81856 CMS Report

8/13/2019 81856 CMS Report

1/9

^ ^ ^ ^ r^ .c t^ IT Y O F O A K L A N D^ ^ ^ ^ ^ ^ ^ ^ ^ K ^ L ^ ^ V ^ ^ AGENDAREPORT

Z f l f l S F E B l l P M V . i l

T O : Office of the City Adm inistratorATT N: Dan Lindheim , City Adm inistratorFROM : Finance and Management AgencyDAT E: February 24, 2009R E : A Resolu tion Su bm itting to the Vo ters at the Ju ne 2, 2009 Special Election aProposed O rdinan ce Am ending the Real Proper ty T ransfer T ax, Chapter 4 .20 ofthe Oa kla nd M unicipal C ode, to Clarify A pplication of the Tax to Transfers ofReal Estate Result ing from Changes in the Ownership and Control ofCorporations and Other Legal Enti t ies Without Increasing the Tax Rate; toRemove the Current Requirement of Conformity to Statewide Rules; to Add aDefinit ion of Pe rso n to the Ta x; Requesting the Services of the Reg istrar ofVo ters; and Directing the City Clerk to Take Any and All Actions Necessary

Under Law to Prepare for and Conduct the Special ElectionSUMMARYStaff has prepared a proposed am endment to the Real Property Transfer Tax O rdinance that willamend Chapter 4.20 o f the Oakland Municipal C ode in order to tax transfers of real estateresulting from corporate m ergers, consolidations, and acquisitions w ithout increasing the taxrate.The proposed amendm ent w ill ensure fair and equitable treatment of all taxpayers and helpraise much need ed rev enue to support essential public services such as Police, Fire and PubHcWorks.Staff is recomm ending that the proposed am endment b e scheduled at the next available specialelection on June 2, 200 9. The C ity Council would need to approve the placement of this item onthe ballot by March 6, 2009.F I S C A L I M P A C TThe proposed amendment would generate additional General Purpose Fund revenue to supportessential C ity services such as Police, Fire and PubHc W orks. Due to the dramatic change ineconomic conditions, it is difficult to project how much additional tax revenue would be realizedfrom corporate merger, consolidation, and acquisition activities. It is likely that, as evidenced byrecent corporate financial m ergers and con solidations, some activity will continue at a reducedlevel and produce about $500 ,000 to $1,000,000 annually over the next two years. It is importantto note that since corporate mergers, consolidation, and acquisitions are difficult to monitor; itwill require extraordinary oversight and enforcement efforts to capture this revenue.

Item:Finance and Management CommitteeFebruary 24, 2009
http://pmv.il/http://pmv.il/

8/13/2019 81856 CMS Report

2/9

Dan LindheimFM A: A Resolution Subm itting To The Voters Am ending Chapter 4.20 Page 2

B CKGROUNDThe R eal Property Transfer T ax, Chapter 4.20 of the Oakland Municipal Cod e was first adoptedin 1974 and has been amended twice, once in 1993, and again in 2000. Staff believe it wasalways the intent oftheCity Council to apply the Real Property Transfer Tax to all forms ofproperty transfers, including corporate mergers, consolidation, and acquisition.Over the past few years, staff identified and pursued collection enforcement against a number oflarge corporate real estate transfers. These transactions had the potential to generate over$12,000,000 in General Purpo se Fund revenue. D uring the administrative review process, theapplicability of the existing Real P roperty Transfer T ax Ordinance to transfers of real propertythat occur as a result of chan ges in corporate m ergers, consolidations, and acquisitions has beenchallenged and called into question.KEY ISSUES AND IMPACTSStaff believes it is and was the intent of the City Council to apply the Real Estate PropertyTransfer Tax to all real estate transfers. This understanding is consistent with, the principle ofwell established taxation policy to apply taxes fairly and equitably. The City relies on this tax asa major revenue source to fund essential City services such as Police, Fire and Public Works.Staff was unable to pursue enforcement and collection ofthistax on specific corporate realproperty transfers due to potential legal challenges and thus was unable to collect significant taxrevenue over recent years. The main legal concern focused on the lack of explicit language in theReal Property Transfer Tax Ordinance indicating that the tax specifically applies to transfers ofreal property interests resulting from corporate mergers, con solidations, or acquisitions. Also, thecurrent Ordinance contains language referring to conformance with statewide rules related to thedocum entary transfer tax that has caused ambiguity and opened up p otential challenges to theapplication of the Real Property Transfer Tax. Some of the significant corporate real propertytransfers that the City w as unable to p ursue included m ergers, consolidations, and acquisitions ofmajor ba nks, oil com panies, m anufacturers, utilities and retailers that were all based outside ofOakland.The City is projecting significant budget deficits for the next two fiscal years. As part of anoverall financial recovery strategy, recovering maximum revenue from all existing revenuesources, as well as considering other revenue generating measure to ensure continuation ofessential City services, wou ld serve the C ity's best interests. Ensuring the capture of RealProperty Transfer Tax on corporate real estate transfers should be a critical part of this recoverystrategy.The City should act imm ediately to amend the City's R eal Property Transfer Tax Ordinance toclarify the ordinance and explicitly include taxation of real estate transfers resulting fromcorporate m ergers, consolidations, and acquisitions. Staffisrecomm ending that the City C ouncil


