• Cities Tackle the Future of Single-Family Zoning, As State Takes Up the Issue Again

    In 2020, California legislators considered but ultimately did not approve bills that would have substantially restricted the continued use of single-family zoning across the state. These efforts included SB 50 (Wiener), which would have required increased residential density near qualifying transit, and SB 1120 (Atkins), which would have allowed duplexes on most residential lots across the state, including single-family zoning districts. Both bills, along with many other 2020 housing bills, died in chambers in the final moments of the legislative session. Read our previous coverage here.

    This year, legislators are back at work on similar legislation – SB 10 (Wiener), which would allow cities to up-zone qualifying parcels located in transit- or jobs-rich areas, and SB 9 (Atkins), a reprise of the SB 1120 duplex-zoning efforts. Both bills are already attracting attention from advocates and opponents of prior legislation. California’s effort to increase housing production and density through limits on single-family zoning comes in the wake of similar legislation in other parts of the country. In 2019, Oregon became the first state to adopt legislation effectively banning single-family zoning in many cities, and in 2018, the Minneapolis City Council unanimously voted to update its long-range Comprehensive Plan to eliminate single-family zoning.

    Now, a number of California cities – including several in the Bay Area – are taking up the issue directly. The City of Sacramento made headlines last month when its Council unanimously approved a draft proposal to allow up to four units on lots within its single-family and duplex zoning districts. The City of San Jose has established an “Opportunity Housing” task force that will explore allowing up to four units per parcel in residential zones – a significant increase given that approximately 94% of San Jose residential land is designated for single-family housing and only 6% for multifamily. In San Francisco, Supervisor Mandelman has introduced legislation to allow fourplexes on corner lots and other traditional single-family neighborhoods within a half-mile of major transit stops. Most recently, the City of Berkeley unanimously adopted a resolution to begin the process of eliminating single-family residential zoning and allowing for other types of housing such as apartments, duplexes and triplexes in the next few years. Berkeley is also considering legislation that would legalize quadplexes throughout the city. The City of South San Francisco is also beginning to explore the issue.

    These efforts to reassess traditional single-family zoning reflect a crossroads for local jurisdictions grappling with competing pressures to retain local control over land use decisions, and address inequitable access to housing, the effects of climate change, and the economic fallout from COVID-19. Taken together, these local proposals would result in more modest increases in residential density compared to proposed state legislation such as SB 10 and similar prior failed bills, but they reflect a growing effort to take on the issue directly at the local level, particularly within transit-rich jurisdictions.

    The Coblentz Real Estate team continues to track the progress of these state-wide and local efforts. Please contact a member of our team for additional information and any questions related to the impact of these pending state and local regulations on land use and real estate development.

  • The Corporate Transparency Act (CTA) Requires Companies to Disclose Beneficial Owners

    On January 1, 2021, Congress passed the Corporate Transparency Act (CTA) as part of the 2021 National Defense Authorization Act. The CTA requires most private companies formed in the U.S. or registered to do business in the U.S. to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) bureau of the U.S. Department of the Treasury. Although the CTA is intended to eliminate the anonymity of individuals that use shell companies for illegal activities, the reporting requirements will affect legitimate private companies. Companies should be aware of and prepare for the new reporting requirements to avoid civil and criminal penalties for failure to file the information when required.

    Types of Companies Required to Report Beneficial Owners Under the CTA

    Companies that are required to report their beneficial owners and applicants to FinCEN under the CTA are any corporation, limited liability company, or other similar entity that is either formed in the U.S. or formed under the law of a foreign country and registered to do business in the US. Certain companies are exempt from the reporting requirements, including:

    • publicly-traded companies;
    • banks, insurance companies, investment companies registered with the Securities Exchange Commission, and credit unions;
    • public accounting firms;
    • companies that employ more than twenty people, filed a tax return reporting gross receipts of more than $5 million, and have a physical presence in the US;
    • nonprofit organizations; and
    • any entity that is designated by Secretary of the Treasury to be exempt.

    It is unclear whether the scope of “other similar entity” under the CTA will include partnerships (general or limited) or trusts until the regulations under the CTA have been adopted. The CTA regulations would be consistent with existing FinCEN’s customer due diligence rules if it includes limited partnerships and business trusts but excludes general partnerships and most estate planning trusts.

    CTA Reporting Requirements

    Reporting will not begin until the Secretary of the Treasury has adopted regulations detailing how the CTA will be implemented, which adoption is mandated by January 1, 2022.

