While the national election looms large in peoples’ minds, there is another hugely impactful vote here in California, one on which everyone needs to know where they stand. Proposition 15, also known as the “Split Roll” initiative, aims to separate how commercial and residential properties are assessed in regard to their annual property tax bill. For decades, California property owners have enjoyed protections against dramatic property tax increases as Proposition 13 currently limits how much counties can increase the property tax bill to roughly 2% per year over the ‘base year,’ or year in which the property was original purchased. Therefore, owners have enjoyed relatively low property taxes as a result of owning a property purchased years ago at a lower than current market value. However, if Proposition 15 passes, starting in 2022/23 counties will be able to reassess properties at current market values and on a more frequent basis. While there are some limitations on this reassessment, it will impact most businesses. Call us to take an initial look at how your property would be impacted.
This reassessment can have a significant effect on cash flow for both owners and tenants. While this proposition is aimed at raising funds for local counties, schools, and communities by “taxing the wealthy property owners and landlords,” it will also significantly impact tenants of industrial/commercial properties. Generally speaking, most leases written within the last ten or more years include provisions for property tax increases to be absorbed by the tenants. Therefore, whether a property is owned by the business occupying it or by a tenant, the local businesses that drive our economy will bear the brunt of this heavy tax increase. This will create further strain on local businesses, causing many to consider whether they want to continue doing business in California.
California continues to be one of the most highly taxed states. Proposition 15 is just another tax increase that will create more challenges for companies doing business here. While you may or may not agree that local schools need more funding, please remember that only 40% of this tax increase actually goes to schools; 60% goes to the “general fund.” We are encouraging you to research the impact of Proposition 15 and determine if it is really a good long-term benefit to California. Perhaps it is time for Californians to say “no” to another tax increase and to exert pressure on our leaders to make more efforts to use the money we already give them more efficiently and effectively.
Christopher J. Destino, SIOR, a Principal at Lee & Associates, is an engaging, responsive professional who enjoys working closely with his clients and helping them succeed.