8/13/2019 81856 CMS Report

3/9

Dan LindheimFMAj A Resolution Subm itting To The Voters Am ending Chapter 4.20 Page 3

approve a resolution placing such an amendm ent on the next special election likely to bescheduled for June 2, 2009.Voter ApprovalUnder Proposition 218, any change to a tax ordinance that could result in a tax increase for anytaxpayer within the taxing jurisdiction m ust be approved by the voters. The election required bythis subdivision shall be consohdated with a regularly scheduled special election for members ofthe governing body of the local governm ent, except in cases of emergency declared by aunanimous vo te of the governing body . The next scheduled O akland special election is likely tooccur on June 2, 2009 . Accordingly, the proposed am endment to Chapter 4.20 seeking voterapproval for taxation of real estate transfers resulting from corporate mergers, con sohdations,and acquisitions may be placed on the ballot by resolution of the Council.P O L I C Y D E S C R I P T I O NAmending the language in the Real Property Transfer Tax Ordinance to clarify the City's intentand ensure the right to collect Real Property Transfer Tax on all real estate transfers, includingcorporate merg ers, consolidations, and acquisitions, is vital to the City 's ability to provideessential services such as Police, Fire, and Public W orks.Gaining voter approval for ensuring fair and equitable treatment and application of the RealProperty Transfer Tax as it applies to corporate mergers, consolidations, and acquisitions willaddress potential legal challenges that could threaten the viability of nessential revenue source.S U S T A I N A B L E O P P O R T U N I T I E SE con om ic: Acfion on this item clarifies the intent of the City Council in applying the tax andcollecting general purpose fund revenue to support essential municipal services such as Police,Fire, and Public W orks.Environmental: There are no environmental opportunities resulting from the recommendedchanges to the Ordinance.So cial Equ ity: T he Ordinance amendm ent will promote the fair and equitable treatment of alltaxpayers.DISABILITY AND SENIOR CITIZEN ACCESSThere are no imp acts on disability and senior access from the recommended changes to theOrdinance.


8/13/2019 81856 CMS Report

4/9

Dan LindheimFMA : A Resolution Submitting To The Voters Amending Chapter 4.20 Page 4

RECOMMENDATION AND RATIONALEStaff recommends the City Council approve the proposed resolution placing the proposedordinance amending Chapter 4.20 oftheOakland M unicipal Code before the voters at a June 2,2009 special election. This action is necessary to eliminate potential legal issues and to ensurecollection of tax revenue that is necessary for the City to continue to provide vital publicservices.ACTION REQUESTED OF THE CITY COUNCILStaff recommends the City Council app rove the proposed resolution placing the proposedordinance amending Chapter 4.20 of the Oakland M unicipal Code before the voters at a June 2,2009 special election.

Respectfully submitted.

