It was elderly widows who were being thrown out of their homes for unpaid property taxes in 1975 before Proposition 13. Now with Proposition 15 it will be mom and pop businesses in leased buildings, and Uber drivers who own their homes who are going to be displaced.
Proposition 15 – the so-called split commercial/residential tax roll – on the November ballot is being advertised as solely a commercial property tax. But there is a trojan horse contained in Proposition 15 that will unravel Proposition 13 property tax protections even for residential properties.
Single-family residential homes used for home offices or UBER drivers who park their cars at their owned residences will have their homes reclassified as commercial properties under proposed Proposition 15. Eventually, property taxes will be equalized by the legislature, and the mandates of Proposition 15 will apply to all owners who hold multiple homes and apartments, not just commercial properties. Moreover, small business owners will have the higher property taxes passed through to them in the form of higher rents and will not be able to stay in business after a couple of years. But it will be the consumers who will ultimately pay the so-called higher commercial property taxes.
This is why some 2,000 organizations are mounting a $70 million opposition to Proposition 15, including the Commercial Business Property Owners Association, the Howard Jarvis Taxpayers Association, apartment owners associations, the NAACP and senior citizen groups.
Prop 15 Full of Stealth Exceptions
Proposition 15 would require that commercial and industrial properties over $3 million in value would be reassessed every one-to-three years instead of when a property is re-sold (in about 10 years), as is now the rule under Proposition 13. Thus, there would be less lag time until a property is reassessed. Residential properties would initially be exempt, except in the case of the exceptions explained below:
- Immediately after any passage of Proposition 15, a task force shall examine and recommend to the legislature any “statutory and regulatory changes necessary for its equitable implementation.” In other words, the legislature can immediately revise the wording to equalize taxes as it sees fit without voter approval. So, even though Prop. 13 requires a two-thirds vote of the legislature to increase taxes, a simple 50% + 1 vote in the state legislature could amend Proposition 15 to extend to residential properties. As explained below, the process of equalization could extend to reclassifying some residential properties as commercial properties, then to all residential properties under the rationale of tax “equalization.”
- The $3 million minimum for commercial properties to be subject to the tax is cumulative, not based on each singular property. So, if a commercial property owner held, say, two or more commercial properties worth $3.2 million, all those properties would be subject to the higher reassessment. This would, in effect, raise property taxes on smaller commercial properties less than $3 million in value. Affected would be small family-owned commercial business franchises that lease building space from a large commercial landowner. Also included would be small mom and pop restaurants, a Taqueria, a Taco Bell, Popeyes Chicken, a medical or dental office, a laundromat, a non-profit child-care center, or any tenant in a commercial strip center.
Standard commercial-industrial leases provide for pass-through of any expense increases, including property taxes, to the tenant who, in turn, will have to raise prices on customers.
- A commercial-industrial property owner who believes his properties are worth less than $3 million must file for an exemption in the first year. An owner must certify that they have less than 50 employees, that their business is independently owned and the business owns real property in California. If a property owner fails to file the exemption this “shall be deemed a waiver of the exclusion for that year” and any higher tax is automatically due and payable. By requiring owners to file for exemptions in the first year, the state can claim they are protecting small businesses. But this only applies until 2025 and then all bets are off on any exemptions after that.
- If the owner of a residential property has a home office or is, for example, a Uber of Lyft driver who parks the business car at home, this may trigger reassessment of their personal owned residence as a commercial property. There are some 500,000 Uber and Lyft drivers in California. After the governor’s coronavirus emergency order to shut down small businesses and large office buildings, there are countless people working from home.
Commercial properties appreciate at about 5% per year on average, but under Proposition 13 property tax increased are capped at 2% per year. The lower 2% tax increase per year on properties under Proposition 13 was compensated for by higher sales taxes collected from the large number of small businesses in the state. This is why California has a 7.25% sales tax. But that tax won’t be reduced or phased out because of Proposition 15.
The key economic question is how much tax increase will small business tenants be able to absorb when the property tax increase is passed through to tenants each year? When rent increases cumulate each year to about 10% to 20% higher rents, many tenants will default on their leases or declare bankruptcy. So small businesses will initially suffer the most under Proposition 15 as well as owners of single-family residences who work out of their home. But eventually the protections of Proposition 13 will no longer extend to all residential properties.
