January 1st: Assessment Date. Taxes become a lien not yet due and payable for the Fiscal Tax Year starting July 1st. This is also the valuation date for new construction. If a subdivision map or condominium plan has not been recorded by this date, the tax bill will not be segregated when issued in October and estimation will be required.
February 1st: 2nd installment regular taxes are due.
April 10th: 2nd installment regular taxes last day to pay without penalty.
June 30th: Any unpaid property taxes become defaulted. (Property may be sold at public auction after five years of delinquency.)
July 1st: Fiscal tax year begins. Taxes are due after this date, but not yet known or payable. Even if taxes will be segregated for this new fiscal year, an estimate will be required for closings from now to when the bill is issued in October. If an estimate has been used to collect future unsegregated taxes from the buyer, the estimated amount will now be prorated between buyer and seller. The Assessor can now advise if the taxes will be segregated and provide the valuations being used for the upcoming bill(s). This will be helpful for determining your estimate or confirming the estimate you are using.
October: Sometime during the month, regular tax bills will be issued.
November: 1st installment regular taxes are due.
December 10th: 1st installment regular taxes last day to pay without penalty. Both installments of the unsegregated taxes for a subdivision should be paid.How Property Taxes are Determined
Property taxes are governed by California State law and collected by the county. The County Assessor must first assess the value of your property to determine the amount of property tax. Generally, the assessed value is the cash or market value at the time of purchase. This value increases not more than two percent per year until the property is sold or new construction is completed. The County Auditor-Controller applies the appropriate tax rates, which include the general tax levy, locally voted special taxes and city or district direct assessments. The Tax Collector prepares property tax bills based on the Auditor-Controller’s calculations, distributes the bills, and then collects the taxes.
With a subdivision, an increase in the assessed value due to a change in ownership and new construction can be under review with the Assessor during sales to individual buyers, causing a change in assessed value after bills have been issued and resulting in additional bills issued after sales.
How Property Taxes are Segregated
Segregation is a word commonly used by the development industry to refer to what the Assessor calls a “parcel change.” A parcel change occurs when a property is divided by a new subdivision map, condominium plan or lot line adjustment. Segregation is the term the Assessor and Tax Collector use to describe the separation of a single tax bill which then becomes prorated among individual owners. So the segregation is the separation of the tax amounts after the parcel change has occurred. The first event to cause a parcel change is the recording of the tract or parcel map. In a condominium development, a second parcel change will occur after the condominium plan records. In each case, a new Assessor’s parcel number is assigned to each new lot or unit. In general, a subdivision map or plan recorded prior to December 31st will have a parcel change in the following year. A new tax bill or bills reflecting this parcel change can be expected by October of the year following the recordation of the map or plan. The important date to remember is January 1st. The status of the property, i.e. what maps or plans have recorded, the status of construction and the status of the ownership, as of this date will determine what the bill will be and who it will be sent to in October.
Supplemental Property Taxes
A supplemental property tax bill will be issued to reflect the increase in value due to a change in ownership. Because the Assessor cannot reflect an increase immediately, the Supplemental Bill is issued after the transfer and will automatically be prorated from the date of transfer to the end of the tax year.
Depending on when the transfer occurred, two Supplemental Bills can be issued to cover more than one tax year. With a subdivision, a developer’s supplemental bill that is issued for the tax year in which there are sales can be included in the tax proration with the buyers. Normally though, a supplemental bill is issued to the correct property owner and is their responsibility to pay.
Filing a Builder’s Exclusion (or Conex)
With the exception of condominium conversions, commercial condominiums and condominiums or four units or less, the Assessor no longer requires the filing of an exclusion to exempt a subdivision from reassessment due to the recording of a Notice of Completion. However, the Assessor has the right to reassess a property that is under construction as of January 1st. An adjusted bill can be issued to capture this increase in valuation. The possibility of an adjusted bill should be taken into consideration in preparing an estimate for future unsegregated taxes.
If your project is not exempt, you can obtain the Construction Exclusion (ConEx) form from the Assessor’s website. The form must be filed within 30 days from the start of construction in order to qualify for the exclusion.
Need For Estimating Future Unsegregated Taxes
Often the property taxes are not segregated at the time of sales to new buyers. This occurs most often with condominium developments. January 1st is the assessment date for the Fiscal tax Year, starting July 1st. The property owner as of January 1st will likely receive the bill that is issued in October, even if a subsequent sale or subdivision has occurred. Because of this, if the first sale of a subdivision interest occurs between January 1st and when the bill is issued in October, an estimate will be necessary to prorate and collect from buyers their portion of this estimated unsegregated bill.
It is important that the payment of any unsegregated property tax bill be made on time. Therefore, a buyer may be required to pay through escrow their estimated portion of the unsegregated taxes for the full year.
This estimated future payment is either made to the seller, who will be receiving the bill, or is put in a holding account for payment by the Homeowners Association or chosen Title Company.
If the payment of future unsegregated property taxes is not handled in escrow, it may be necessary for the individual owners to get together to pay the bill. Condominium CC&R’s usually cover this possibility and outline the penalties against owners who do not pay the proportionate share. In the case of small condominium projects of four units or less, the Assessor will assist with this segregation. In all other cases, the homeowners, through the Condominium Owners Association, will need to pay their share of the bill to the Association in time for payment to be sent by the Association to the Tax Collector. It is important to note that, except in cases of four units or less, the Assessor/Tax Collector will not segregate a second installment; therefore, whatever method is used for payment of the first will have to be done again for the second installment. Therefore, it is recommended that both installments be paid with the first installment.
Buyers who qualify for Prop 60 or Prop 90 Base Value Transfer will not be able to complete their exemptions until after the segregation is complete. If a credit is due because they paid their portion of an unsegregated bill which was larger than it would have been with the exemption, the credit will appear on their supplemental bill.
Conclusion
Knowing the status of your project on January 1st, having a plan in place for estimating future taxes and being in contact with the District Office of the Assessor for your project will assure a smooth transition from an undeveloped single parcel property to a fully segregated and successfully sold development.
Escrow of the West is here to help. Contact your Escrow Officer for updates and specific information for your area
0 comments:
Post a Comment