The Impact of Prop 15 on Property Owners, Local Businesses, and Consumers

As the election is rapidly approaching, we are beginning to see commercials and ads about the many propositions that will appear on the ballot. Often times, you will see opposing ads about the same proposition that can lead to uncertainty about what is really going on. After learning about the harmful impacts Proposition 15 will have on property owners, tenants, and business owners alike, it is hard to see any benefit to voting yes on the proposition.

On the surface, Proposition 15 advocates will advertise that it is in place to help support schools and cut taxes for small businesses by closing tax loopholes. In reality, it will nominally help our schools while raising taxes on small businesses and property owners, ultimately hurting consumers, tenants, and landlords.

What is Prop 15? Prop 15 would amend part of the 1978 ballot initiative Proposition 13 that fundamentally changed how California taxes property. Approved by voters in 1978, Proposition 13 was a trademark victory for California conservatives and anti-tax activists. Since its passage, Prop. 13 has capped property tax increases at 2% each year for homes, businesses, and farmland. Properties are then reevaluated when they are sold at approximately 1% of the sale price, depending on the city. The end result is that properties on the same street often have very different tax values assigned to them.

The new plan would separate the tax roll of commercial properties from residential properties and reassess these properties at least every three years at their “actual market value”. Estimates are that this could raise somewhere around $11.5 billion per year in new taxes.

Where will this money go? Not directly to schools. The first money will go towards the cost of administering these reassessments every three years, as well as reimbursing the Franchise Tax Board for lost tax money. Of the remaining balance, 60% will go to local governments. The remaining amount will go to schools, but as you can see, the majority of the money collected will go to state and local governments.

Will you be exempt? There are three contingencies that you will have to fulfill to be exempt from this increase in taxes. The first is your total value of commercial properties owned has to be under $3 million. Also, you must occupy the majority of space in your properties. Third, all officers of your holding company/companies must be California residents.

This increase in taxes will hurt property owners, tenants, and consumers in the long run. It is important that we educate voters about the reality of this proposition and vote no in November. To learn more about Prop 15 and what impact it may have on your property, feel free to give me a call at 858-458-3361 or email me at ajize@voitco.com.