Proposition XIII is Under Attack

By admin of MillarLaw A Professional Corporation On Thursday, February 21, 2019

Proposition XIII is under attack through a proposed amendment to the Constitution of the State of California. The proposed amendment is known as “The California Schools and Local Communities Funding Act of 2018”

The proposed amendment would eliminate Prop 13 tax rate increases for “commercial and industrial properties” and would require reassessment to their full fair market value at least every three years. The new reassessment rules would apply to “any real property that is either used or zoned as commercial or as industrial, or is vacant land not used or zoned for residential use or for commercial agricultural production”. What this means is that “residential owner-occupied, rented and multi-family rentals and commercial agricultural properties are exempt, in effect, thereby creating a “split-role”.

If you are an investor in commercial or industrial real property your property tax base will increase no less often that every three years. There is a “small business” exemption for businesses that operate on their own property, but the exemption has a two million dollar aggregate property value cap, meaning all owned non-exempt real property is collectively valued and the property will be exempt so long as the total fair market value of all the properties does not exceed two million dollars. (adjusted for inflation).

The rationale for the creation of the new “split role” system is that commercial and industrial properties are held longer than residential properties and, therefore, get an unfair tax break. Owners and operators of commercial and industrial properties will need to prepare to challenge county assessors determination of Fair Market Value, The increase in taxes will be subject to the federal limitation on deductibility of State and Local Taxes (SALT Limits). These forces moving together may limit future increases in property value and contribute to increases in inflation as taxes are passed on to tenants and so forth. We are prepared to help you challenge county assessors through administrative and court processes.