    FinCEN must also establish a registry to collect the identifying information on a reporting company’s beneficial owners and applicants. Reporting companies must file a report with FinCEN upon formation or registration, containing the following information regarding its beneficial owners and applicants:

    • full legal name;
    • date of birth;
    • current residential or business address; and
    • unique identifying number from an acceptable identification document, such as a driver’s license or passport.

    Companies formed before the regulations are adopted will have a two-year period after adoption of the regulations to file their initial reports.

    Companies will also be required to submit annual reports to reflect any changes to the identifying information.

    Definitions of Beneficial Owner and Applicants

    A “beneficial owner” is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise owns or controls 25% or more of the ownership interest of an entity, or exercises “substantial control” over an entity.

    The CTA does not define “substantial control.” The regulations will likely contain complex rules for measuring ownership and determining who is in control, as well as how to treat multi-tiered companies and related parties.

    The five exclusions from the definition of a beneficial owner include:

    1. minor children, if the child’s parent’s or guardian’s information is reported properly;
    2. individuals acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
    3. an individual acting solely as an employee;
    4. an individual whose interest in an entity is only through a right of inheritance; or
    5. a creditor of a reporting person, if the creditor is itself not a “beneficial owner” based on substantial control or ownership or control of 25% or more of the ownership interests in the reporting company.

    An “applicant” means any individual who files an application to form a reporting company or registers or files an application to register a reporting company to do business in the United States. This requirement is noteworthy because a reporting company would need to file identifying information for the individual who files the application to form the company even if that individual is not a beneficial owner. This could conceivably include individuals at law firms that act as agents to create the company.

    Confidentiality of Identifying Information

    FinCEN will hold the information that is gathered on beneficial owners and applicants in a confidential and secure database. Information will only be released in response to a request from law enforcement agencies engaged in national security, intelligence, or law enforcement activity, and if the reporting company consents, financial institutions subject to and in order to comply with customer due diligence requirements.

    Penalties

    Companies or individuals who violate the CTA will be subject to civil penalties of not more than $500 per day, capped at $10,000, and imprisonment of up to two years if an individual willfully provides false information or fails to report.

    Interim Planning Recommendations

    Until the Secretary of the Treasury has adopted regulations, companies should assume that not only corporations and LLCs, but partnerships, trusts, and other entities, will be covered by the CTA.

    Management of reporting companies should assess the requirements of the CTA, and determine whether their company’s operative documents should include:

    • a representation by each shareholder, member or partner, as applicable, that it will be in compliance with or exempt from the CTA;
    • a covenant by each shareholder, member or partner, as applicable, requiring continued compliance with and disclosure under the CTA or to provide evidence of exemption from its requirements;
    • an indemnification by each shareholder, member or partner, as applicable, to the company and its other shareholders, members or partners, as applicable, for its failure to comply with the CTA or for providing false information; and
    • a consent by each disclosing party for the company to disclose identifying information to FinCEN, to the extent required by law.

    Investment funds should consider adding similar representations and covenants by their investors to their subscription and management agreements. Lenders should also consider adding similar representations and covenants by their borrowers to their loan documents.

    For questions, or to further discuss how to prepare your business to comply with the Corporate Transparency Act, please contact Sara Finigan at sfinigan@coblentzlaw.com, or any member of the Coblentz Corporate team.

  • San Francisco Considers Reducing Commercial and Condominium Tax Assessments Pending Data on How the Pandemic has Impacted Property Values

    In 1978, California voters passed Proposition 8, which amended the California Constitution to allow a temporary reduction in assessed value when the market value of a property has fallen below its factored base year value as of the January 1 lien date (a “Prop. 8 Reduction”). Because residential properties change hands much more frequently, California Assessors have access to enough information to understand what the market value of a residential property is for purposes of reviewing applications for Prop. 8 Reductions.

    Commercial properties, however, do not produce such a consistent flow of data. Because commercial properties in the City involve any number of leases, some of which have been honored throughout the pandemic, and some of which have operated at a reduced rent or have been completely vacated, the Assessor-Recorder’s office believes that the collection of data from commercial property owners will help the City better understand the effects the pandemic has had on these properties, giving it the information it needs to accurately analyze applications for Prop. 8 Reductions based on the January 1, 2021 valuations.

    The City plans to send these voluntary surveys to large commercial property owners during the month of February, 2021. Due to the economic impact of COVID-19, many commercial and residential property owners will be requesting Prop. 8 Reductions for the upcoming 2021-2022 fiscal year. This can be done by filing an Assessment Appeal Application with a county’s Assessment Appeals Board commencing July 1, 2021.

