californians to buy a home.
(e) The Legislature has enacted housing policies to increase the
supply of housing and extend affordability. The Legislature has
further prioritized subsidies to produce more affordable housing.
Increasing the supply of housing is certainly extremely important,
but may fall short of the total scale of solutions needed to address
both the decades -long deficit in housing supply needed, and the
continuing increases in housing prices.
(f) Short-term speculative transactions, allowed unchecked,
contribute significantly to higher housing costs for all and has
negative social and economic consequences. A reasonable control
mechanism should be enacted to discourage real estate as a
short-term equity gain mechanism by capturing excessive property
value increases, thereby increasing the risk to investors and
redirecting their interest from investing in real estate to investments
in other assets. Funds generated through this equity recapture
should be directed to local governments, schools, and affordable
housing purposes for general benefit to offset the negative
consequences of short-term speculation.
SEC. 3. Article 1 (commencing with Section 18200) is added
to Chapter 14 of Part 10 of Division 2 of the Revenue and Taxation
Code, to read:
Article 1. Capital Gains Tax for Housing
18200. (a) (1) For each taxable year beginning on or after
January 1, 2023, in addition to any other tax imposed by this part,
an additional tax shall be imposed at the rate of 25 percent, and as
modified pursuant to paragraph (2), on that portion of a qualified
taxpayer's net capital gain generated as a result of the sale or
exchange of a qualified asset.
(2) The 25 -percent tax described in paragraph (1) shall be
reduced as follows:
(A) The tax shall be reduced by 20 percent if the sale or
exchange of the qualified asset occurred 3.01 to 4 years, inclusive,
after the qualified taxpayer's initial purchase of the qualified asset.
(B) The tax shall be reduced by 40 percent if the sale or
exchange of the qualified asset occurred 4.01 to 5 years, inclusive,
after the qualified taxpayer's initial purchase of the qualified asset.
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1 (C) The tax shall be reduced by 60 percent if the sale or
2 exchange of the qualified asset occurred 5.01 to 6 years, inclusive,
3 after the qualified taxpayer's initial purchase of the qualified asset.
4 (D) The tax shall be reduced by 80 percent if the sale or
5 exchange of the qualified asset occurred 6.01 to 7 years, inclusive,
6 after the qualified taxpayer's initial purchase of the qualified asset.
7 (E) The tax shall be reduced by 100 percent if the sale or
8 exchange of the qualified asset occurred more than seven years
9 after the qualified taxpayer's initial purchase of the qualified asset.
10 (3) For purposes of applying Part 10.2 (commencing with
11 Section 18401), the tax imposed under this section shall be treated
12 as if imposed under Section 17041.
13 (b) For purposes of this section:
14 (1) "Qualified asset" means any real property other than any of
15 the following:
16 (A) (i) Real property that meets all of the following
17 requirements:
18 (I) The real property is composed of multiple units.
19 (II) The real property is restricted, by deed, to require that at
20 least 15 percent of residential units on the property are affordable
21 housing.
22 (III) The deed restriction described in subclause (II) was
23 recorded against the property within three years of the sale or
24 exchange of the property.
25 (ii) The exemption for the real property described in clause (i)
26 only applies to the first sale or exchange of that property by any
27 person.
28 (B) Real property that is part of subdivided or lot split property
29 for which the qualified taxpayer is also the recorded owner, if the
30 other portions of the subdivided or lot split property have not been
31 sold.
32 (C) Any real property that is designated or dedicated open space.
33 (D) Any real property that is not suitable for residential use or
34 not permitted for residential or mixed -development with residential
35 use under local or state law.
36 (E) Any real property for which any property transfer taxes do
37 not apply.
38 (F) Real property that is restricted, by deed, to require that the
39 property remain affordable.
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1 (G) Any residential real property that meets both of the
2 following requirements:
3 (i) The property is the first residential real property that the
4 qualified taxpayer has owned.
5 (ii) The qualified taxpayer has used the property as their primary
6 residence since their initial purchase of the property.
7 (H) Any residential real property occupied by the quaked
8 taxpayer as their principal place of residence and that is eligible
9 for a homeowners property tax exemption pursuant to subdivision
10 (k) of Section 3 of Article XIII of the California Constitution and
11 Section 218.
12 (2) "Qualified taxpayer" shall not include either of the following:
13 (A) Any active duty military personnel.
14 (B) A decedent.
15 (c) All moneys and remittances received by the Franchise Tax
16 Board as amounts imposed under this section, and related penalties,
17 additions to tax, and interest imposed under this part, shall be
18 deposited, after clearance of remittances, in the Speculation
19 Recapture Community Reinvestment Fund.
20 SEC. 4. Section 19602 of the Revenue and Taxation Code is
21 amended to read:
22 19602. Except for amounts collected or accrued under Sections
23 17935, 17941, 17948, 19532, and 19561, and revenues deposited
24 pursuant to Sections 18200 and 19602.5, all moneys and
25 remittances received by the Franchise Tax Board as amounts
26 imposed under Part 10 (commencing with Section 17001), and
27 related penalties, additions to tax, and interest imposed under this
28 part, shall be deposited, after clearance of remittances, in the State
29 Treasury and credited to the Personal Income Tax Fund.
30 SEC. 5. Section 19604 of the Revenue and Taxation Code is
31 amended to read:
32 19604. (a) Except for fees received for services under Section
33 23305e, and revenues deposited pursuant to Section 25000, all
34 moneys and remittances received by the Franchise Tax Board as
35 amounts imposed under Part 11 (commencing with Section 23001),
36 and related penalties, additions to tax, fees, and interest imposed
37 under this part, shall be deposited in a special fund in the State
38 Treasury, to be designated the Corporation Tax Fund. The moneys
39 in the fund shall, upon the order of the Controller, be drawn
40 therefrom for the purpose of making refunds under this part or be
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transferred into the General Fund. All undelivered refund warrants
shall be redeposited into the Corporation Tax Fund upon receipt
by the Controller. Fees received for services under Section 23305e
shall be treated as reimbursement of the Franchise Tax Board's
costs and shall be deposited into the General Fund.
