In 1978, California voters passed Proposition 13 (“Prop 13”) to limit increases in both residential and commercial property taxes. A measure on the state ballot in 2020 aims to create a split roll tax structure and thus alter the way Prop 13 is applied to commercial real estate.
California voters approved Proposition 13 in 1978 to address arbitrary and unwarranted property tax increases on residential and commercial real estate. Proposition 13 established a 1 percent tax on the assessed value of all properties in the state. Property assessment increases are also limited to the lesser of the rate of inflation or 2 percent each year. When a property is sold or undergoes significant new construction, it is then reassessed to its current fair market value. In a state known for its high tax rates, Proposition 13 has protected both residential and commercial property owners for over 40 years.
The November election in California includes a state ballot initiative that targets a property tax increase on commercial and industrial property owners by lifting the protections afforded under Proposition 13. The split roll initiative, known as Proposition 15, lifts the annual 2 percent cap on increases to commercial and industrial property assessments, while maintaining the current tax treatment for residential, agriculture and multi-family properties. If adopted, commercial and industrial properties would be reassessed to fair market value at least every 3 years starting in 2022. Proposition 15 will force commercial and industrial properties to pay an estimated $11.5 billion in additional property taxes.
NAIOP opposes Prop. 15 and the $11.5 billion tax increase on commercial and industrial properties, which should not be unfairly singled out for tax increases. The protections provided by Proposition 13 should be maintained for both commercial and residential property owners.
- Proposition will harm small and family-owned businesses that are already struggling to survive the economic downturn caused by the pandemic.
- The cost of doing business will increase and may lead to businesses relocating to other states. These additional costs apply to any person or business outside of the state, who invests or receives professional services from a California business.
- The new property taxes will go to state and local governments to spend with no transparency or accountability.
- The predictability of property taxes is an important consideration for businesses and commercial real estate investments.
- Higher property taxes erode the state’s tax base by hindering economic growth and job creation.
- The cost of living will increase with Proposition 15’s adoption. The price of most food items will increase as the processing, packaging, distribution and grocery facilities pay higher property taxes.
- Proposition 15 unfairly targets commercial and industrial real estate for additional revenue. Proposition 13 protections should remain in place for both residential and commercial taxpayers.
Associate Vice President for State and Local Affairs
703-904-7100, ext. 116