  • What’s at Stake for California Employers in the Georgia Runoff Elections?

    By Stephen Lanctot and Fred Alvarez

    Why should California employers care about another state’s Senate runoff race? Here’s why they should care: The Protecting the Right to Organize Act (PRO Act).

    Typically, employers doing business in California seldom invest themselves in what’s happening in Congress. That’s because California labor laws are generally more protective of employee rights. But this one is worth watching, especially given the uncertainty surrounding control of the Senate and its relationship with the incoming Administration.

    On February 6, 2020, the House of Representatives passed the PRO Act (the full text of the act is found here), which seeks to offer significant amendments to the National Labor Relations Act (NLRA). This legislation passed the House largely along party lines, again underscoring the importance of the January 2021 elections. If it makes its way through the Senate and is signed by President Biden in its current form, it could drastically affect the current state of labor relations between management, workers, and unions.

    Many have described the PRO Act as a union, pro-labor wish list. It’s obvious why. To name just a few changes, the PRO Act would amend the NLRA as follows:

    • Revise the definition of employee to broaden the scope of workers covered by the NLRA, which could include gig economy workers;
    • Prohibit employers and employees from entering into agreements under which employees waive their right to pursue or join collective or class-action litigation (because such activity is concerted activity under Section 7);
    • Enable a worker to bring a civil action in a federal district court under Section 8(a) after 60 days following the filing of a charge before the National Labor Relations Board (NLRB), or when the NLRB determines it will not pursue the complaint;
    • Expand the available remedies for employees subject to economic harm as a result of an unfair labor practice to include double the amount of actual damages (g., back pay), consequential damages, and punitive damages;
    • Establishes civil penalties ($50,000 to $100,000 for each violation) for employers who engage in unfair labor practices under Section 8(a);
    • Permit a union to encourage the participation of union members in strikes initiated by employees represented by a different labor organization (known as secondary strikes), and terminate the right of employers to bring claims against unions that conduct such secondary strikes;
    • Make it an unfair labor practice to replace workers who participate in strikes;
    • Compel an employer to recognize and bargain with a union that has received a majority of votes, if the union loses a representation election and the NLRB finds that the employer unlawfully interfered; and
    • Permit employees to use the employers’ electronic communication devices and systems to engage in concerted activity under Section 7.

    It’s doubtful that the PRO Act will pass as written. But even if another iteration of the bill proceeds through the Senate and onto the President’s desk, one thing is clear about what the PRO Act portends—federal labor law is on the agenda for the Democratic party.

    In sum, the PRO Act could provide unions with the tools necessary to make labor organizing a top priority in 2021 and beyond. Employers who are unfamiliar with this new federal-labor landscape may find themselves on the other end of an unfair labor practice charge or facing hefty monetary penalties (or both). California employers should pay close attention to the future of Washington D.C., even if the headlines only read “Georgia.”

    The Coblentz Employment team will continue to monitor this proposed legislation and provide necessary updates. For further information or questions, contact any of our Employment attorneys, including Fred Alvarez (falvarez@coblentzlaw.com) or Stephen Lanctot (slanctot@coblentzlaw.com).

  • Tis’ the Season – AG Proposes New Modifications (4th Set) to CCPA Regulations

    California Consumer Protection Act (“CCPA”) regulations have been in the spotlight for most of 2020. Even after the final regulations went into effect on August 14, 2020, the Attorney General’s office has proposed further modifications. It is only fitting that we ring in the holiday season on that same note. On December 10, the AG’s office released a fourth set of proposed modifications to the final regulations. Building on the third set of proposed modifications, these modifications focus on the sale of personal information.

    The modifications propose as follows:

    Offline Opt-Out Notice Requirements. Businesses that sell personal information of consumers collected offline must also provide the consumers with offline notice of their right to opt-out and provide instructions to submit such opt-out requests. Examples of giving notice include posting signage and giving notice over the phone.

    Businesses that sell personal information collected online are required to provide notice of right to opt-out and must implement the “Do Not Sell My Personal Information” link. This proposed modification attempts to even the playing field when it comes to sale of information collected offline. Unlike the precise required language for online collection, the modifications stop short of declaring language required on in-store signage and via phone calls.

