Proposition 15

(c) by Mark Dempsey

This November, Californians will vote about whether to close a property tax loophole that favors older  commercial properties. Residential property tax is based on the property's last sale price, not current market value, but that is not true for commercial property. Even if the market value of commercial property increases, and a sale price reflects that, the property's tax bill does not change if less than half of the property changes hands. 

So when Michael Dell (of Dell Computers) buys a Santa Monica hotel, splitting ownership between himself, his wife and a corporation he owns, the property tax doesn't change--the hotel is, in effect, still taxed at 1978 rates. Commercial properties throughout the state use this dodge to deprive us all of an estimated $12 billion in public money. 

Since 1978--when prop 13 passed, implementing this loophole--California schools have gone from 21st to 46th in spending per student. The condition of California bridges ranks 18th nationally, and half of its county hospitals have closed. Homeowners pay a bigger share of property tax revenues, too. In 1978, corporations paid 44% of property tax. Currently, they pay 28%, with homeowners paying the rest. 

Proposition 15 remedies this by assessing commercial properties at current market value ("split roll"). It also exempts owner-operated small businesses from reassessment until they are sold. It levels the playing field so small businesses can compete more fairly with big corporations, even reducing all small business taxes by eliminating any tax on their fixtures and equipment (the business personal property tax).

Opponents complain this is a disincentive for (big) businesses to stay in California, but the current arrangement penalizes new and expanding businesses which must pay higher property taxes than their older competitors, whose property tax is based on those 1978 values. 

Almost half of commercial properties pay their fare share now, so basing commercial property tax assessments on current value would have no impact on them. Will businesses leave? More likely, they will get efficient. Are California's taxes on corporations high? Not really, even without the current loophole, corporations play lower rates in California than many other states.

Passing proposition 15 puts California on par with the way the vast majority of states treat commercial property by assessing them at fair market value. This proposition only affects under-valued commercial properties, creating a level playing field for those businesses that already pay their fair share. And California’s commercial property taxes will still be among the lowest in the country because of Proposition 13’s cap on tax rates, which proposition 15 does not change.