Proposed Initiative Undoes Prop. 13 - Protections for Businesses

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The major provisions of this initiative are:

• Assesses Property at "Current Fair Market Value." The measure would require all of California’s 58 county assessors to assess most non-residential property, including most business property, based on the property’s "fair market value" at least every three years. The market value of a property would be determined as of the lien date for fiscal year 2014–15. Property used for commercial agricultural purposes and currently exempt property are excluded from these reassessment provisions.

• Mandates Reassessment Order. County assessors would be required to survey commercial real property and other re-assessable property and determine the date at which the property was last reassessed. Within a 3-year period, assessors would begin reassessments, starting with properties that have not undergone reassessment the longest.

• Exempts Most Residential Property. Most residential property—including multi-family units intended to be used as a permanent residence—would remain under Proposition 13 acquisition value assessments.

• Creates Exemption for Personal Property. The measure exempts tangible personal property from taxation, up to $1 million.

• Increases the Homeowners Exemption. Starting in 2015–16, homeowners would receive a homeowners exemption in the amount of $14,000 (currently the homeowners exemption is $7,000). (The value of this change is $70 per homeowner.)

• Increases the Renters Credit. Starting with the 2015 tax year, married couples filing joint returns, heads of household and surviving spouses with an adjusted gross income (AGI) of $50,000 or less would receive a renters credit of $240. For a single taxpayer with an AGI of less than $25,000, the renters’ credit would be $120.

• Increases Funding to County Assessors. Counties would receive "a reasonable amount" of all revenues generated from the split roll to fund the cost of reassessing business property.

• Increases General Fund Revenues. 90 percent of the remaining property tax revenues generated from the split roll would be allocated to a county treasury and annually transferred to the state’s General Fund.

• Backfills Local Government for Revenue Losses Caused by Exemptions. The initiative would require the State Controller to backfill any losses incurred by local government for lost property tax revenues attributed to the higher homeowners exemption and the exemption for personal property taxes.

‘Split Roll’ Tax

A "split roll" tax seeks to divide the tax treatment of commercial and residential properties by removing Proposition 13 protections from commercial properties, while leaving those protections intact for residential properties.

When passed, Proposition 13 capped property tax rates at 1 percent of assessed value, and restricted that value from growing more than 2 percent a year. Only when ownership changes or there is new construction may the value of the property be reassessed at more than 2 percent. These protections were extended to both residential and commercial properties under the 1978 landmark proposition.

Proposition 13 resulted in a very stable property tax structure that is top-ranked nationally—fifth best in the nation in the Tax Foundation’s 2008 State Business Tax Climate Index.

By contrast, California’s other major tax revenue sources—personal income tax, corporate tax and sales tax—are considered extremely volatile and ranked 50th, 40th and 42nd nationally, with 50 being worst.

Adverse Effects

A "split roll" tax undermines the intent of the protections cemented in Proposition 13, and would have a negative effect on job-producing operations and the state’s well-regarded property tax structure.

Commercial properties already contribute significantly in tax dollars—generating approximately two-thirds of the property tax revenues, just as they did before the passage of Proposition 13
There is a great deal of uncertainty over how much a split roll would cost taxpayers. Cost estimates ranged from $1 billion to $10 billion per year during a state Board of Equalization meeting with California’s assessors in August 2009.

According to a 2009 report by the California Taxpayers Association, if a split roll were to be adopted, small businesses would be hit the hardest. Currently, California has the highest corporate tax rate in the West and has some of the highest income and sales tax rates in the nation.

Qualifying for Ballot

Supporters have submitted the initiative to the Attorney General for preparation of a title and summary. Once the Attorney General completes the title and summary, the proponents may begin gathering signatures in order to qualify the initiative for the ballot. Proponents are allowed a maximum of 150 days from the official summary date to circulate petitions and collect signatures. Because the initiative will amend the state Constitution, the number of signatures gathered must be equal to at least 8 percent of the total votes cast for Governor at the last gubernatorial election—807,615 signatures.