BILL WOULD UPDATE PROP 13: LARGE COMMERCIAL PROPERTY OWNERS WOULD PAY MARKET VALUE

By Miriam Raftery

June 10, 2015 (Sacramento)—Since 1978, Proposition 13 has frozen property taxes  for California owners until a property sells.  But now a proposed constitutional amendment would change Prop 13 to require annual assessments of large commercial and industrial properties.

The measure, Senate Constitutional Amendment 5,  exempts homeowners,  owners of rental residential properties and agricultural properties, which would not be impacted.   The measure also includes a tax break for small businesses, instead targeting larger commercial and industrial property owners for the tax hike.

The bill would exempt from taxation up to a half million dollars of personal property used exclusively for business purposes.  It also gives businesses an exemption of up to a half million for equipment and fixtures—an action that would eliminate the tax on equipment and fixtures entirely for 90% of businesses, whether they own or rent their place of business.

The authors, Senators Lori Hancock (D-Berkeley) and Holly Mitchell (D-Los Angeles) estimate the measure would raise $9 billion a year that would be used for education (including elementary schools through community colleges) and local governments. 

“We have large corporations and property investors that have used loopholes in the law to avoid paying their fair share,” Mitchell said at a news conference this week, KPCC TV reports.

Many commercial and industrial properties are assessed far belong market value in California.  Since 1978, when Prop 13 was passed by voters to protect the elderly and other homeowners from skyrocketing taxes,  the residential share of total assessed property values statewide has grown from 55% to 72% of the total. But commercial and industrial (along with agricultural) have decreased from 45% to 28% of the total assessed property value. 

That’s because when homes are sold, properties are reassessed to full market value based on the sales price. But many large corporations and wealthy owners have been able to avoid reassessment when commercial or industrial properties sell, taking advantage of complex stock manipulations or other loopholes. For example, the bill’s language states, “a wealthy CEO was able to structure the purchase of a $200 million hotel property in a way that prevented reassessment, avoiding more than $1.1 million a year in local property taxes.”

Also, if a commercial or industrial business owner faced reassessment under this bill that increases value more than 25%, the assessed value above 25% would be exempt from taxation for five years, with specified conditions met.

 The authors say the measure is necessary to help California avoid another fiscal crisis and keep money flowing to schools, since temporary tax increases under Proposition 30 expire in a few years.  They contend that large corporations and wealth business owners have been avoiding paying their “fair share.”

But opponents contend the measure could cost the state jobs, if companies lay off workers or move elsewhere.

 Jon Coupal , president of the Howard Jarvis Taxpayer Association, claims, “California, even with Prop 13, is a high property tax state” compared to some other states.

Prop 13 has long been considered the sacred cow in California politics, with politicians averse to attempting to amend what voters approved.  But 37 years after its passage, baclers pf SCA 5 contend it’s time to update the measure to reflect changes through the years and the state’s current economic conditions.

The measure faces  tough hurdles. To get on the ballot, it must either pass the Legislature with a two-thirds majority in both houses (meaning it will need some Republican votes, as well as Democrats), or alternatively, supporters must launch a signature gathering campaign among voters to qualify for the statewide ballot.

Backers have said that if SCA 5 fails to win passage in Sacramento, they are already lining up support from labor and progressive organizations for just such an effort. “If the Legislature doesn’t approve the bill,” Senator Hancock has said, “I think we ought to take it directly to the people.”