“We’re here to talk about SCA 5, new legislation that will finally reform our commercial property tax system and make it fair,” said Sen. Mitchell, during the announcement of the new legislation. “We have large corporations and wealthy commercial property investors that have used loopholes in the law to avoid paying their fair share. We have large, multi-billion dollar corporations that actually have a competitive advantage over smaller start-ups simply based on when a property was purchased. In short, we have a few businesses that are benefitting from far lower taxes than their neighbors and competitors. That’s what this legislation is all about.”

The bill authors stressed that SCA 5 “would finally make California’s property tax code fair by assessing commercial and industrial properties at their market value, after a phase-in period.” They also stated the legislation would “provide significant tax relief for businesses, protect homeowners and renters from any changes to their property tax status, and create strict new accountability measures for new revenues.”

“This legislation will address flaws in Prop. 13 that have allowed a minority group of wealthy corporations and commercial property owners to dramatically lower their tax bills and shift that responsibility onto homeowners and renters,” said Senator Hancock in a prepared statement. “Our homeowners are now being asked to pay the vast majority – 72 percent – of property taxes, while the commercial side pays only 28 percent. In 1978 when Prop. 13 passed, each paid about 50 percent. That’s not fair, and it has strained the community services our residents rely on.”

Opposition to SCA 5

Other legislators are not so impressed.

“I am disappointed, but not surprised, that the majority party would introduce legislation to weaken Prop. 13. This assault on California’s most important taxpayer protection measure not only threatens to raise taxes on struggling small businesses, but the net effect would be higher prices for consumers and fewer jobs for hardworking families,” Assemblywoman Young Kim, R-Fullerton, said in a statement.

Senate Republican Leader Bob Huff, R-San Dimas, echoed the sentiment in a release:

“There will be a ripple effect. Small businesses will be hit hard by this tax increase. They may pass on the cost to California families or take the loss and see if they can survive.

 

“What California families need are good paying jobs, not new taxes on small businesses. Increasing taxes on employers by $9 billion dollars annually will mean less money to hire and retain workers. Taxing small businesses will not raise anyone’s wages, will increase consumer costs, and is likely to drive businesses out of the state.”

Teresa Casazza, president of the California Taxpayers Association and co-chair of Californians to Stop Higher Property Taxes, said in a statement, “SCA 5 is an attack on property owners, and just by being introduced it sends a damaging signal to anyone thinking of starting a business in or moving a business to California. Lawmakers introduced more than $132 billion in new taxes and fees in the current legislative session and SCA 5 would only add to that unfathomable number.”

Poll results on a split-roll tax initiative

In May, the Public Policy Institute of California released survey results regarding the issue of changing Prop. 13 and moving towards a “split-roll” tax on property, defined as “taxing commercial properties according to their market value while leaving limits on residential property taxes intact.” As Joel Fox noted in a previous CalWatchdog story, “50 percent of likely voters favored the proposal while 44 percent opposed.”

A different poll from the California Business Roundtable released in June revealed that over 72 percent of all Californians would approve Prop. 13 in its totality if it were to be voted on again. Only 21 percent of the respondents were interested in changing to a split-roll tax on property.

SCA 5 requires a two-thirds majority vote in both legislative houses before it can be placed on the 2016 ballot. Two split-roll ballot initiatives have been voted on in the state of California — Prop. 8 in 1978 and Prop. 167 in 1992 — but both propositions failed.

The legislation has since been referred to the Senate Governance and Finance Committee.

Senate Bill 1021, introduced by state Sen. Lois Wolk, D-Davis, would allow school districts to impose different parcel tax rates on different types of property. That means commercial, industrial, residential and multifamily residential could see different tax bills for properties of equal value.

SB1021 is essentially split-roll at the local level, Jennifer Barrera, a policy advocate for the California Chamber of Commerce, explained on CalChamber’s website. It would allow school districts to pass parcel taxes just against commercial property.

Alameda County’s parcel tax overturned by courts

The bill comes in response to a controversial parcel tax adopted in Alameda County that was ultimately thrown out by the courts. In 2008, more than two-thirds of Alameda County voters approved Measure H, which imposed a $120 parcel tax on residential and small commercial properties and a substantially higher parcel tax — up to $9,500 a year — on large commercial parcels.

Last June, a unanimous state appeals court overturned the parcel tax. In Borikas v. Alameda Unified School District, the First District Court of Appeal in San Francisco found that the parcel tax violated the requirement that taxes “apply uniformly to all taxpayers or all real property within the district.”

The bill’s author said that the issue is one of local control, granting local districts the power to set different tax rates for each community’s needs.

“Under the recent court decision, school districts can no longer apply higher or lower rates to parcels based on commercial, industrial, or residential classification of the parcel,” Wolk’s office argued, according to the Senate’s legislative analysis. “SB1021 restores this needed local control by allowing school district boards to structure its tax according to local values and priorities.”

