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09 March 2018
Initiative 17-0055 seeks to put two significant changes to California's property tax system before voters in November—(1) the elimination of Proposition 13 protection for commercial and industrial properties in favor of reassessment at least every three years and (2) the addition of a tangible personal property tax exemption of $500,000 for all taxpayers and a full tangible personal property tax exemption for taxpayers with less than 50 California employees. Proponents of the Initiative claim these revisions are needed to raise funding to support California schools.
Under the current system, Proposition 13 protects all real property that is locally assessed. Under Proposition 13, real property is reassessed at fair market value when it is first purchased, newly constructed, or upon a change in ownership. Following this initial fair market value assessment, the real property's assessed value may not increase by more than 2% per year regardless of whether the property's fair market value increases by more than 2%.
Initiative 17-0055, which would go into effect on the 2020-21 lien date, seeks to strip "commercial and industrial real property" of this Proposition 13 protection by requiring that these properties be reassessed at their full fair market value at least every three years. "Commercial and industrial real property" is defined as "any real property that is either used or zoned as commercial or as industrial property, or is vacant land not used or zoned for residential use or used for commercial agricultural production."
The triennial reassessment requirement would not apply to the following types of property, which would continue to receive Proposition 13 protection:
The Initiative also provides a small business exception for commercial and industrial property that meets the following requirements:
Real property meeting the above "small business" requirements will continue to receive Proposition 13 protection.
The Initiative also includes a separate tangible personal property exemption that would go into effect on the 2021-22 lien date. Tangible personal property used for business purposes would be exempt up to $500,000 per taxpayer. If a taxpayer has "50 or fewer annual full-time equivalent employees in the state," then all of the taxpayer's tangible personal property is exempt so long as it is used for business purposes.
In order to be placed on the November 6, 2018, ballot, proponents of the Initiative must collect 585,407 signatures from registered voters and the Secretary of State must verify by June 28, 2018, that this requirement has been met. The Initiative was cleared for signature collection just yesterday afternoon, February 20, 2018, leaving supporters with relatively little time to collect signatures. If the Initiative makes it to the ballot, it would only need a simple majority vote by the electorate to pass.
How California voters react to the Initiative's political positioning and its likelihood of success are yet to be seen. There have been many similar initiatives and legislative proposals over the last several decades. The most recent attempt to eliminate Proposition 13's constitutional protections for commercial properties was launched by the California Senate in 2016 (i.e., Senate Constitutional Amendment 5 (SCA 5) and accompanying Senate Bill 1093 (SB 1093)). However, both proposals died without securing the requisite level of legislative approval to put it before the voters.
For further information on this topic please contact Craig Becker or Breann Robowski at Pillsbury Winthrop Shaw Pittman LLP by telephone (+1 415 983 1000) or email (email@example.com or firstname.lastname@example.org). The Pillsbury Winthrop Shaw Pittman LLP website can be accessed at www.pillsburylaw.com.
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