Make it Fair
LWVC Joins Effort for Property Tax Reform in California
The League of Women Voters of California has joined the Steering Committee of the “Make it Fair Coalition,” a group of organizations dedicated to reforming taxation of commercial property in California, by requiring such property to be assessed a fair market value. This is an exciting development, as modifications to Proposition 13 have been considered politically untouchable for more than three decades. LWVC will be calling on local leagues to support the Make it Fair campaign.
Proposition 13, passed in 1978, limits the property tax in California to 1% of its assessed valuation – with the assessed valuation being set at market value (purchase price) when property changes hands. This valuation may increase by 2% per year as long as the valuation does not exceed fair market value.
After Proposition 13 passed, the Legislature created a loophole for commercial property so that no reassessment at the time of a sale occurs unless 50% of the ownership changes. This has allowed businesses to structure ownership changes to avoid reassessment. The result is that since 1978 the fraction of revenue coming from taxation of commercial property has declined from 45% to 28% of total property tax revenues – a shift of the tax burden from commercial to residential property and a loss of property tax revenues for local services.
The owners most likely to be able to take advantage of this loophole are large corporations or other wealthy owners who can pay for good legal advice. Smaller owners are the ones most likely to pay higher taxes on property that changes hands. Disparities in assessments for comparable properties make it hard for the owners of newly purchased property to compete. This isn’t fair.
It is estimated that if commercial property were taxed at full market value, the increased revenue statewide from property taxes would be about $9 billion per year. This revenue will fund local services – schools, fire and police, maintenance of streets and sidewalks, libraries, parks, etc. The revenues SCA 5 would raise for K-14 education will be in addition to the Proposition 98 guarantees, so would provide increased support for the state’s underfunded schools.
To make this change will require a constitutional amendment – either one initiated by the state legislature or by voter initiative. At this time, the Coalition is pursuing the legislative route, an approach that is consistent with the League’s position on the initiative process. State Senators Holly Mitchell (30th District, Los Angeles) and Loni Hancock (9th District, Berkeley) have introduced Senate Constitutional Amendment 5, which implements the principles of the Make It Fair Coalition. SCA 5 proposes to require commercial property to be assessed at fair market value. There will be a phase-in period for reassessments to allow the process to be completed over a two-year period. There will be a phase-in of the tax due on the increased value over a three-year period, starting with 2018-2019. Help will be provided for small businesses by exclusion of a minimum of $500,000 of tangible personal property (equipment and fixtures) from taxation. There will be no changes in how residential property (including rental property) and agricultural property is taxed.
The Make It Fair Campaign will offer local leagues many opportunities to get involved, through educating members and the public, seeking endorsements, attending public events, monitoring press coverage, etc.
On July 9, LWVC sponsored a webinar to introduce local league members to the campaign. Campaign. The slides from this webinar are available on the LWVC website, which can be accessed by emailing the office at firstname.lastname@example.org. Other information is available at the Make it Fair Website: www.makeitfairca.com.
LWVC’s support of the Make it Fair campaign is based on its position on State and Local Finance.
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