    Return of the Opt-Out Button. The modifications reintroduce the previously eliminated Opt-Out Button. It is to be noted that this button does not eliminate the need to post an opt-out notice or link where otherwise required. The button must be approximately the same size as other buttons on the page and must link to the same page to which the consumer is directed when s/he clicks on the “Do Not Sell My Personal Information” link. The button looks like this:

     

     

     

    While the recent passage of the CPRA has taken much of the focus away from the CCPA in recent weeks, the CCPA remains in effect for now, and the AG’s regulations appear to be the gift that keeps on giving. The deadline to submit comments to these proposed modifications is 5:00 PM on December 28, 2020. We will continue monitoring for new developments. For further information, contact Data Privacy attorney Scott Hall (shall@coblentzlaw.com).

     

    Posted on: December 11, 2020 Tags: Categories: Publications

  • Prop H Brings Swift Approvals & More Flexibility to Many of San Francisco’s Retail Corridors

    The Planning Department has a December 19 deadline to implement the small business streamlining provisions of Proposition H, which was approved by the voters last month. Proposition H expedites the approval process for principally permitted uses in Neighborhood Commercial (NC) and Neighborhood Commercial Transit (NCT) districts and relaxes zoning controls for a variety of businesses in most NC and NCT districts. Mayor Breed placed Proposition H on the ballot in response to the economic challenges of the COVID-19 pandemic and, calling out San Francisco’s “broken” permitting system, issued an executive order on November 19 requiring City departments to implement Proposition H within 30 days.

    Under Proposition H, the City must complete its review of permit applications for principally permitted uses in NC and NCT districts within 30 days “to the maximum extent feasible,” and the City is currently re-tooling its interdepartmental review process to comply with this newly imposed time limit. As an additional streamlining measure, Proposition H exempts any change in use within these districts to a principally permitted use from the 30-day neighborhood notification requirement that might otherwise apply.

    Proposition H broadens the list of principally permitted uses in most NC and NCT districts, excluding the Mission Street, 24th Street, and SOMA NCT districts, allowing business owners to avoid the time and expense of the City’s conditional use (CU) authorization process. This expanded list includes temporary pop-up retail uses in bars and entertainment venues, co-working spaces within retail uses, certain office uses, and outdoor dining in parklets and the public right-of-way (dovetailing with San Francisco’s Shared Spaces program).

    Planning staff provided an informational presentation on Proposition H at the Planning Commission’s November 19 meeting. Some commenters expressed concern that Proposition H’s “one-size-fits-all” approach might adversely affect neighborhood-serving businesses, particularly in neighborhoods such as the Mission. Some Planning Commissioners raised concerns regarding equitable access to Proposition H’s benefits across the small business community, and requested that the Planning Department collect and analyze data to better understand the program’s impacts throughout the City and adjust outreach accordingly.

    For three years after Proposition H takes effect, the Board of Supervisors cannot further restrict principally permitted or conditionally permitted uses in NC or NCT districts. However, the Board may amend the ordinance to allow additional uses as principally permitted uses, or non-permitted uses as conditionally or principally permitted uses, and it may further streamline notice and permitting procedures. After this three-year period, the Board may amend the law without limitation.

  • Election Results: Key San Francisco and California Ballot Measures Impacting Real Estate

    In late October, we reported on a number of California, San Francisco, and regional propositions, including measures impacting real estate and other taxes, rent control, affordable housing, permits, and governance. At the state level, results were mixed and in some cases still too close to call, with voters clearly rejecting expansion of local residential rent control (Proposition 21), appearing likely to reject proposed changes to commercial property tax assessment (Proposition 15), but appearing likely to approve revisions to residential property tax reassessment. Greater certainty is expected in the coming days and weeks, and no later than December 4th, when county elections officials must report final results to the California Secretary of State. In San Francisco, voters approved all of the measures that we reported on, including major new and increased business taxes.

    Summary of California Results:

    Proposition 15

    Would assess property taxes on certain commercial and industrial properties based on fair market value rather than purchase price, removing certain limitations originally established under Proposition 13. TOO CLOSE TO CALL.

    Proposition 19

    Would expand the exemption for property tax reassessment of replacement residences for homeowners over age 55, victims of wildfires, and severely disabled individuals, while also limiting the exemption from reassessment for transfers of residences between parents and children. TOO CLOSE TO CALL.

    Proposition 21

    Would have expanded local rights to enact rent control by allowing local governments to: (1) enact rent control on all housing units except (a) housing first occupied within the last 15 years, and (b) homes owned by natural persons who own no more than two single-family housing units; and (2) prohibit landlords from raising rental prices by more than 15 percent cumulatively during the first three years following a vacancy. REJECTED.

    Summary of San Francisco Results:

    Proposition A (Health, Parks and Street Bond)

    Authorizes issuance of general obligation bonds of up to $487.5 million for capital projects across three primary categories: mental health, substance abuse, and homelessness; parks, open space, and recreation facilities; and street maintenance and repair. PASSED.

