The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, existing law defines full cash value as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred. Under existing property tax law, once a real propertys full cash value is established pursuant to that definition, that value becomes the real propertys base year value. Existing property tax law, with respect to property that is subject to valuation as mining or mineral property, requires the initial base year value of a leach pad, tailing facility, or settling pond on that property to be the full cash value of that leach pad, tailing facility, or settling pond as of the first lien date upon which it is subject to assessment, and further requires each leach pad, tailing facility, or settling pond to be considered a separate appraisal unit for purposes of determining its taxable value on each subsequent lien date.

This bill would repeal the provision regarding the determination of base year value and separate appraisal of leach pads, tailing facilities, and settling ponds, thereby requiring the value of leach pads, tailing facilities, and settling ponds to be included in the overall value of the mining or mineral property.

The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, existing law defines full cash value as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred. Under existing property tax law, once a real propertys full cash value is established pursuant to that definition, that value becomes the real propertys base year value. Existing property tax law, with respect to property that is subject to valuation as mining or mineral property, requires the initial base year value of a leach pad, tailing facility, or settling pond on that property to be the full cash value of that leach pad, tailing facility, or settling pond as of the first lien date upon which it is subject to assessment, and further requires each leach pad, tailing facility, or settling pond to be considered a separate appraisal unit for purposes of determining its taxable value on each subsequent lien date.

This bill would repeal the provision regarding the determination of base year value and separate appraisal of leach pads, tailing facilities, and settling ponds, thereby requiring the value of leach pads, tailing facilities, and settling ponds to be included in the overall value of the mining or mineral property.

The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, existing law defines full cash value as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred. Under existing property tax law, once a real propertys full cash value is established pursuant to that definition, that value becomes the real propertys base year value. Existing property tax law, with respect to property that is subject to valuation as mining or mineral property, requires the initial base year value of a leach pad, tailing facility, or settling pond on that property to be the full cash value of that leach pad, tailing facility, or settling pond as of the first lien date upon which it is subject to assessment, and further requires each leach pad, tailing facility, or settling pond to be considered a separate appraisal unit for purposes of determining its taxable value on each subsequent lien date.

This bill would repeal the provision regarding the determination of base year value and separate appraisal of leach pads, tailing facilities, and settling ponds, thereby requiring the value of leach pads, tailing facilities, and settling ponds to be included in the overall value of the mining or mineral property.

 CONSENT  

Bill No: AB 1718

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/5/17

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

ASSEMBLY FLOOR: 69-0, 5/18/17 (Consent) - See last page for vote

SUBJECT:

SOURCE: State Board of Equalization

DIGEST:

This bill repeals a requirement for the assessor to separately value leach pads, tailing facilities, and settling ponds on mining or mineral property.

ANALYSIS:

Existing law:

1. Provides that all property is taxable unless explicitly exempted by the Constitution or federal law (California Constitution, Article XIII).
2. Limits the maximum amount of any ad valorem tax on real property at 1% of full cash value, plus any locally-authorized bonded indebtedness, and provides that assessors can only reappraise property whenever it is purchased, newly constructed, or when ownership changes (California Constitution, Article XIIIA).
3. Provides, generally, that the assessor values a mining property as a single appraisal unit, including land, improvements, fixtures and reserves.
4. Provides an exception by directing assessors to value separately any leach pads, tailing facilities, and settling ponds on mining or mineral property (AB 1246, Olberg, Chapter 226, Statutes of 1998).

This bill repeals the requirement for assessors to value separately any leach pads, tailing facilities, and settling ponds on mining or mineral property.

Background

Under Proposition 13, as interpreted by the Legislature, the Board of Equalization (BOE), and the courts, when mineral reserves are “proved” and production commences, the assessor values the reserves, and adds this value to the overall value of the property. After that point, this value becomes the property’s “base year value,” which is then subject to the Constitution’s 2% growth cap. If additional reserves are proved, then the assessor adds them to the adjusted base year value, as well as any new construction. However, as the taxpayer mines resources, and reduces reserves, Proposition 8 (1980) provides that this reduction in value must be taken into account in valuing the property. If the value of the entire property falls below its adjusted base year value, then the assessor must reduce the taxable value of the entire mineral property.

In 1998, the Legislature departed from this general principal of treating mining properties as one assessment unit when it directed assessors to value separately any leach pads, tailing facilities, and settling ponds on mining or mineral property (AB 1246, Olberg). Under AB 1246, the assessor set the taxable value of the leach pad, the settling pond, the tailings facility, separately from the remainder of the property. As a result, miners would pay likely pay less tax in theory, as the values of leach pads, tailing facilities, and settling ponds which decline over time would no longer have this decrease offset by the increasing value of the mining property.