(b) Notwithstanding Section 13340 of the Government Code,
all moneys in the Corporation Tax Fund are hereby continuously
appropriated, without regard to fiscal year, to the Franchise Tax
Board for purposes of making all payments as provided in this
section.
SEC. 6. Article 1.5 (commencing with Section 19609) is added
to Chapter 8 of Part 10.2 of Division 2 of the Revenue and Taxation
Code, to read:
Article 1.5. Speculation Recapture Community Reinvestment
Fund
19609. (a) There is hereby created in the State Treasury the
Speculation Recapture Community Reinvestment Fund for the
purpose of allocating moneys deposited pursuant to Article 1
(commencing with Section 18200) of Chapter 14 of Part 10 and
Article 6 (commencing with Section 25000) of Chapter 15 of Part
11.
(b) Upon appropriation by the Legislature, the Franchise Tax
Board shall allocate moneys in the fund as follows:
(1) At least 30 percent shall be allocated to counties to be used
to create affordable housing in the county.
(2) Twenty percent shall be allocated to school districts to be
used for general purposes.
(3) Forty percent shall be allocated to cities, or counties if the
qualified asset is located in an unincorporated area, to be used for
general infrastructure, transit or active transportation projects, or
community facilities.
(4) Up to 10 percent shall be allocated to the Franchise Tax
Board to administer this article. Any remaining moneys under this
paragraph shall be allocated to counties, as specified in paragraph
(1).
(c) Allocations to counties, cities, and school districts under
subdivision (b) shall be made in proportion to the percentage of
moneys in the fund that are associated with the sale of the qualified
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1 asset within the jurisdiction of the county, city, or school district,
2 as applicable.
3 SEC. 7. Article 6 (commencing with Section 25000) is added
4 to Chapter 15 of Part 11 of Division 2 of the Revenue and Taxation
5 Code, to read:
6
7 Article 6. Capital Gains Tax for Housing
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9 25000. (a) (1) For each taxable year beginning on or after
10 January 1, 2023, in addition to any other tax imposed by this part,
11 an additional tax shall be imposed at the rate of 25 percent, and as
12 modified pursuant to paragraph (2), on that portion of a qualified
13 taxpayer's net capital gain generated as a result of the sale or
14 exchange of a qualified asset.
15 (2) The 25 -percent tax described in paragraph (1) shall be
16 reduced as follows:
17 (A) The tax shall be reduced by 20 percent if the sale or
18 exchange of the qualified asset occurred 3.01 to 4 years, inclusive,
19 after the qualified taxpayer's initial purchase of the qualified asset.
20 (B) The tax shall be reduced by 40 percent if the sale or
21 exchange of the qualified asset occurred 4.01 to 5 years, inclusive,
22 after the qualified taxpayer's initial purchase of the qualified asset.
23 (C) The tax shall be reduced by 60 percent if the sale or
24 exchange of the qualified asset occurred 5.01 to 6 years, inclusive,
25 after the qualified taxpayer's initial purchase of the qualified asset.
26 (D) The tax shall be reduced by 80 percent if the sale or
27 exchange of the qualified asset occurred 6.01 to 7 years, inclusive,
28 after the qualified taxpayer's initial purchase of the qualified asset.
29 (E) The tax shall be reduced by 100 percent if the sale or
30 exchange of the qualified asset occurred more than seven years
31 after the qualified taxpayer's initial purchase of the qualified asset.
32 (3) For purposes of applying Part 10.2 (commencing with
33 Section 18401), the tax imposed under this section shall be treated
34 as if imposed under Section 23 15 1.
35 (b) For purposes of this section:
36 (1) "Qualified asset" means any real property other than any of
37 the following:
38 (A) (i) Real property that meets all of the following
39 requirements:
40 (I) The real property is composed of multiple units.
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1 (II) The real property is restricted, by deed, to require that at
2 least 15 percent of residential units on the property are affordable
3 housing.
4 (III) The deed restriction described in subclause (II) was
5 recorded against the property within three years of the sale or
6 exchange of the property.
7 (ii) The exemption for the real property described in clause (i)
8 only applies to the first sale or exchange of that property by any
9 person.
10 (B) Real property that is part of subdivided or lot split property
11 for which the qualified taxpayer is also the recorded owner, if the
12 other portions of the subdivided or lot split property have not been
13 sold.
14 (C) Any real property that is designated or dedicated open space.
15 (D) Any real property that is not suitable for residential use or
16 not permitted for residential or mixed -development with residential
17 use under local or state law.
18 (E) Any real property for which any property transfer taxes do
19 not apply.
20 (F) Real property that is restricted, by deed, to require that the
21 property remain affordable.
22 (2) "Qualified taxpayer" shall not include active duty military
23 personnel.
24 (c) All moneys and remittances received by the Franchise Tax
25 Board as amounts imposed under this section, and related penalties,
26 additions to tax, and interest imposed under this part, shall be
27 deposited, after clearance of remittances, in the Speculation
28 Recapture Community Reinvestment Fund.
29 SEC. 8. This act provides for a tax levy within the meaning of
30 Article IV of the California Constitution and shall go into
31 immediate effect.
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