Domestic Partners’ Tax Change Advances

The state board that oversees property tax policy moved Wednesday to grant domestic partners the same rights as married couples in owning property -- despite warnings that the proposal could open a major tax loophole.

Under current law, county assessors are supposed to reappraise property when one domestic partner dies. Tax collectors then levy taxes based on the higher assessed value. When a married couple own a property, there is no reappraisal upon the death of a spouse.

On Wednesday, the State Board of Equalization tentatively approved a regulation guaranteeing that there would be no reappraisal when a domestic partner dies, thus ensuring that the surviving partner would not have to pay higher property taxes.

Board Chairwoman Carole Migden, a San Francisco Democrat, pushed the measure through on a 3-2 vote. The two Republicans on the Democrat-controlled board opposed the measure. The board won’t take a final vote until at least July.

“What we’re doing is clarifying existing rules and regulations,” Migden said, insisting that she merely is seeking to implement legislation signed into law by Gov. Gray Davis last year that grants domestic partners registered with the secretary of state the right to inherit property if one partner dies without a will.

However, the Legislature and governor portrayed that bill, AB 2216, as rather narrow, and the Assembly said in a bill analysis that the measure would have minimal cost.

But Santa Clara County Assessor Larry Stone, appearing along with other assessors before the board Wednesday, said Migden’s proposal was so broad that it could cost local government millions in lost property tax money.

Stone, although saying that he supports giving domestic partners equal property tax rights, said the measure would create “a gaping hole in the property tax system.” Business partners could game the system by buying property and holding it as so-called joint tenants, the same as married couples, and gain the same tax breaks.

Other critics said Migden’s proposal conflicts with Proposition 13, the 1978 initiative that slashed property taxes and conferred certain rights on “spouses.” Critics also warned that it conflicts with Proposition 22, the 2000 initiative that prohibits California from recognizing gay marriages.

Opponents said the concept would require voter approval or at least a new statute by the Legislature.

“I never met a tax cut I didn’t like. This is a first,” said board member Bill Leonard, a Republican from the Inland Empire.

If the board gives final approval to the proposal, opponents of gay marriage probably will sue. Predicting that the measure will be overturned in court, Leonard said the proposal will “raise hope that is not reasonable.”

Sam Catalano of the Stonewall Democratic Club, a gay Democratic organization, told board members that the action is a “gigantic leap forward for recognition of our relationships.”

“For us, it is an issue of fairness and equality,” said Catalano, one of several representatives of gays and lesbians who testified Wednesday.

Most assessors said they support domestic partners’ rights to equal treatment. But they warned that if Migden’s proposal becomes final, assessors will have no way to determine whether the exemption was being used legitimately by domestic partners or abused by business partners.

The proposal will create “a legal loophole that, no doubt, thousands of property owners will take advantage of,” Los Angeles County Assessor Rick Auerbach wrote to the board.

Contending that the change would complicate an already confused property tax system, Auerbach said in his letter: “Assessors will be asked to determine intent, no easy task, and somewhat subjective in nature.”