If the Assessor's Office reappraises your property due to a change in ownership or new construction, you will be notified by mail of the new assessed value. This notification is known as a 'Notice of Supplemental Assessment.' The reappraisal may also result in the issuance of a supplemental tax bill (and sometimes more than one bill) if there was an increase in value, or it may result in the issuance of a refund check if there was a decrease in value.
It is important to understand that supplemental tax bills are in addition to the regular annual tax bill and are mailed directly to the owner of the property. These bills are the responsibility of the owner even if the property taxes are normally paid by a lender through an impound account. You may need to discuss the matter carefully with your lender. In any case, do not presume that your lender will automatically pay these types of bills. For an overview of the Supplemental Assessment process see below.
Supplemental Assessment Explained
Proposition 13 was passed by voter initiative on November 7, 1978. It requires the reappraisal of property at the time of any change of ownership, or at the time of completion of new construction.
The Supplemental Assessment Law
The California State Legislature created the "supplemental assessment" of property in 1983. Revenue and Taxation Code Section 75 states that the intent of the State Legislature was "...to fully implement Article XXIIIA of the California Constitution and to promote increased equity among taxpayers" by enrolling and making adjustments of taxes resulting from changes in assessed value due to changes in ownership and completion of new construction at the time they occur."
The Fiscal Year for Property Taxes
The fiscal tax year begins on July 1 of any year and ends on June 30 of the next calendar year.
The action of the Legislature resulted in the following typical scenario: A property owner has owned their property for many years. The assessed value of their property on January 1, the lien date for taxes, is $30,000. They sell their property for $100,000. Under "Supplemental Assessment," the new owner will be billed for the increase in value for the prorated portion of the fiscal tax year for which the increase in value exists, beginning with the first day of the month following the reappraisable event.
An Example of Supplemental Assessment
Suppose a property sells on October 8, 2012. On that date, the seller's assessed value was $30,000. The purchase price was $100,000. On the first day of the month following the change of ownership, there are eight months remaining in fiscal year 2012-2013. The proration factor for the supplemental assessment purposes is .67, based upon the eight remaining months of the twelve-month fiscal year. The resulting bill would be derived by multiplying .67 (8/12) times $70,000 (the value increase), times the applicable tax rate as set by the Board of Supervisors.
Double Billing Period
A special case occurs if the reappraisable event occurs in the period between January 1 and June 30 of any year. Suppose a change of ownership occurs on February 15, 2012. The assessed value was $20,000, and the purchase price is $100,000. The new owner would owe supplemental taxes on the $80,000 increase in value applicable to the remainder of the 2011 - 2012 fiscal year, which includes the months of March, April, May and June of2011. Proposition 13 also requires the Assessor to adjust the assessed value for fiscal year 2012 - 2013, which begins on July 1, 2012. In this case, the value would go up for fiscal year 2012 - 2013 by 2% and would be $20,400. Therefore, the assessed value for the entire fiscal year 2012 - 2013 must be supplementally assessed in the amount of $100,000-$20,400, or $79,600. As a result, two bills would be generated. One based on the $80,000 value difference for 2011 - 2012, and one based on the $79,600 value difference for 2012 - 2013.
Other information you should know
It is possible for a buyer's value to be less than the prior owner's assessed value. In this circumstance, a "negative supplemental" assessment occurs, leading to a refund of taxes paid to the new owner.
The new owner of the property will receive a "Notice of Supplemental Assessment." If an appeal of the Supplemental Assessment value is to be filed, it must be done within sixty days of the mailing of the "Notice of Supplemental Assessment," not when the supplemental bill is received.