WILLIAM E. NOLANDDirector, Finance and Management AgencyPrepared by:Terry Adelman, Revenue ManagerRevenue Division

APPROVED AND FORW ARDED TO THEFINANCE & MANAGEMENXCOMMITTEE:AOffice ofthe C-ffy Adififmistrato


8/13/2019 81856 CMS Report

5/9

O f f l C E ^ ^ x J;L^Mf^ APPROVED AS TO FORM AND LEGAIINTRODUCED BY COUtiCU.MQWrpER

OAKLA ND CITY COUNCILRESO LUTION NO. C.M.S.

A RESOLUTION SUBMITTING TO THE VOTERS AT THE JUNE 2, 2009SPECIAL ELECTION A PROPOSED ORDINANCE AMENDING THE REALPROPERTY TRANSFER TAX, CHAPTER 4.20 OF THE OAKLAND MUNICIPALCODE, TO CLARIFY APPLICATION OF THE TAX TO TRANSFERS OF REALESTATE RESULTING FROM CHANGES IN THE OWNERSHIP AND CONTROLOF CORPORATIONS AND OTHER LEGAL ENTITIES WITHOUT INCREASINGTHE TAX RATE; TO REMOVE THE CURRENT REQUIREMENT OFCONFORMITY TO STATEWIDE RULES; TO ADD A DEFINITION OFP E R S O N TO THE TAX; REQUESTING THE SERVICES OF THE REGISTRAROF VOTERS; AND DIRECTING THE CITY CLERK TO TAKE ANY AND ALLACTIONS NECESSARY UNDER LAW TO PREPARE FOR AND CONDUCT THESPECIAL ELECTION.

W H E RE AS , pursua nt to Chapter 4 .20 o f the Oakland M unic ipa l Cod e, the C i ty o fOakland imposes a real property t ransfer tax on t ransfers of real property located inO a k l a n d ; andW H E RE AS , the Counci l determines that a lthough not express ly s ta ted in the languageof the ord inan ce, it wa s the intent of the C ounci l to impos e the tax on al l t ransfers of realproperty unless expressly excepted f rom taxat ion; andWHEREAS, t ransfers of real property occurr ing as a resul t of changes in the ownershipof corporat ions, and other legal ent i t ies, through mergers, consol idat ions, andacquis i t ions e scape taxat ion, whi le Oakland hom eowne rs and smal l bus inesses pay thereal estate t ransfer tax; andWHEREAS, the Counci l determines that i t is in the best interest of the Ci ty of Oaklandto subm it an am end ed real property t ransfer tax to the voters that wi l l c lar i fy the intent ofthe ord inan ce to fa i rly and equ al ly tax al l t ransfers of real property, including t ra nsfers ofreal property that resul t f rom changes in ownership and control of corporat ions andother legal ent i t ies; andW H ER E AS , the Counci l determines that s ta tewide ru les somet imes conf li c t w ithOakland's interests as an independent charter c i ty and that the current requi rement ofconformi ty wi th statewide rules should be removed; and

549142 - 1 -

8/13/2019 81856 CMS Report

6/9

W HE RE AS , accordingly, without increasing the tax rate, the City Cou ncil of the City of .Oakland desires to amend Chapter 4.20, sections 4.20.020 and 4.20.021 of theOakland Municipal; andWHEREAS, all revenues received from the tax will be deposited in the general fund ofthe C ity to be expended fdr general fund purposes; now, therefore, be itRE SO LVE D: That the City Council of the City of Oakland does hereby request that theBoard of Supervisors of Alameda County order the Special Municipal election on June2,20 09, consistent w ith the provisions of state law; and , be itFURTHER RESOLVED: That the City Council of the City of Oakland does herebystjbmit to the voters at the June 2, 2009 spec ial election the text of the proposedordinanc e, which shall be as follows:AN ORD INANCE AMENDING THE REAL PROPERTY TRANSFER TAX, CHAPTER4.20 OF THE OAKLAND MUNICIPAL CODE, TO CLARIFY APPLICATION OF THETAX TRANSFERS OF REAL ESTATE RESULTING FROM CHANGES OWNERSHIPAND CONTROL OF CORPORATIONS AND OTHER LEGAL ENTITIES.Be it ordained by the People of the C ity of Oa kland:

