If passed, a ballot initiative will fundamentally change the California property tax code, which has been in place since 1978.
Proposition 15, also known as the “split roll” initiative, would amend the California Constitution requiring commercial and industrial properties, except those zoned as commercial agriculture, to be assessed at market value rather than the purchase price.
The initiative would not affect personal property taxes, which has been under Proposition 13 regulations, limiting property tax to no more than 1 percent of the purchase price with an annual adjustment equal to the rate of inflation or 2 percent, whichever is lower.
The measure titled “Schools and Local Communities Funding Act” would distribute the funds first to the state to supplement decreases in revenue from the state’s income tax and corporation tax due to increased tax deductions. Second, 60 percent of the remaining funds would be distributed to local governments and special districts, and 40 percent would be distributed to school districts and community colleges.
Property owners with less than $3 million in holdings would continue to be taxed on the purchase price. According to the initiative’s wording, the initiative would exempt small businesses’ “tangible personal property” from taxes and $500,000 in value for a non-small business’s tangible personal property.
California defines tangible personal property as “any property, except land or improvements, that may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses.”
The initiative’s definition of “tangible personal property” and “real property used for agricultural production” remains a point of contention, with the California Farm Bureau stating it will apply to fixtures and improvements such as “barns, dairies, wineries, processing plants, vineyards, orchards and other agricultural improvements.” Thus, it would increase taxes and impact farmers and ranchers at a time when they are struggling.
Proponents of proposition
California Farm Bureau Federation President Jamie Johansson was not the only one to weigh in on the current economic situation. Gov. Gavin Newsom (D) acknowledged the state is experiencing the “financial aftershocks” of the pandemic, and now is not the time to implement increases on income such as those proposed by the legislation at the end of the legislative session. However, earlier this month, Newsom endorsed the bill, stating it was fair because it spares property owners and small businesses, saying it is “a fair, phased-in and long-overdue reform to state tax policy.”
“It’s consistent with California’s progressive fiscal values, it will exempt small businesses and residential property owners, it will fund essential services such as public schools and public safety, and, most importantly, it will be decided by a vote of the people,” said Newsom in a statement released by his political advisors.
Additional supporters of the initiative include several U.S. congressional members, mayors throughout the state, organizations and unions.
“We’re asking for companies like Disneyland or Universal Studios that make huge amounts of money to pay property taxes based on fair market value—the same thing that homeowners and, frankly, most businesses have to do,” said Josh Pechthalt, president of the California Federation of Teachers.
Alex Stack, communications director for Schools and Communities First, also known as Yes on 15, stated it would only affect a small fraction of top corporations that have “benefited for decades from egregiously low property tax rates, assessments from the 1970s.”
Opposition to proposition
The California Farm Bureau is not the only organization opposed to the measure. Diverse groups such as taxpayer associations, the California Cattlemen’s Association, grocers and retail groups, veterans organizations and minority chambers of commerce also are in opposition.
“Without a doubt, the largest property tax increase in state history will devastate Latino-owned small businesses and hurt thousands of workers who rely on these blue-collar jobs to feed their families,” said Julian Canete, president of the California Hispanic Chambers of Commerce. “The measure’s $11.5 billion-a-year property tax hike means increased rents for small businesses and ultimately, higher costs for consumers—pushing both family and small business budgets into the red.”
Business groups opposed to the measure state the sudden increase in the taxes businesses pay will cause the loss of jobs due to their relocation of headquarters to states with lower tax rates. Business groups also argue that small businesses will bear the most significant portion of the increase despite a letter from mayors in support of the measure, stating, “10 percent of the commercial properties in the state will pay 92 percent of the $12 billion property tax increase.”
The letter from mayors throughout the state also reiterates that agricultural land would not be taxed. Still, an audit from the nonpartisan state Legislative Analyst’s Office and the California Assessors’ Association have independently confirmed that loopholes in the initiative will expose farmers to higher taxes.
“California’s farmers and ranchers are already at a competitive disadvantage with those in other states and countries with far lower tax and regulatory costs,” said Dave Puglia, president and CEO of Western Growers. “Our farmers pay the highest taxes and highest wages in the nation. They simply cannot keep bearing ever-increasing taxes and red tape. Californians are proud of our farmers and ranchers and the nutritious and affordable food they produce.”
Agricultural groups opposed to the initiative point out the increase in taxes will also lead to the rise in food prices due to tax increases in the field and with the processing plants.
“As farms, ranches and all businesses struggle during the pandemic, and with millions of Californians unemployed or underemployed, this is a particularly poor time to make people pay more for basic necessities such as milk, eggs, fresh fruits and vegetables,” Farm Bureau Federation President Johansson said in a press release.
The California Cattlemen’s Association has established the website DefeatProp15.com as a resource and information specific on the proposition’s impact on agriculture.
“This is yet another attack on the longstanding taxpayer protections in Prop. 13,” Jon Coupal, president of the Howard Jarvis Taxpayers Association, explained. “Special interests continue to push for new and higher taxes to pay for their out-of-control pensions, which have already directed existing tax revenue away from classrooms and other state priorities.”
The Howard Jarvis Taxpayers Association and its founder, Howard Jarvis, were instrumental in the passage of Proposition 13 in 1978.
The association is not the only organization expressing concern that Proposition 15 will eat away at protections to property taxes on homeowners. State Board of Equalization member Ted Gaines stated if the proposal is passed, “I have no doubt that Prop. 13 homeowner protections would be the next target.”
A survey conducted between Aug. 27 and Sept. 2 byProbolsky Research showed 48.8 percent of respondents planning to vote against the proposition and 41 percent in support, with 10.3 percent undecided. The survey size was 900 likely voters with a margin of error of 3.3 percent. — Charles Wallace, WLJ editor