CalChamber: Unfair job-killer bill

Opponents of the bill include CalChamber, the California Business Properties Association, the California Association of Realtors, the California Grocers Association, the California Mortgage Bankers Association, the Family Winemakers of California, the Howard Jarvis Taxpayers Association, the California Manufacturers and Technology Association and the California Building Industry Association. The opponents are worried SB1021 will lead to school districts targeting parcel taxes on businesses and commercial property owners.

“At a time when California officials should be doing everything in their power to attract and retain jobs, this legislation takes exactly the opposite approach by targeting employers for even higher taxes if they stay here,” said David Kline, vice-president of the California Taxpayers Association. “This bill would allow a free-for-all parcel tax system, with no limits on what rates school districts could levy, and would create opportunities for massive tax hikes targeted at businesses of all sizes.”

The state’s business leaders and taxpayer advocates also say the bill is an end run around Proposition 13, the state’s landmark 1978 initiative that placed a cap on property taxes. With other “add-on” property taxes and fees, such as parcel taxes, Mello-Roos fees, and assessment districts, many property owners pay substantially more than Prop. 13’s base rate of 1 percent of the property’s value.

Higher rate applied to different properties

In addition to applying different tax rates to commercial and residential properties, SB1021 authorizes school districts to target individual owners for higher tax rates. Under the bill, school districts would be allowed to treat multiple parcels of real property as one parcel for tax purposes.

“Under this provision, a school district could aggregate multiple, smaller parcels owned by one owner to capture all the properties under a square footage parcel tax,” CalChamber warned in a recent legislative alert. “Additionally, a school district could impose a parcel tax based upon the use of one parcel within multiple parcels owned by the same owner, even if those other parcels are not used for the same purpose.”

Despite recent national headlines of the state’s declining business climate, the legislature is expected to pass the bill, in part because it only requires majority approval of the Legislature. Traditionally, most tax increases are subject to two-thirds approval. However, SB1021 isn’t technically a tax increase, according to the legislature’s attorneys.

However, Gov. Jerry Brown is running for re-election and likely would veto the tax increase. In his 2010 campaign, he promised that no new taxes would be imposed without voter approval. And when he campaigned for Proposition 30, which increased taxes $7 billion, he insisted it would be temporary. SB1021 would allow permanent tax increases.

By Wayne Lusvardi

Willie Brown just reminded us why in 1990 voters passed term limits largely to move him out of his seat as California Assembly-Speaker-for-Life.

Brown wrote that Prop. 13 should be reformed by “cleverly” by making “a racehorse look like a donkey.” But Brown must take California homeowners and small business persons to be dumb mules.  Everyone knows that you can’t make a racehorse out of a donkey.

Brown switched college majors from mathematics to a degree in political science.  He should have stuck with the numbers.  Reforming Prop. 13, the 1978 tax limitation measure, won’t favorably change the mathematics of property taxation for government. To the contrary, it is likely to make it worse. Even if Prop. 13 was reformed, it would likely result in lower property tax revenues for public schools and cities in a recession than if it was left alone.

In California, 97 percent of businesses are small businesses.  They are being hammered with a 50 percent increase in the lowest-tier of electric rates from AB 32, 15 percent higher water rates, new storm water taxes in Los Angeles County and an Obamacare surcharge of $5,000 to $8,000 per employee.  Eliminating Prop. 13 would be another hammer blow.

Businesses not escaping paying their fair share of taxes

Property owners should beware the misinformation in Willie Brown’s call for a split-roll property tax. Currently under Prop. 13, all property is reassessed in value only upon sale.

Under a split-roll tax, residential properties would continue under that system. But commercial properties would be reassessed at least every three years.

Brown infers that big corporations are getting away without paying their fair share of property taxes when they merely change title to commercial property.  Brown is a lawyer and knows that merely changing a title is not considered a “transfer” or “sale” under existing law.  And any changes to the law would likely end up being overturned by the courts, as they have in the past.

Proposition 13 is one of the most adjudicated laws in California history.  A practical review of whether a property transfer meets the criteria of being considered a “sale” under Prop. 13 can be found here.

Brown’s goal is to change public perception

Then why do politicians like Willie Brown keep banging a loud drum in the media about commercial properties getting away with avoiding property reassessments by transferring “the stock in the company that owns the property”?   And why does Brown continue to propagate the myth that property taxes disproportionately fall on homeowners instead of commercial property owners?  The most impartial study conducted in California found that commercial properties pay more of their fair share of property taxes than residential properties.

Such facts don’t matter to politicians like Brown because their argument is for political purposes, not for rational argument.  It is the symbol of wealthy big corporate commercial property owners being stingy that Brown wants to fabricate.  A falsehood told often enough is often believed to be true.  And the mainstream media no longer view their job as correcting the erroneous statements of those who are for raising taxes in California.

The apparent objective is to get a split roll property tax on the books even if it doesn’t raise revenues and mostly impacts small businesses.  Once a split roll property tax is on the books, Willie Brown will again say that it is “unfair” that businesses have their property taxes reassessed every three years and residential properties do not.  Then they will take a case through the courts calling for “tax fairness.” And legislators will shift the blame onto the courts for eliminating Prop. 13 protections for all residential properties.