    Proposition B (Department of Public Works)

    Makes substantial changes to the Department of Public Works (DPW), creating a new Public Works Commission to oversee the Department and a new Department of Sanitation and Streets to perform a number of functions currently within the jurisdiction of DPW. PASSED.

    Proposition F (Business Tax Overhaul)

    Amends the San Francisco Charter and City Ordinances to eliminate the payroll expense tax, increase the Gross Receipts Tax rates, and increase the number of small businesses that are exempt from the Gross Receipts Tax. PASSED.

    Proposition H (Save our Small Businesses Initiative)

    Makes numerous changes to the San Francisco codes governing storefront commercial uses and small businesses: streamlining the City permitting process for principally permitted storefront uses in the City’s Neighborhood Commercial zoning districts, allowing eating and drinking uses in those districts to offer workspaces, removing certain neighborhood notice requirements for new principally permitted businesses, facilitating the use of outdoor spaces by eating and drinking establishments and other businesses, and eliminating the conditional use requirement for certain commercial uses. PASSED.

    Proposition I (Real Estate Transfer Tax)

    Increases the real property transfer tax on transfers of property valued between $10 million and less than $25 million from 2.75 percent to 5.5 percent, and the rate on transfers valued at $25 million or more from 3 percent to 6 percent. PASSED.

    Proposition J (Parcel Tax for SF Unified School District)

    Imposes an annual tax of $288 on each parcel in the City to generate $50 million in annual revenue to support the San Francisco Unified School District for salaries and educational improvements. PASSED.

    Proposition K (Affordable Rental Units)

    Authorizes the City of San Francisco to own, develop, construct, acquire, or rehabilitate up to 10,000 affordable rental units, fulfilling the requirement of the California Constitution that the City seek voter approval for public low-income rental housing. PASSED.

    Proposition L (Business Tax Based on Executive/Employee Pay Comparison)

    Creates an additional tax on San Francisco businesses whose highest-paid managerial employee has a salary exceeding the business’s median employee compensation by a ratio of 100 or more to 1. Larger businesses subject to the Administrative Office Tax will pay an additional tax between 0.4 percent to 2.4 percent of their San Francisco payroll expense, and smaller businesses subject to the Gross Receipts Tax will pay an additional tax between 0.1 percent to 0.6 percent of their San Francisco gross receipts. PASSED.

    Summary of Regional Results:

    Measure RR (Caltrain Tax)

    Authorizes a 0.125 percent sales tax increase in San Francisco, San Mateo, and Santa Clara counties to provide $100 million of annual funding for the Caltrain rail system. PASSED.

  • 2020 Tax Planning: Preserve Low Property Taxes for Next Generation before Prop 19 Takes Effect

    By Kit Driscoll.

    Please note: Coblentz is not taking on new clients for Proposition 19 matters at this time.

    California’s unofficial election results[1] indicate that Proposition 19, one of the two Propositions affecting California property tax rules, passed and will affect transfers after February 15, 2021.  Commercial and industrial property owners need not be concerned about the split roll that would have assessed property taxes based on fair market value as Proposition 15 did not pass.  Real property owners should consider strategies to preserve low assessed values of legacy properties before Proposition 19 takes effect.

    Proposition 19 dramatically changes the property tax rules exempting the following:

    • Primary residence transactions for certain individuals such as those over age 55, severely disabled, or victims of wildfires or other natural disasters. The new rules for this category are generally favorable and may result in tax savings for a qualifying homeowner by allowing the assessed value of their principal residence to be transferred to a replacement residence in any California county. Unlike current law, the new rules may provide a significant benefit even if the replacement residence is more expensive than the principal residence that is transferred.
    • Certain intra-family transfers. The new rules for parent-child and certain other intra-family transfers significantly increase the cost to future generations of keeping legacy properties within the family, as illustrated below.[2]

    Current Property Tax Rules and Exemptions

    California property tax is assessed based on the property’s purchase price and the cost of any improvements to the property. Unless a “change of ownership” occurs, the assessed value of real property increases by no more than 2% annually. Because average appreciation of California real property has far exceeded the 2% annual adjustment since the enactment of Proposition 13 in 1978, long time owners of California real estate generally enjoy a very low property tax burden relative to owners of newly acquired property.

