Home>Articles>Prop. 15 Split Roll Will Eventually Cancel Prop. 13
Tax fighter Howard Jarvis, author of Proposition 13

Prop. 15 Split Roll Will Eventually Cancel Prop. 13

NO on Prop 15 – Stop Tax Hikes

By Wayne Lusvardi, August 7, 2020 7:10 am

Tax fighter Howard Jarvis, author of Proposition 13
Tax fighter Howard Jarvis, author of Proposition 13. (Photo: Prop. 13 campaign, Wikipedia)

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:

  1. 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.”
  1. 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. 

  1. 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.
  1. 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.

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46 thoughts on “Prop. 15 Split Roll Will Eventually Cancel Prop. 13

  1. 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.

    1. 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.

    2. 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.

  2. 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.

    1. 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.

      1. 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?

        1. 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.

  3. 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.

  4. 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.

    1. 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.

  5. 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 !

    1. 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.

  6. 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

    1. 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…….

  7. 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.

  8. 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

    1. 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.

    2. 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.

  9. 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!!

  10. This article is so disingenuous. Prop 15 is not going to reclassify your home as commercial if you are a free lance worker.

    The consequences of giving prop 13 benefits to commercial property are obvious: it has shifted the tax burden onto homeowners and encouraged speculation that has lead to high land prices. Companies like IBM are paying less than a penny in tax per square foot while new homeowners are crushed. Watching people argue that taxing commercial property *like every other state does* is going to force businesses out of state is laughable. Prop 15 is not perfect but it is a step in the right direction.

    1. All legislation that covers property taxes is aimed at undermining prop 13. They will write the law to leave them the loopholes (preplanned) that will enable them to quadruple your tax bill.

      If prop 15 had nothing to do with residential taxes this is still a disaster for business owners, employees and consumers.

  11. ZERO ACCOUNTABILITY for the spending of this new tax.
    Most troubling is that there is no commitment, or even oversight, to where these new tax dollars will be spent.
    They are not earmarked for schools or minority communities.
    They will most likley be wasted on more proven failed progressive programs such as the endless spending on the homeless industrial complex in San Francisco that has done nothing but draw more homeless to San Francisco’s streets.
    NO on Prop 15.

  12. The only thing “unfair” about prop 13 is that liberals can’t tax you out of your home. To a leftist ALL assets and income belong to the state. No one will vote for 4% property taxes so they resort to lies and deception to circumvent the state constitution.

  13. I will put my ranch for sale in Novemberif this passes. I will never earn enough to satisfy the hungry government. This must fail!

  14. In regards to the reassessment of a property if an individual owns more than 3 million in the state what happens if I’m the beneficial owner along with my brother of a property that will be assessed at 4 million but he also owns another property worth 2 million? Will our joint property be reassessed even though I own only 2 million but he owns 4 million? What about REITs holding .CA real estate? Will a portion of the real estate value have to be apportioned to every investor and included as commercial real estate holdings to .CA based investors? And will .CA retired public servants have to include their share of the value of CALPERS real estate holdings since they are the direct beneficiaries of the pension fund?

  15. I will vote NO on 15 . If it passes I will lose my home. I’m retired and live a limited income. So please vote NO on 15.

  16. Wow…Please re-read the article.
    Realize this: Corporations and all businesses pass on all their expenses to their customers, or they go out of business.

  17. Prop 13 is the biggest wealth transfer from the young to the old in this state. I have neighbors who pay less than a $1,000 on their $1.5 million home whereas a new buyer would pay 20 times that. This is also a reason why homes cost so much. No incentive to add more supply as that prop 13 beneficiary would fight tooth and nail when it comes to adding more supply as that would decrease their property values. Or will not let it rise as much. Prop 13 needs to go and the tax revenues gained from that should be a dollar for dollar offset against taxes on things like income etc.

    1. Using your logic, young homebuyers who now can get a 3% mortgage should have their interest rates raised because it is unfair to live in an economy where young people have an advantage and older homeowners have higher mortgage rates.

      Prop 15 is mainly, but not completely, about how often commercial properties are reassessed. Prop. 13 says they are reassessed when they resell. Prop. 15 wants annual reassessment.

      I’m a real estate appraiser. What will happen with commercial income generating properties is that their market values will drop and, thus, the tax base will decline (not increase).

      I have proposed a better way to increase property taxes that is counter intuitive – lower tax rates and the property tax base will increase. If the annual inflation adjustment limit under Prop. 13 was changed from 2% to 1.5 percent, property taxes would increase.

      Under the proposed Proposition 15 Split Roll Tax, only 30% of the businesses would be subject to the tax. Using your logic, that would be unfair.