The California non-partisan and impartial Legislative Analyst’s Office estimates that California will generate $6.5 to $11.5 billion in additional tax revenues based on the existing number of $3 million valued commercial properties in the state. But this does not consider the nearly incalculable rise in property taxes when Proposition 13 protections are lost to commercial properties for property owners owning multiple properties $3 million in value cumulatively. Nor does it consider how many cumulatively-owned residential properties are over $3 million.
In 1975 it was elderly widows on fixed income that were being thrown on the streets by rising property taxes that brought about Proposition 13. In 2020, it would be small business owners who will be filing bankruptcies to escape the high property taxes passed through to them in rent increases.
Rex Hime of the California Business Property Owner’s Association reviewed this article.
View Comments (55)
This is a scary proposition. If you have not read it, please do so. It is about 14 pages. And if you have liberal friends have them read it too.
You said it John --- very scary.
Glad to see this article that spells out what's going on here.
Vote NO on Prop 15! It's even worse than you think.
Liberls don't care they are too unmotivated or smart enough to even know how to have, start not built a business. Hence why Apple, Tesla and many others bare leaving CA. Plan the people. The people always get the government they vote for.
I thought about investing in commercial real estate and I am glad I did not. If (or should I say when) Dems get rid of prop 13 you will see double or triple property tax bills. Most people will not be able to afford the bills so they will sell but there will be few buyers and property values will collapse. Most people will lose all their equity in their home and those who own their homes outright will lose hundreds of thousands of dollars.
That is what I am scared of. There is already an exodus of taxpayers leaving Ca. If Biden wins and prop 15 passes It will motivate us to sell and move out of Ca. The welfare state of Ca has one of two choices, end the welfare state or go after the last bastion of wealth in Ca, real estate. Given the voters it's a solid bet the state will go after any wealth it sees in a failed and desperate attempt to maintain the welfare state.
The property doesn't move out of state I don't know how an "exodus" would happen.
So if you own a home for personal use, you will see no tax increase? What’s the problem here again? Corporations paying their fair share?
Prop. 15 is a Greek Trojan Horse. Once they get through the gates of the election they will change the wording the assess single family homes at 4% instead of the current 1%. There is a clause in the voter initiative that authorizes the legislature to change the wording any way they please if it passes.
Who pays their fair share? Us consumers after all these businesses raise rates to pay their tripled property tax bill. You must be an idiot if you think corporations are just going to lose money and provide products at the same price. How can one be so stupid?
Did you read the article? This will affect home businesses and small minority owned businesses. Besides, people who don't own property should pay more taxes, too.
We are a welfare state. Me and my wife worked very hard to buy our home back in 90’s. We had moderate incomes but we were no where close to being privileged or rich. We knew buying a home was a better investment than renting an apartment.? Today, 20+ years later, our income hasn’t increased fast enough to keep up with the high cost of living in California. And now government leaders introduced Prop 15 as the gateway to destroy Prop 13 so the state can squeeze more money out of property owners. Putting us in the same category as big business just because we have a mortgage and property values have soared upwards of 500%. Even though my California tax dollars help pay teachers salaries at Cal State/ UC campuses, for which our kids couldn’t get admitted into. So how does prop 15 help those hard working kids from the inner city whose 3.5 GPA aren’t good enough for tax funded schools like UCBerkeley, UCLA, Cal State Long Beach, UC Irvine, Cal State Fullerton, UCSan Diego or San Diego State. etc. I believe prop 15 revenue will be politicized and distributed amongst the affluent and the low income areas will have to scratch and beg for the leftovers.
Beware people. The next attack on California taxes will be home owners who rent out rooms to college students or to the homeowner who rents out the one bedroom apartment above the garage to a single mom who drive for Uber.
There are two bastions of wealth in California. Real estate is one and Silicon Valley is the other and Sacramento is hell bent to destroy both. The walls are closing in for Californians. This next election is about survival.