S ec tio n 1 . The Municipal Code is hereby amended to ad d, delete, or modifysections as set forth below (section numbers and titles are indicated in bold type;additions are indicated by underscoring and deletions are indicated by strike-throughtype; portions of the regulations not cited or not shown in undersc oring or strike-throughtype are not changed).Se ctio n 2. Cod e Am en dm en t. Section 4.20.020 of the Oakland MunicipalCode is hereby amended to read as follows:4.20.020 Imposition of tax.There is imposed a tax on all transfers by dee ds, instruments, w ritings, or anyother docum ent, or changes in control and ownership of legal entities, by whichany lands, tenements or other interests in real property located in the city, are oris granted, assigned, transfe rred, or otherwise conveyed to or invested in a. transfe ree, or transferees thereof, which shall be levied at the rate of one andone-half (1.50) percent of the value of con sideration.Thoro is imposed a tax on all transfers by doeds, instnjm onts , writings, or anyother docum ent by which any lands, tenements or other intorosts in real propertylooatod in tho city, are or is g ran ted , assign ed, transfo rrod, or othenft iseconvoyod to or invested in a transfere e, or transforoos thoroof, w hich shall boloviod at the rate of one and one half (1.50) percent of tho valuo of considoration.Such tax shall bo administorod to conform to tho statowido rules governing thodocum entary transfer tax as stated in California Revenue an d Taxation C odo

549142 - 2 -

8/13/2019 81856 CMS Report

7/9

Soctions 11911 through 11930, as codified on tho dato of passage of thoordinance codified in this s ection, including the exemptions from tax that aroitomizod tho roin, except whore ttio exem ptions appearing within this C hapterA.20,provide greater protoction to tho taxpayer.Se ctio n 3. Cod e Am en dm en t. Section 4.20.021 of the Oakland Municipal

Code is hereby amended to read as follows:4.20.030 Defini t ions.As used in this chapter:Changes in control and ownership o f legal entities means an y direct or indirectacquisition or transfer of ownership interest or control in a legal entitv thatconstitutes a change in ownership or transfer of the real property of the entityunder California Revenue and Taxation Code section 64, as such statute readsand is interpreted by the C alifornia B oard of Equalization on June 3. 2009.Person and persons mea n any natural person, receiver, administrator,executor, a ssignee, trustee in bankruptcy, trust, estate,f irm, co-partnership, iointVenture, club, company, ioint stock company, business trust, limited liabilitycompany, municipal corp oration, political subdivision of the s tate of California,dom estic or foreign corp oration, association, syndicate, society, o r any group ofindividuals acting as a unit, whether mutual, cooperative, frate rna l, nonprofit, orotherwise, and the United States or any instrumentality thereo f, and any naturalPerson,who as an individual or with a spouse , owns fiftv-one 51%) percent ormore of the capital stock of a corporation obligated to file a declaration and paytax pursuant to this ch ap ter. and in addition, is a person with the power to control' th e fiscal decision-making process by which the corporation allocates funds tocreditors in preference to its tax obligations under the provisions of this chapter.

A person as defined herein, who is also an officer or director of a corporationobligated to file d eclarations and pay tax pursuant to this chapter, shall bePresumed to be a person w ith the power to control the fiscal decision-makingproce ss. W henever the term person is used in any clause prescribing andimposing a penalty, the term as applied to association shall mean the owners orpart owners thereof, and as applied to conooration. the officers thereof.Real property and realty mean real property as defined by and under the lawsof the state of California.Value of consideration means the total consideration, valued in money of theUnited S tates, paid or delivere d, or contracted to be paid or d elivered in return for

the transfer of real property, including the amount of any indebtednes s existingimmed iately prior to the transfer which is secured by alien,de ed of trust or otherencumbrance on the property conveyed and which continues to be secured bysuch lien,deed of trust or encum brances after such transfer, and also includingthe amount of any indebtedness which is secured by a lien, deed of trust orencum brance given or placed upon the property in connection w ith the transfer tosecure the paym ent of the purchase price or any part thereof w hich remains549142 - 3 -

