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Are California Property Taxes in Play?

Friday, February 26, 2016   (0 Comments)
Posted by: Erin King
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Are California Property Taxes in Play?

By Carlos Kaslow; SSA General Counsel and Founder of the Self Storage Legal Review, an SSA publication.

When March 2016 draws to a close California real estate interests will know if they are going to war.  This may seem like hyperbole but in March the Secretary of State will determine if an initiative that could radically alter California property tax law will qualify for the November ballot.  California’s property tax system has been stable since Proposition 13 was enacted by the voters almost 40 years ago.   Under California law voter approval is required to increase property tax rates.  This has proved hard sledding in most cities and counties seeking additional revenue.   The law also limits property assessed valuation increases to just 2% each year, regardless of the actual market value of the property.  Properties are only reassessed to market value when they are sold and then the reassessed value may only increase 2% or less each year thereafter. 

The property tax initiative currently in circulation does not attack Proposition 13 directly, direct attacks having failed repeatedly in past elections.  Rather it imposes a property tax surcharge on properties with a value in excess of $3 million.  Commencing with the 2017-18 fiscal year the tax would be .3% of the value between $3 million and $5 million; .6% on the value between $5 million and $10 million; and .8% on the value over 10 million.  The tax cannot exceed 1% of value in future years.   The tax will sunset in the 2036-37 fiscal year.  The Legislative Analyst and the Director of Finance estimate that the tax increase will generate between $6 billion and $7 billion in its first year.  The tax burden will fall most heavily on commercial property owners because most residential properties will be under the $3 million threshold.

The sponsors have dubbed the initiative the "Lifting Children and Families out of Poverty Act “ and most of the funds are dedicated to the state’s anti-poverty programs. The interesting title of the initiative seems designed more to attract support than to inform voters that this is a property tax measure.   The sponsors must collect 585,000 valid signatures for the initiative to be placed on the November ballot and sponsors have submitted a form indicating that they have collected 25% of the required total.  The initiative has been circulating since last September.  If the sponsors succeed it is expected that the state’s real property interests will pull out all the stops in raising money to defeat the measure.  Given the $6 to $7 billion in additional taxes the initiative will impose, the initiative opponents should have little trouble in raising $60 to $100 million to defeat the measure.  A $100 million war chest to oppose the law is less than 1.5% of its estimated first year cost to property owners.   

 

This article is copyrighted material from the Self Storage Legal Review (SSLR) a Self Storage Association (SSA) publication.