Ballot Proposition Could Repeal Certain Protections for Property Tax Rates - July 24, 2020
This November, California voters will be asked to consider Proposition 15, a ballot proposition that would exclude certain commercial business properties from 1978 Proposition 13 tax protections. The Schools and Communities First Act, as it is called, would create a "split roll," or a tax assessment that is different for commercial and industrial business properties. Voters passed Proposition 13 in 1978 to quell the continuous reassessment of property taxes on California homes that were exploding in value during the 1970s. Proposition 13 limited total taxes to 1 percent of the property's value, and any increases to a maximum of 2 percent per year.
Proposition 13 was also significant because it established the rule that any future increases of state income or property tax rates would require a two-thirds majority in both legislative houses. The proposition is controversial today because a property's value, and the corresponding tax rate, is only reassessed with the current value when a property is sold on the market. Much of the pushback against Proposition 13 comes from groups who are frustrated that tax rates for valuable properties that haven't sold in a long time are growing at a percentage of their 1978 value and not their current, much higher value. Now, Proposition 15 would separate commercial properties from those protections and allow them to be taxed at market value while exempting small businesses and personal property. Proponents argue that since Proposition 15 exempts small businesses from the new changes, only large businesses will pay the price. Additionally, local governments and schools would receive an estimated $8-12 billion per year as a result of the changes. However, many small business groups oppose Proposition 15, arguing that small businesses will be among the hardest hit since higher taxes on commercial properties often result in higher rents for businesses. Other concerns have been raised by county assessors who say that the proposition will be difficult to implement. The proposed threshold for retaining the Proposition 13 tax basis is based on commercial property valued at no more than $3 million. Commercial property valued above $3 million would be subject to a new property tax valuation structure.
As a matter of policy, CSEA does not take a position of support or opposition based on whether a proposal will raise or lower taxes. Our Legislative Affairs Committee closely monitors all tax-related matters to ensure the tax can be administered in a fair and practical manner, and only takes a position based on that criteria. Proposition 15 is sure to be a large point of discussion going forward, and CSEA will continue to keep our Members apprised of updates that impact the administration of property taxes.
For more information, read this measure summary prepared by the non-partisan Legislative Analyst’s Office.