BOE has identified in its assessment practice surveys that counties do not comply with AB 1246 because it is administratively impracticable. In 2014, in an effort to help assessors find a method to comply with the law, BOE recommended that assessors use the cost approach to estimate the value of these items when first put in place, and subsequently deplete the value based upon the remaining capacity of the leach pad, settling pond, or tailings dump. However, BOE found that implementing this recommended approach would divert limited staffing resources, because segregating this portion of the property to measure a possible decline in value consumes limited staffing resources, with no indication that it aids in the valuation process. BOE states that because no efficient method exists to value these components separate from the rest of the mining operation since they are too closely integrated into the operation to be treated separately, this separate treatment should be repealed.

The facilities which are the subject of this bill are used primarily in the extraction of gold from ore. Leach pads comprise a wide trench in the ground, covered with an impervious plastic sheet, on which the ore is “heaped.” A chemical solution is continuously poured over the ore, and over time the gold is washed down with the liquid to a location where it is collected and concentrated into the final product. Once the gold has been recovered, the pad can no longer be used and must be reclaimed. Tailings facilities are containment facilities for permanent disposal of tailings, and evaporation of processing solutions. The facilities are lined with an impervious material. The water content is removed by evaporation, and the residual rock eventually fills the facility to capacity, after which it is reclaimed. Settling ponds are storm water containment facilities used to intercept and settle eroded soils and natural geological materials. They are also used in aggregate operations to settle out fine material after the crushing and washing cycle. Once filled to capacity with finely ground material, the ponds are reclaimed.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 7/7/17)

State Board of Equalization (source)

OPPOSITION: (Verified 7/7/17)

None received

ARGUMENTS IN SUPPORT: According to author, “No stand-alone market place exists to determine monetary value for leach pads, settling ponds, or tailing dumps. These facilities are sold with the rest of the mining property. As persons in the market place commonly buy and sell these parcels as a unit, the assessor can evaluate the entire mining property to determine value based on market conditions.”

ASSEMBLY FLOOR: 69-0, 5/18/17

AYES: Acosta, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bocanegra, Bonta, Brough, Burke, Caballero, Cervantes, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Flora, Fong, Gallagher, Cristina Garcia, Eduardo Garcia, Gomez, Gonzalez Fletcher, Gray, Grayson, Harper, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O’Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Ridley-Thomas, Rodriguez, Rubio, Salas, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood

NO VOTE RECORDED: Aguiar-Curry, Calderon, Chau, Frazier, Friedman, Gipson, Gloria, Holden, Mullin, Santiago, Rendon

Prepared by:

7/7/17 14:28:11

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Property taxation: leach pads, tailing facilities, and settling ponds: base year value: separate appraisal

Repeals a requirement for the assessor to separately value leach pads, tailing facilities, and settling ponds on mining or mineral property.

Background

The California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law. The Constitution limits the maximum amount of any ad valorem tax on real property at 1% of full cash value, plus any locally-authorized bonded indebtedness, and provides that assessors can only reappraise property whenever it is purchased, newly constructed, or when ownership changes (Proposition 13, 1978).

Generally, the assessor treats a mining property as a single appraisal unit, meaning that the value of the land, improvements, fixtures and reserves are assessed as a single unit. Under Proposition 13, as interpreted by the Legislature, the Board of Equalization (BOE), and the courts, when mineral reserves are "proved" and production commences, the assessor values the reserves, and adds this value to the overall value of the property. After that point, this value becomes the property’s “base year value,” which is then subject to the Constitution’s 2% growth cap. If additional reserves are proved, then the assessor adds them to the adjusted base year value, as well as any new construction. However, as the taxpayer mines resources, and reduces reserves, Proposition 8 (1980) provides that this reduction in value must be taken into account in valuing the property. If the value of the entire property falls below its adjusted base year value, then the assessor must reduce the taxable value of the entire mineral property.

In 1998, the Legislature departed from this general principal of treating mining properties as one assessment unit when it directed assessors to value separately any leach pads, tailing facilities, and settling ponds on mining or mineral property (AB 1246, Ollberg). Under AB 1246, the assessor set the taxable value of the leach pad, the settling pond, the tailings facility, separately from the remainder of the property. As a result, miners would pay likely pay less tax in theory, as the values of leach pads, tailing facilities, and settling ponds which decline over time would no longer have this decrease offset by the increasing value of the mining property.

BOE has identified in its assessment practice surveys that counties do not comply with AB 1246 because it is administratively impracticable. In 2014, in an effort to help assessors find a method to comply with the law, BOE recommended that assessors use the cost approach to estimate the value of these items when first put in place, and subsequently deplete the value based upon the remaining capacity of the leach pad, settling pond, or tailings dump. However, BOE found that implementing this recommended approach would divert limited staffing resources, because segregating this portion of the property to measure a possible decline in value consumes limited staffing resources, with no indication that it aids in the valuation process. BOE states that because no efficient method exists to value these components separate from the rest of the mining operation since they are too closely integrated into the operation to be treated separately, this separate treatment should be repealed.

