System Failure: California's Prop 13

oceansfiveo's picture

Facts:

1. In virtually every county, commercial property is paying a far smaller share of the property tax since Proposition 13 passed in 1978.

2.  Commercial property is able to exploit huge loopholes in the law to avoid reassessment upon change in ownership.

In virtually every county in the state, the share of the property tax borne by residential property has increased since the passage of Proposition 13 in 1978, while the share of the property tax borne by non-residential property has decreased.  Some examples:  in Contra Costa County, the residential share of the property tax went from 48% to 73%.  In Santa Clara, the residential share went from 50% to 64%, despite massive industrial/commercial growth.  In Los Angeles, it went from 53% to 69%.  In Orange, it went from 59% to 72%.

Moreover, major changes of ownership in major commercial properties which have gone without reassessment. Some that have been examined are predominantly those of private equity buyouts, corporate purchases of companies, and bank mergers which have avoided reassessment.  In particular, found was a tax system which is inconsistently applied in many counties.  There are many properties, particularly banks, but also hotels and other commercial properties, which should have been reassessed but have not been, and found that some counties have assessed these properties while others have not.

Why this inconsistency occurs:  the law is a mess!  Many examined records and cases from the Board of Equalization demonstrated incredible complexity used to avoid taxes, complexity which should have nothing to do with the assessors’ job, which is to only determine property valuation.

Solutions:

One, counties should be reassessing many commercial properties, in order to avoid basic cuts in services and programs. There appears to be many millions of dollars in tax revenue which is going uncollected.

*Second, the law should be changed at least to make sure that obvious changes of commercial ownership, such as private equity buyouts and corporate takeovers, trigger a reassessment.  AB 2492 (Ammiano) in the 2010 session would accomplish this modest change.

Phil Ting's picture

Great points

Wow - your analysis is right on the money.  Could not have said it better myself.  We need to close the commercial property loopholes. Its amazing Assemblymember Ammiano's bill could not even get a vote.  Such a modest change would only begin to treat large commercial properties like single family homes, which get reassessed when there is a sale.

Phil Ting's picture

www.closetheloophole.com

Forgot to ask you to join me at www.closetheloophole.com to close the commercial property loophole.

DaveG's picture

Why discriminate against business?

Doesn't the residential home owner make out nicely at time of sale because of Prop 13? Excusing residential real estate from Prop 13 reform obscures the principled argument we should be making. Those who own nature (land) that has value added by the growth of community should not get to privatize that value added; instead that added value should be returned to the community via the property tax. But making some allowance for land owners, say $200K:  deducting that amount from the assessed value of all land before applying the tax might settle everyone's beef. Pricey commerical land values would get a smallish deduction but still pay loads more than residential land. For instance, residential land worth $200k wouldn't pay squat, while land valued at $400k would pay on $200k.

The point is that the beneficiary of community-generated land values should not get to capitalize community contribution. If he does, then public revenue must be collected on the back of thrift, industry, and innovation. That's insidious.

Paid for by Phil Ting for Assembly 2012. FPPC ID# 1343137