      I suggest instead of emotionally reacting opposed to those who are against Prop. 15 that you learn something about how taxes and property values work. Then you would understand that raising taxes decreases commercial property values and lowering taxes increases property values and thus increases total collected taxes.

  18. The big win for the Legislature is the 50% plus 1 vote, currently a 2/3 vote is required for a tax increase, think about that. To get a tax increase it requires someone from the minority party to vote along, there will not be any chaos and balances.

  19. Either the author lacks the legal expertise to interpret the measure or is intentionally being misleading. For instance, this myth of the uber driver’s home being subjected to commercial property assessment is NOT TRUE. From the measure itself: “(a). The Legislature shall
    also define and provide by statute that limited commercial uses of residential property, such as
    home offices, home-based businesses or short-term rentals, shall be classified as residential for
    purposes of paragraph (2) of subdivision (a).”

    The measure is also written to protect residential mom and pop landlords: “It is the intent of the People of the State of California to do all of the following in this measure:
    (a) Preserve in every way Proposition 13’s protections for homeowners and for residential
    rental properties. This measure only affects the assessment of taxable commercial and
    industrial property. ”
    C’mon, Globe, have some integrity and actually fact check this stuff.

    1. At the very bottom of the article it says the statements made in the article were reviewed by Rex Hime of the California Business Owners Association.

      1. Hi Wayne, Thanks for the private message and response here. So you admitted you didn’t fact check it but that a business lobby/special interest group that’s been spreading misinformation to get this proposition to fail said it’s okay. Yeah, that’s not the same as fact checking. Maybe actually read the measure before writing about it? In any case, thanks for confirming your legal and journalistic incompetence on this matter! A retraction would be great.

    2. Thank you for your comment. It not the interpretation of this writer that home offices and Uber drivers will trigger commercial property taxes. It is the governmental affairs representatives and attorneys of the California Business Property Owner’s Association that assert that residential properties will be taxed as commercial properties under Prop. 15. You might contact them if you believe their assertion is incorrect.

      Watch this video – LINK https://www.aircre.com/town-hall-on-ca-legislative-issues/

  20. Blake
    You are not going to find wording in Prop. 15 that specifically states home offices and Uber drivers properties are subject to a commercial property tax. The original draft of Prop. 15 had such wording but was removed due to opposition. But the existing version has a provision that if passed the legislature can amend Prop. 15 any way they want consistent with its original intent to increase commercial property taxes. Such a wild card would allow the legislature to re-include the provision to tax properties with home offices and Uber drivers. I hope that clarifies the matter. It is not speculative or this writer’s interpretation of the text of Prop. 15, it is based on the original wording of Prop. 15.

  21. Hi Wayne,
    Do you understand the difference between being a reporter and being a prop with no integrity? Do you care? My issues here aren’t with the California Business Owners Association, I expect them to lie, the issues are with you and this paper and thus my “effort” as you put it will be directed at you. You’re just a name they can put on their lies so they can undermine small mom and pop businesses. You’re basically admitting that you haven’t read the measure (which is easily available online), or if you did, you certainly didn’t understand the proposition in question. Attaching your most recent email to me so everyone else has context to see you admit to what a sham this article is.

    Wayne Lusvardi
    9:29 PM (5 minutes ago) to me
    It is the position of the Commercial Building Owners Association (CBOA) and that is what was reported. See link to video which I provided. The statements made in the article were reviewed by the CBOA before submittal. Please direct your effort to the CBOA.

  22. I’m sorry I can not respond rationally to your hysteria. Any faults in the article are mine but I relied on phone conversations, videos and an email I sent to the Commercial Building Owners Association to verify accuracy of my statements before submittal. As I emailed you, the original text of Prop. 15 provided for taxing residential properties with home offices and Uber drivers who take their cars home. That language was removed due to opposition. But Prop. 15 has a wild card clause that the legislature can amend it any way they desire if it passes. It is not pure speculation or false interpretation to infer that the same original wording will go back into the proposition if passed.

    Do a Google search and you will find I have been defending Prop. 13 for years. Best wishes

  23. Wayne Lusvardi, will you stop privately emailing me with your ridiculous hysterics for calling you out on this. I will not respond to you via email. You can make all those conversations public here. It’s not my fault you think the Commercial Business Owners Association is a legitimate source of information and can be solely relied upon. That’s on you and if you get dragged into a lawsuit for being a part of this misinformation ploy, that has nothing to do with me.

    1. I own a small service company out of my house. If this thing passes it would triple my property taxes. I am looking to retire in a little over a year and the increase would be devastating. I would be better off closing my business and not paying the higher taxes. So there goes all the business taxes I am paying and all the other fees I pay.

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