Proposed Law

Assembly Bill 1718 repeals the requirement for assessors to value separately any leach pads, tailing facilities, and settling ponds on mining or mineral property. As a result, the property would be valued as a single assessment unit.

State Revenue Impact

BOE states that AB 1718 has a negligible, unknown impact to property tax revenues because counties do not currently implement the requirement it repeals.

Comments

1. Purpose of the bill. According to author, “No stand-alone market place exists to determine monetary value for leach pads, settling ponds, or tailing dumps. These facilities are sold with the rest of the mining property. As persons in the market place commonly buy and sell these parcels as a unit, the assessor can evaluate the entire mining property to determine value based on market conditions."

2. What's a leach pad? The facilities which are the subject of this bill are used primarily in the extraction of gold from ore. Leach pads comprise a wide trench in the ground, covered with an impervious plastic sheet, on which the ore is "heaped." A chemical solution is continuously poured over the ore, and over time the gold is washed down with the liquid to a location where it is collected and concentrated into the final product. Once the gold has been recovered, the pad can no longer be used and must be reclaimed. Tailings facilities are containment facilities for permanent disposal of tailings, and evaporation of processing solutions. The facilities are lined with an impervious material. The water content is removed by evaporation, and the residual rock eventually fills the facility to capacity, after which it is reclaimed. Settling ponds are storm water containment facilities used to intercept and settle eroded soils and natural geological materials. They are also used in aggregate operations to settle out fine material after the crushing and washing cycle. Once filled to capacity with finely ground material, the ponds are reclaimed.

Assembly Actions

Assembly Revenue and Taxation Committee: 9-0

Assembly Floor: 69-0

Support and Opposition

(6/30/17)

Support: State Board of Equalization

Opposition: Unknown.

-- END --

Date of Hearing: May 8, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 1718 (

Author:Committee on Revenue and Taxation) – As Introduced Ver:March 16, 2017

Majority vote.

SUBJECT: Property taxation: leach pads, tailing facilities, and settling ponds: base year value: separate appraisal

SUMMARY: Repeals Revenue and Taxation Code (R&TC) Section 53.5 so that leach pads, settling ponds, and tailing facilities are evaluated for assessment purposes together with the rest of the mining appraisal unit.

EXISTING LAW:

1. Requires the assessor to annually set the taxable value of real property at the lower of its factored base year value or current market value.
2. Provides that "real property" is that appraisal unit that persons in the marketplace commonly buy and sell as a unit, or that is normally valued separately. An exception to this rule exists for leach pads, tailing facilities, and settling ponds on mining or mineral property. Consequently, the law directs that the assessor carve out these components of the real estate and annually determine which value is lower for these specific items. However, these items are not sold separately nor are they normally valued separately in the marketplace. In practice, this provision in law is not implemented.

FISCAL EFFECT: According to the State Board of Equalization (BOE), "[t]he repeal of this provision has an unknown but negligible revenue impact since counties do not implement this section. Any value of leach pads, settling ponds, and tailing facilities will be included in the overall value of value of the mining property."

COMMENTS:

1. Sponsors of this bill state that "[n]o stand-alone market place exists to determine monetary value for leach pads, settling ponds, or tailing dumps. These facilities are sold with the rest of the mining property. As persons in the market place commonly buy and sell these parcels as a unit, the assessor can evaluate the entire mining property to determine value based on market conditions."
2. Committee staff comments:
   1. Background: AB 1246 (Olberg), Chapter 226, Statutes of 1998, added R&TC Section 53.5, creating a separate valuation method for leach pads, settling ponds, and tailing facilities. BOE staff, however, has found in its assessment practice surveys that counties do not comply with this law because it is administratively impractical. In 2014, in an effort to help assessors find a method to comply with the law, the BOE recommended that assessors use the cost approach to estimate the value of these items when first put in place and subsequently deplete the value based upon the remaining capacity of the leach pad, settling pond, or tailings dump. Unfortunately, implementing this approach would divert limited staffing resources. As of yet, no efficient method has been found to value the various components separately. Additionally, there does not appear to be an indication that it aids in the valuation process.
   2. Deleting an impractical valuation method: Repealing R&TC Section 53.5 would acknowledge that valuing leach pads, settling ponds, and tailing dumps as a separate unit is administratively impractical. Furthermore, there is no indication that the additional resources spent on attempting to assess a value for these independent items aids in the valuation process. By repealing this section, local governments and the BOE can redirect staff time on other priorities.

REGISTERED SUPPORT / OPPOSITION:

Support

Board of Equalization (Sponsor)

Opposition

None on file

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098