    California currently provides two valuable exemptions from reassessment, which allow the continuation of this benefit after transfers of qualifying property interests between parents and children.[3] First, a transfer of parent’s principal residence to a child is completely exempted from reassessment. The child succeeds to the parent’s assessed value regardless of the value of the property or its assessed value at the time of transfer. Second, transfers of real property interests which are not the parent’s primary residence (residential or commercial) are exempted from reassessment to the extent of $1 million of assessed value, regardless of the fair market value of the property.

    New Property Tax Exemptions Under Proposition 19

    Proposition 19 revises the Parent-to-Child exemptions to limit (1) the types of transfers between parents and children that can be exempted from reassessment, and (2) the property tax benefit available. First, only a transfer of the parent’s principal residence to the child where the property continues as the child’s principal residence qualifies. Second, provided the transfer meets the principal residence requirements, the child’s assessed value is then determined based on whether the property’s value at the time of transfer is greater than the parent’s assessed value by more than $1 million. If the value of the property at the time of the transfer exceeds the parent’s assessed value by less than $1 million, then the child takes the parent’s assessed value. If the value of the property at the time of the transfer exceeds the parent’s assessed value by $1 million or more, then the child’s assessed value is the current value of the property less $1 million.

    Illustration of Proposition 19

    The following hypotheticals illustrate the consequences under current law versus Proposition 19.

    Hypothetical No. 1 – Prop 19 Increases Taxes 10x

    Facts:

    • Property #1 is Mom’s principal residence: $10M FMV, $500,000 assessed value
    • Property #2 is Mom’s secondary residence: $5M FMV, $1M assessed value
    • Mom’s total assessed values that she pays property tax on is $1.5M
    • Property tax rate is 1.25% (estimated)
    • Mom’s estimated total property taxes are $18,750
    • Mom gives Property #1 and Property #2 to Child and claims exemption
    • Child does not use either property as principal residence

    Child’s Assessed Values and Property Tax Consequences:

    Current Law Proposition 19
    Property #1 assessed value $500,000 (exempt under R&T Code Section 63.1(a)(1)(A))

    Property #2 assessed value $1M (exempt under R&T Code Section 63.1(a)(1)(B))

    		 Properties #1 and #2 are both reassessed to their fair market value because of the requirement the property be both Mom and Child’s principal residence before and after transfer, respectively
    Assessed value is $1.5M, total, same as Mom’s Assessed value is $15M, total
    Property tax is $18,750, total, same as Mom’s Property tax is $187,500, total

     

    Hypothetical No. 2 – Prop 19 Increases Taxes 9.3x

    Facts:

    • Same facts as Hypothetical No. 1, except that Child maintains Property #1 as Child’s principal residence after the transfer.

    Child’s Assessed Values and Property Tax Consequences:

    Current Law  Proposition 19
    Same result as Hypothetical No. 1

    Property #1 assessed value $500,000 (exempt under R&T Code Section 63.1(a)(1)(A))

    Property #2 assessed value $1M (exempt under R&T Code Section 63.1(a)(1)(B))

    		 Property #1 receives a limited exemption from reassessment of the fair market value, less $1M ($10M – $1M = $9M)[4]

    Property #2 is reassessed to its fair market value because of the requirement the property be both Mom and Child’s principal residence
    Assessed value is $1.5M, total, same as Mom’s Assessed value is $14M, total
    Property tax is $18,750, total, same as Mom’s Property tax is $175,000, total

     

     

    [1]  See the “Unofficial Election Results” on the California Secretary of State’s website.

    [2]  R & T Code Section 63.1 provides the “Parent-to-Child” exemptions. The Parent-to-Child exemptions are for transfers “between” parents and children. The Parent-to-Child exemptions are also available for transfers between grandparents and grandchildren in certain circumstances. For purposes of this illustration, “parent” is the transferor and “child” is the transferee.

    [3]  Note that certain procedural requirements must be satisfied to benefit from these exemptions and that other types of exemptions exist other than the Parent-to-Child transfers.

    [4]  If Property #1 FMV were instead $1M, then the assessed value would remain $500,000 and Child would have same property tax as Mom for Property #1

    Posted on: November 5, 2020 Tags: Categories: Publications

  • CPRA is Coming – Prop 24 Passes

    Before businesses can even breathe a sigh of relief for getting into compliance with the California Consumer Privacy Act (“CCPA”), they will now need to gear up for yet another first-of-its-kind privacy law in the form of the California Privacy Rights Act (“CPRA”). The CPRA, enacted by ballot initiative Proposition 24, appears to have passed with approximately 56% of the vote, though ballot results will not be certified until December 11.

