By Jon Coupal
In its more than 160 plus year history, few things have remained constant in California. However, since the 1800’s California has taxed all classes of property the same.
Thus, when the iconic Prop 13 passed in 1978, it did not differentiate between different kinds of property. All real property – whether residential or commercial – was bestowed with the benefits of a reasonable one percent tax rate cap and, just as importantly, a two percent limit in the annual increase in taxable value.
In 1978, the predominant fear permeating California was an exploding tax burden that was forcing people out of their homes. The one percent rate cap was important, of course, but a rate cap by itself does nothing to control a property tax bill that is based on the “market value” of one’s home. If market values double – as they frequently do in an overheated real estate market – then property owners remain vulnerable to wild fluctuations when tax time comes around.
By limiting the annual increases in “taxable value” or “assessed value” of property to two percent per year, Prop 13 gave property owners something they never had before – absolute certainty in what their tax bills would be in future years. No more would property owners open their tax bills with trembling hands because they knew that, thanks to Prop 13, any increase would be modest.
The certainty and predictability of property taxes is just as important to owners of business properties as it is to homeowners.
First, let’s dispel the myth that Proposition 13 created a loophole for business properties. As noted above, California has always taxed property at the same rate. Proposition 13 didn’t change that. Second, we often hear that, during the campaign in 1978, the fact that Proposition 13 protections would be extended to business properties wasn’t presented to the voters. Not true. The opponents hammered those arguments throughout the campaign and, specifically, in the official ballot pamphlet itself.
Moreover, during the Proposition 13 campaign, it was predicted that, over time, homeowners would pay an increasing percentage of the total property tax revenue because residential properties change hands more frequently than commercial properties and thus would be taxed closer to market value. But for many years the percentages remained relatively static. Only more recently has there been an uptick in the percentage of property taxes paid by homeowners. And this appears to be due to land use changes, such as a shrinking industrial/manufacturing sector and luxury home development than it is to Prop 13.
Californians need to keep in mind the stability and predictability of Proposition 13 is as important to owners of business properties as it is to homeowners. Indeed, this is more true now than it was in 1978. Back then, California was a pro-business state with a growing economy, a vital aerospace industry and an infrastructure system that was the one of the world’s best. Now, California is rated dead last as a place to do business, we have the highest poverty rate and a tax and regulatory environment that has caused countless businesses – both large and small – to move elsewhere.
Stability and predictability of future property tax liability afforded by Prop 13 is one of the few remaining pro-business policies in California. Why on earth would we want to repeal that?