Last July, we wrote a column regarding the foolishness of Senate Bill 2, a new $75 tax on real estate recordings, ostensibly for the purpose of funding housing programs. We pointed out that imposing a tax on real estate transactions to pay for programs to make housing more affordable is like treating someone with a low blood count with leeches.
While the fundamental irrationality of SB2 is water under the bridge, a host of implementation problems have now arisen that need corrective action, and quickly.
For example, SB2’s language makes it difficult for California’s 58CountyRecordersto determine if they should charge the additional $75 for tax liens and lien releases presented by government agencies.
These tax liens can originate from small local business activities like selling Avon, from failure to pay your annual income taxes, from a missed tax payment on your jet ski, for child-support collection and more. You don’t even need to own a house to have one of these liens recorded against you, and worse yet, you may not even know that the lien exists until it shows up on your credit report.
State agencies and the IRS have refused to pay the $75, arguing that these documents are exempt from the new tax. The attorney general agrees (see AG 18-101), but California’s Office of Legislative Counsel issued an opinion that contradicts the attorney general — making it even more confusing for taxpayers and county recorders.
At this point, most recorders interpret the statute as mandatory, because the legislative counsel has told them this was the original intent of the bill. Therefore, they are mailing back lien releases as unrecorded to state agencies and to the IRS for lack of the $75. For property owners, this is a real problem because their debt has been paid but their credit is not cleared because the lien hasn’t been released.
Some taxpayers are so eager to clear their credit that they are intercepting the lien releases at their county recorder’s office and offering to pay the $75, legal or not. The Department of Child Support Services intends to record all lien releases itself instead of giving them to the redeemed payer to record more quickly on their own, but it is still being held up. Some child-support payers might be offering to take the release to the recorder themselves and paying the $75 to have their credit cleared. As the situation continues, however, others might be discouraged from paying up their child support arrears or tax debts in the first place. The extra hurdle is not helping the government, the taxpayer, or the children.
It is also true that the state ofCaliforniacannot tax the federal government. Although this has been settled law for hundreds of years, many county recorders are attempting to collect the tax from the IRS. And although this is legal doctrine, it makes common sense as well. Would there be any sense or justice if the states had the power to tax the federal government out of existence?
Because the language of SB2 is so confusing, and it relies on many assumptions that the county recorder has no ability to independently verify, payment of the tax on most documents relies on self-certification. Most people do not have law degrees, so many people are paying the tax when they are not legally required to pay it, and others are receiving exemptions when they are not entitled to them.
SB2 gives a long but non-exclusive list of “real estate instruments” to which the fee applies. This includes a “release” and a “mechanic’s lien,” but not just a “lien” nor a “tax lien,” and certainly not a “child support lien.” SB2 also uses the words “transaction,” “in connection with” and “relating to real property,” none of which are defined in statute. Is enforcing a government debt a “transaction”? Are IRS tax liens and releases “relating to real property”? Tax liens use specific real property to enforce a debt, but they are not like a mechanic’s lien where the contractor performed work on that specific property.
There are many other types of liens where intent could vary as to whether to charge the $75: liens for postponement of property taxes for senior citizens, government liens recorded in error, government liens released due to discretionary re-prioritizing, and, less sympathetically, liens for graffiti nuisance abatements or violations of various safety codes. It is unclear whether the legislature intended to extend the tax to these recordings, although they were aware that this was a potential issue and chose not to address it.
Clean-up legislation is needed promptly. SB2, as substantive legislation, was bad enough. Its implementation is almost worse.
Request a Refund
On March 13, 2018, the Legislature and the Governor amended the new law that imposed a $75 recording tax (Senate Bill 2).
You may have paid this $75 (or multiple $75 charges) to clear your credit because a lien release would not have been recorded without it. You should not have had to pay these charges.
In fact, many citizens were charged improperly, primarily for recording tax lien releases, child support lien releases, even lien releases not related to real property (jet skis, for example). Additional mistakes could be numerous.
If you paid the $75 tax and believe you should not have been charged, you must request a refund in writing. Neither the State nor your county recorder will do this for you. Use the form letter on the next page to request a refund. (See the form letter for other reasons you may be eligible for a refund). Keep a signed copy for your records.
Jon Coupal is the president of the Howard Jarvis Taxpayers Association and Kammi Foote is the clerk-recorder of Inyo County. This column appeared in the Orange County Register on March 4, 2018.