    The CPRA, sometimes dubbed “CCPA 2.0,” amends and expands the CCPA, keeping certain provisions in place while revising or adding new provisions. All businesses, especially those collecting sensitive personal information or information of minors, should re-evaluate their data collection, sharing, and use practices again in light of the new law and make necessary changes.

    Select key provisions of CPRA include the following:

    • California Privacy Protection Agency (“CPPA”) – CPRA creates an independent agency – the first of its kind – with authority and jurisdiction to implement and enforce CCPA. With an agency like this focused solely on enforcing privacy violations, businesses can expect much more rigorous enforcement of privacy laws in California. The CPPA would take over authority for issuing regulations from the Attorney General’s office, and it will be interesting to see how this new agency functions and what its priorities of enforcement will be.
    • Sensitive Personal Information – CPRA introduces a new category of personal information called “sensitive personal information” encompassing health data, sexual orientation, race, origin, geolocation, financial data, genetic data, biometric data, social security number, driver’s license, etc. It also allows consumers the right to limit the use and disclosure of such sensitive personal information by businesses. Accordingly, businesses may need to add yet another link to their website homepage to allow consumers to exercise their rights to limit the use of their sensitive information.
    • Behavioral Advertising – Importantly, the CPRA attempts to address the gray area in the CCPA regarding whether opt-out rights applicable to data “sales” apply to the sharing of personal information for behavioral advertising. The CPRA explicitly extends consumer opt-out rights to the sharing of personal information by a business to a third party for “cross-context behavioral advertising.” Many companies may have already been treating such data sharing as a potential “sale” under the CCPA, in which case, the CPRA may not require further significant modifications to current practices. But companies that were taking the position that the opt-out right did not apply to behavioral advertising will have to alter their practices.
    • Definition of Covered Businesses – CPRA modifies the definition of a “business” to only include those businesses that collect information of 100,000 California consumers or households. This threshold is double the current 50,000 California consumers or households trigger. However, CPRA will not be effective until 2023, requiring businesses falling in that 50,000 threshold to comply with the CCPA in the interim. Additionally, the CPRA expands its application to businesses that derive 50% of their revenue from selling – or “sharing” – personal information.
    • Expanded Consumer Rights – CPRA will give consumers additional rights such as the right to correct their data, right to not be retaliated against for exercising their rights, right to prevent companies from storing their data longer than necessary, right to opt-out of companies tracking precise geolocation within less than 1/3 of a mile, etc. Consumers’ Right to Know will also be expanded under the CPRA to include all information collected about them as opposed to only information collected by the business in the past 12 months.
    • Increased Liabilities – The CPRA leaves in place the CCPA’s private cause of action for data breaches, but adds consumer login credentials, such as email and password or security questions and answers, to the types of data that trigger the private right of action. The CPRA also triples fines related to the collection and sale of personal information of minors.

    The CPRA becomes effective January 1, 2023, but businesses will need to comply with certain provisions and requirements with respect to information collected as of January 1, 2022. Covered businesses must still comply with the CCPA, and enforcement of the CCPA by the Attorney General is expected to continue in the meantime.

    Overall, this caps a rollercoaster year for privacy legislation in California, as summarized here. If your company needs assistance with any privacy issues, Coblentz Patch Duffy & Bass LLP can help. Please contact Scott Hall at shall@coblentzlaw.com for further information or assistance.

    Posted on: November 4, 2020 Tags: Categories: Publications

  • San Francisco Tax Propositions on the November Ballot

    San Francisco voters will confront a number of tax measures on the November ballot. These measures are summarized below.

    Proposition F – Adjustment of Baseline Funding and Business Tax Changes

    Current Law:

    San Francisco imposes a number of taxes under the Business and Tax Regulations Code (the “SF Tax Code”) on businesses engaged in business within the City. Three general taxes—so called because the revenues from which go to the City’s General Fund—imposed by the City are (1) the Business Registration Fee, (2) the Payroll Expense Tax, and (3) the Gross Receipts Tax. Currently, the SF Tax Code includes a small business exemption from the Gross Receipts Tax for businesses with less than $1 million in gross receipts attributable to the City.

    The City also imposes special taxes on certain businesses, the revenues from which are dedicated to specific purposes. Two such special taxes are (1) the Early Care and Education Commercial Rents Tax  and (2) the Homelessness Gross Receipts Tax.

