Parcel Taxes: How Local Governments Get Around Prop. 13’s Limits To Raise Your Property Taxes

“A rose by any other name would smell as sweet,” wrote William Shakespeare in his play, Romeo and Juliet. It’s fortunate that he was writing about forbidden love, because if he had been writing about taxes, he might have changed it to, “A property tax by any other name will cost even more,” and his career as a writer would have ended right there.

In California, property taxes are limited by Proposition 13 to 1% of the assessed value of the property, plus the cost of any bonds or other exactions approved by voters. Proposition 13 allows no other ad valorem property taxes, meaning taxes based on the value of the property.

Unfortunately, that doesn’t mean there can be no other property taxes. As Shakespeare never wrote, “A property tax by any other name” is a favorite local workaround to raise property taxes.

The other name is “parcel tax.” This is a tax on property, but it’s not based on value. It’s just an additional tax on a “parcel” of property.

Sometimes parcel taxes are flat taxes, the same amount for every parcel of real property, regardless of size or what is (or isn’t) built on it. Sometimes parcel taxes are based on square footage, resulting in a tax increase that’s much higher for large properties such as big-box stores, shopping malls, offices and apartment buildings than for typical single-family homes.

All parcel taxes must go on the ballot for voter approval. Under Proposition 13 as originally passed by voters, local taxes required a two-thirds vote to pass. This supermajority requirement offered an important protection to taxpayers, because while all voters may vote on parcel taxes, only property owners pay them.

But the two-thirds vote requirement for local taxes has been under fire in the courts since Prop. 13 passed in 1978. A major blow was struck in 1982 with the state Supreme Court’s decision in City and County of San Francisco v. Farrell, in which the court decided there were two different kinds of local taxes, and only one of them needed a two-thirds vote to pass. If the tax revenue went to the general fund and could be used for any purpose, the court said, then the tax would pass with a simple majority, 50% plus one vote. Only taxes for a specific purpose, called “special taxes,” needed a two-thirds vote to pass.

That’s the way it was for decades. Parcel taxes and other taxes that went on the ballot for voter approval needed a two-thirds vote if the money from the tax was to be spent exclusively for a specific purpose.

In 2017, the state Supreme Court carved out another exception. Taxes for a specific purpose might not need a two-thirds vote to pass, the court indicated without exactly deciding, if those taxes were proposed by a citizens’ initiative instead of by a government body such as a city council.

That decision, in California Cannabis Coalition v. City of Upland, has led to a cottage industry of petitioning for local tax increases. Unsurprisingly, these tax increases seem to benefit the special-interest groups that pay for the signature collection effort.

The Howard Jarvis Taxpayers Association has been fighting from the beginning to challenge this court interpretation, but so far, appellate courts have consistently ruled against taxpayers, and the state Supreme Court has declined to hear any of the cases on appeal.

One provision of our upcoming ballot measure, the Taxpayer Protection and Government Accountability Act, would close this “Upland loophole” and restore the requirement that all special taxes must be approved by a two-thirds vote of the electorate.

More than a million California voters signed petitions to qualify the Taxpayer Protection and Government Accountability Act for the November 2024 ballot. But as HJTA Director of Legal Affairs Laura Dougherty explains elsewhere in this issue of Taxing Times (see “The Legal Front”), Gov. Gavin Newsom and the Legislature have filed a lawsuit directly in the state Supreme Court demanding that the Taxpayer Protection and Government Accountability Act be removed from the ballot before voters have the opportunity to pass it.

It’s a Shakespearean drama that has yet to play out.