8/13/2019 81856 CMS Report

8/9

unpaid at the time of transfer.Value of the considera tion also includes the amount of any special assessmentlevied or im posed upon the property by a public body, district or agency, wheresuch special assessm ent is a lien or encumbrance on the property and thepurchaser or transferee agrees to pay such special assessm ent or takes theproperty subject to the lien of such special assessment. The value of any lien orencumbrance of a type other than those which are hereinabove specificallyincluded,existing imm ediately pnor to the transfer and rem aining after suchtransfer, shall not be included in determining the value of the consideration. If thevalue of the cons ideration cannot be definitely determ ined, or is left open to befixed by future contingencies, value of the consideration shall be deemed tomean the fair m arket value of the property at the time of transfer, after dedu ctingthe amount of any lien or encum brance, if any, of a type which w ould beexcluded in determ ining the value of the consideration pursuant to the aboveprovisions of this sec tion.Unless a trans fer is a gift , i.e., free and clear of liens or encum brances, it ispresumed that the value of consideration of a given property being transferred isthe fair m arket value of that property, unless circumstances supporting adeparture therefrom can be furnished to the sole satisfaction of the Director or hisor her designee(s).Sec tion 4 . Se ve rab il ity. Should any.provision of this Ordinance, or itsapplication to any person or circumstanc e, be determined by a cou rt of competentjurisdiction to be unlawful, unenforceable or othen^/isevoid,that determination shallhave no effect on any o ther provision of this Ordinance or the application o f thisOrdinance to any other person or circumstance an d. to that end, the provisions hereofare severable.Se ction 5. M aio ritv A pp ro va l: Effective Date. This Ordinance shall beeffective only if approved by a m ajority of the voters voting thereon and s hall go intoeffect ten (10) days after the v ote is declared by the City Cou ncil.Se ction 6. C ou nc il Am en dm en ts. The City Council of the City of Oakland ishereby authorized to am end Sections 4.20.020 and4 20 021of the Oa kland MunicipalCode as adopted by this Ordinance in any m anner that does not increase the rate of thereal estate transfer tax, otherw ise co nstitute a tax increase for which voter approval isrequired by Article XIII C of the California Constitution or entirely dispense with therequirement for independent audits stated in Section 4.28.190.

; and be itFURTHER RESOLVED: That in accordance with the Elections Code and Chapter 3 ofthe O akland Municipal C ode, the City Clerk shall fix and determine a date forsubmission of argum ents for or against said proposed ordinance, and said date shall beposted in the Office of the City Clerk; and be it

549142 - 4 -

8/13/2019 81856 CMS Report

9/9

FURTHER RE SO LVE D: That in accordance with the Elections Code and Chapter 3 ofthe Oakland Municipal Cod e, the City Clerk shall provide for notice and publication as tosaid proposed ordinan ce in the m anner provided for by law; and be itFURTH ER R ES O LV ED : That the City Council does hereby request that the Registrarof Voters of the Coun ty of Alameda perform necessary services in connection with saidelection;and be itFURTHE R R ES OL VE D: That the City Clerk is hereby directed to obtain printing,supplies a nd services as required; and be itFURTHER RE SO LVE D: That the City Clerk is hereby authorized to provide such otherservices and supplies in connection with said election as may be required by theStatutes of the S tate of C alifornia and the C harter of the C ity of Oaklan d; and be itFURTHER RE SO LVE D: That the City Clerk and City Administrator are herebyauthorized and directed to take any and all actions necessa ry und er law to prepare forand conduct the spe cial election and appropriate all monies necessary for the C ityAdministrator and City Clerk to prepare and conduct the June 2, 2009 special election,consistent with law.

IN COUNCIL. OAKLAND, CALIFORNIA, 2009

PASSED BY THE FOLLOWING VOTE:AYES- BROOKS, DE LA FUENTE, KAPLAN. KERNIGHAN, NADEL, QUAN,REID,AND

PRESIDENT BRUNNERNOES-ABSENT-ABSTENTION

Attest: LaTonda SimmonsCity C lerk and Clerk of the Councilof the City ofOakland,California

549142 - 5 -

81856 CMS Report

Documents

Transcript of 81856 CMS Report