It's crucially important to understand this basic fact: Prop 13 has withstood REPEATED attacks because it's been defended by an uneasy taxpayer alliance. The CA business community has provided the FUNDING for protecting Prop 13, while CA homeowners (led by HJTA) have provided the activists, legal support and votes to defend Prop 13.
If Prop 15 passes this November -- removing any property tax protections for the mid to large size businesses in CA -- then the business community will not work with homeowners against a subsequent (2022) proposition to dramatically raise CA home property taxes.
Let me dispel (below) some of the progressive propaganda about commercial property taxes. My article uses reliable sources, showing that commercial property taxes have been paying their fair share along with homeowners.
https://riderrants.blogspot.com/2018/02/commercial-vs-residential-property.html
Before Prop 13, the base California property tax rate was 3% to 4%. Under Prop 13 it is 1%. So taxes would go back to the 3% to 4%, or 3 to 4 times what they are now, without phasing out the 7% base sales tax. It would create financial serfdom - the property serfs would be working for the elites and their government bureaucrats but only the big players could survive 5% per year compounded rent increases.
We must stop Prop 15! We must educate the people of California to vote NO on Prop 15! Renters need to be educated their rents will be unbelievable high, unaffordable as the tax increase will be passed on to them. Renters don’t realize the property owner has no choice but to pass on the incredible massive tax hike !
Oh please, it's as if the 'benevolent' landlords are passing down the tax savings to the tenants. They are not. The greedy landlord's taxes need to be reassessed to the current market value so they have all the incentives to invite more supply and hence keep property prices down. And rents will come down because guess what, the landlords will finally have to serve their customers (renters). Vote YES on Prop 15.
so if a supplier comes to you and said" sorry, but I have to rise my cost" you would not pass the cost on to me?
It's too bad that prop 13 was so unfairly written back in the 70s. There are people in my neighborhood who are paying 30 thousand a year for property tax. There is no reason that the tax on any property should rise faster than inflation. The reason that government can get away with this stuff is because there are too many people voting. No one who is collecting a check from any government should be eligible to vote. This would prevent people don't have skin in the game from voting, eg. Federal, State, and local government employees, people supported by government by being in prison, welfare recipients, and even SS recipients
The strategy of the Democratic Party has been to make people wards of the State and beholden to more "free stuff" from Democrats. This is their base.
Your proposal would destroy the modern Democratic Party.
Perhaps you are on to something.......
You are so correct. Supporters of Prop 15 are indirectly benefiting of passed. Unions, state, county, city employees, all vendors of goods and services, school employees, all public sectors of the California economy are in on the take, especially retired government employees.
Mark Zuckerberg didn't have the courage to go against Prop 15. NO GUTS! I will support and defend Prop 13 til my last breath. In fact, I am infavor of establishing property tax CAP of $3,000.00 maximum on all property indefinitely. Most government agencies are over budgeted.
Leave prop 13 alone. California can get the money somewhere else. Like cutting back the politicians salaries. Leave the taxpayers alone before there isn't any left.
I AGREE YES LEAVE IT ALONE!
Vote trump
Wayne, I have a follow up question for you. Your article claims that prop 15 will pass tax increases to renters through higher rent. California currently has a state wide ceiling on annual rent increases. Wouldn't this prevent these large increases from being passed to renters? Of the 5% + (inflation not to exceed 2.5%) limit on rent increases, what percentage of rentals actually have room (based on historical data) to place their increased tax on renters?
Maybe you could use this on another piece?
Thank you
The rent moratorium is only during the declared virus emergency. Prop. 15 does not kick in until 2025 because it will take 4 years to hire and train assessment staff. Moratorium will be gone by then (but wearing masks is likely going to be permanent because coronavirus is the annual cold.
Wake up Irene! Prop 15 totally excludes residential property, even that Uber driver's home. A judge already told Prop 15's backers to stop lying about taxes on homes being increased.
If they are old enough to join the Military, AND be used at "Bounty Bait' by Putin...I say let them vote.
Many young folks are interested in what is going on in their world today, and especially how it will effect thier lifes when we older folks are long gone. They deserve a say, as do all other citizen of the USA!!