Proposed Changes to Prop. 13 Could Cost California Businesses

 Posted on April 17, 2019 in Small Business Taxes

Property taxes are an issue that affects many taxpayers in California, and changes to these taxes may be coming in the near future. In the 2020 election, voters will be able to decide if Prop. 13 should continue to apply to businesses. The measure would increase property taxes that businesses have to pay the state of California.

What is Prop. 13?

Prop. 13 is a ballot measure approved by California residents in 1978 that placed a limit on real property tax reassessment on all types of properties allowing reassessment only on completion of construction or when properties are sold. This means that currently, property owners pay taxes that are based on the value of a property when it was purchased, regardless of the property’s current market value. In effect, Prop. 13 prevented increases in property tax rates on homes, businesses, and farms by about 57 percent. 

The proposed measure calls for businesses to have their properties reassessed to market values every three years or less. The reassessments would result in higher taxes on commercial properties. The laws regarding residential property taxes would remain unchanged. This setup is called a “split roll,” since commercial property would be treated differently than residential property.

It is estimated that the 2020 initiative would raise property taxes on businesses by $11 billion per year. This money would be distributed to local and state governments, which includes the school system. In California, since Prop. 13 was approved in 1978, school spending as a share of personal income has declined.

Pros and Cons of the 2020 Initiative

Many groups in California support this proposal. Government and social justice groups, some state and local teachers’ unions, and philanthropic organizations all back this measure. They believe that there needs to be an increase in school funding and that this funding should come from businesses.

However, businesses are against this change. They argue that increasing property taxes on businesses will negatively affect the state as a whole. Businesses will likely be forced to pass on their increased expenses to the consumer, making California a more difficult place to live for low- and middle-income families. Commercial “triple net” tenants will also bear the cost of increased taxes. Another possible effect is that businesses will not be able to employ as many people, which also will mostly affect low- and middle-income earners.

Contact a San Jose, CA Property Tax Lawyer

No matter what happens at the polls in 2020, there may be ways to minimize your business’s tax liability by seeking the advice of a trained San Jose, CA business tax attorney. Our firm can help you use federal and state tax laws to your advantage on multiple fronts. To learn more, call John D. Teter Law Offices today at 408-866-1810.

Sources:

https://www.pe.com/2018/08/31/best-in-law-impacts-of-possible-prop-13-changes/