Why Higher Business Property Taxes Would Hurt Homeowners

Efforts to increase taxes on business property put homeowners in peril; here’s why.

Sacramento can never get enough tax money to satisfy the political class. Although California has the highest state sales tax highest marginal income tax rates and highest gas tax in all 50 states we rank only 14th highest in per capita property taxes. The politicians government employee unions and the special interest pleaders see this as an area of potential revenue growth — higher taxes that is.

Several years ago Senate leader Darrell Steinberg outlined a plan to incrementally diminish taxpayer protections to allow for the ratcheting up of taxes. The first step was to eliminate the two-thirds vote to pass a state budget — a law that dated back to 1933 — and then move on to targeting Proposition 13’s two-thirds vote requirement for increases in state taxes as well as for the passage of local per-parcel property taxes on homeowners. Steinberg’s step one was accomplished in 2010 with the passage of Proposition 25.

In addition to their efforts to destroy Proposition 13’s two-thirds vote protections for taxpayers tax raisers have opened up a second front against Proposition 13. They want to divide commercial and residential property to allow for higher property taxes on businesses. This is known as a “split roll.”

To gain public support the tax grabbers maintain that Proposition 13 unfairly benefits business. Fomenting discontent they falsely claim that Proposition 13 has shifted the tax burden away from business and onto residential property. However a recently released study by the California Taxpayers Association shows that property tax assessments for non-homeowner occupied property accounted for 60.26 percent of all assessments in 2011-12 compared to 58.16 percent in 1979-80. This means that assessments on homeowner-occupied property accounted for 39.74 percent of all assessments in 2011-12 compared to 41.84 percent earlier.

To correct a non-existent problem they advocate two solutions. First they want to force commercial property to be reassessed more frequently and second they want a higher rate to be charged to business property.

Those pushing split roll argue that Prop 13 creates loopholes allowing commercial property to escape reassessment even when it changes hands. For example they point to a Santa Monica hotel owner who attempted to avoid reassessment of his property by structuring a complicated real estate deal using LLCs (Limited Liability Corporations). What they don’t say is that the case is still being litigated in court by the Los Angeles County Assessor’s Office. Obviously HJTA fully supports all efforts to reassess property to full market value when there has been a true change of ownership. This is mandated by both the letter and intent of Proposition 13.

As for a higher property tax rate on business property they say that income producing property should be charged more and ignore that this revenue is taxed under California’s high income tax rates.

It is important to note that California has always taxed residential and business property at the same rate. Proposition 13 made no changes to this aspect of the law.

What is happening is that politicians want more money and to get it they are trying to drive a wedge between supporters of Proposition 13 in the business community and homeowners.

The Sacramento politicians are not just going after major corporations — if this were the case they could raise the corporate income tax rate already the highest west of the Mississippi. They are also targeting residential rental property — apartment buildings — and small businesses like dry cleaners barbershops hair salons restaurants — including small franchise operations like Subway — small bakeries and flower shops. Under plans being promoted by the tax grabbers these businesses would pay more even if they do not own property because of the requirement in their lease agreements that increased costs be passed on to the renter. The impact this could have on hundreds of thousands of small business is clear. A Pepperdine University study shows that a split roll could cost our state nearly 400000 jobs. Of course those businesses that survive would need to raise prices which would be a further drag on the economy as well as a burden on consumers.

However for the average homeowner the most threatening aspect of the split roll would be the loss of support for Proposition 13. Businesses would be out of the picture and homeowners would be totally on their own. Once the politicians and their big spending allies get the idea that the coalition that supports Proposition 13 has been broken they will be ready to pounce and homeownership for many just like in the late 1970s before the passage of Proposition 13 would be put in jeopardy.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.