    Proposed Changes:

    Business Registration Fee. Effective beginning in the 2021-2022 fiscal year, Proposition F would amend the SF Tax Code to reduce the annual Business Registration Fee for businesses with $1 million or less in San Francisco gross receipts. The amendment would also provide for an increase in the Business Registration Fee for businesses benefiting from the increased ceiling for the small business exemption from the Gross Receipts Tax (discussed below). For most businesses with over $1 million to $1.5 million in gross receipts attributable to the City, the increase would be $230 to $245, depending on the activities of the subject business. For most businesses with over $1.5 million to $2 million in gross receipts attributable to the City, the increase would be $435 to $460, depending on the activities of the business.

    Payroll Expense Tax. Proposition F would repeal the Payroll Expense Tax, effective as of January 2021.

    Gross Receipts Tax. Under Article 12-A-1 of the SF Tax Code (the provisions governing the Gross Receipts Tax), Proposition F would make the following changes:

    • Revise the Gross Receipts Tax rates and incrementally increase the Gross Receipts Tax rates for certain business activities, beginning with the 2021 tax year and continuing through the 2024 or 2025 tax year.[1] For certain business activities, the measure would initially reduce the Gross Receipts Tax rates from what they are currently, and incrementally increase the rates over the next four tax years.[2]
    • Increase the ceiling for the small business exemption from the Gross Receipts Tax from $1 million to $2 million of gross receipts attributable to the City.
    • Eliminate the credit for taxpayers that have paid a substantially similar tax to any other jurisdiction on the gross receipts attributable to and taxable by the City.
    • Beginning with the 2021 tax year, adjust the required quarterly payments of the Gross Receipts Tax to the lesser of (1) 25 percent of the Gross Receipts Tax liability shown on the business’s return for the tax year, or (2) 25 percent of the Gross Receipts Tax liability, as determined by applying the applicable Gross Receipts Tax rates and small business exemption for the current tax year to the taxable gross receipts shown on the business’s return for the preceding tax year.
    • If a final judicial decision invalidates the Homelessness Gross Receipts Tax, Proposition F would increase the existing Gross Receipts Tax on certain businesses for a period of 20 years, beginning with the tax year following the year a decision becomes final. This provision would include additional tiers of Gross Receipts Tax rates for businesses with taxable gross receipts over $50 million.
    • If a final judicial decision invalidates the Early Care and Commercial Rents Tax, Proposition F would add a new Article 36 to the SF Tax Code to impose a new tax on the gross receipts from the lease of certain commercial space in the City for a period of 20 years. Proposed Article 36 would be substantially similar to the existing Early Care and Commercial Rents Tax, except that revenues would go to the City’s general fund.

    Proposition I – Real Property Transfer Tax Rate Increase on Transfers of Properties of at Least $10 Million

    San Francisco currently imposes a transfer tax on each commercial and residential property transferred, which includes transactions involving leases with a term of 35 years or more and certain transfers involving legal entities that own real property in San Francisco. Under the current provisions of San Francisco’s Real Property Transfer Tax Ordinance (the “Transfer Tax”), the Transfer Tax rate is variable, depending on the purchase price or the fair market value of the property transferred.

    Currently, the Transfer Tax imposed on applicable transfers of property with a purchase price or value between $10 million and $25 million is approximately 2.75 percent.[3] The current Transfer Tax rate for transfers involving property with a purchase price or value equal to or in excess of $25 million is approximately 3 percent. Proposition I would amend the SF Tax Code to double the Transfer Tax applicable to transfers within these two tiers of consideration or value. For transfers within the $10 million to $25 million tier, Proposition I would increase the Transfer Tax to $27.50 per $500 of value or consideration, or 5.5 percent. For transfers in the $25 million or above range, the measure would increase the Transfer Tax to $30.00 per $500, or 6 percent.

    Proposition J – Parcel Tax for San Francisco Unified School District

    In June 2018, voters passed a measure very similar to Proposition J, but the funding to schools and education that the June 2018 measure proposed to provide has been indefinitely postponed due to pending litigation. Proposition J would change the City’s existing Parcel Tax from the current rate of $320 per parcel to $288 per parcel and make the revenues generated from the tax more specifically targeted toward educators’ compensation and educational improvements.

     

    [1] The incremental increases in the Gross Receipts Tax rates vary across business activities, but the increased rate each year remains steady within each category of business activity.  For example, businesses within the category of Real Estate, Rental and Leasing Services would be subject to an increase of .014 percent to .015 percent each year.

    [2] For example, some businesses within the Retail Trade business activity category would initially experience a reduction in Gross Receipts Tax rate by .022 percent.

    [3] The Transfer Tax for this value tier imposes a tax of $13.75 for “each $500 or fractional part thereof” for the entire value or consideration, so the actual tax paid may not be exactly 2.75 percent of the value or consideration.