New Prop 13 Ballot Initiative to ‘Split Roll’ Commercial Properties

Tax revenue advocates sent shock-waves throughout the commercial real estate community in the state by announcing 800,000 signatures have been collected and sent in for an initiative they hope will be in the 2020 ballot.

The measure would adjust the 40-year old Proposition 13 tax ballot measure that allows only allows re-assessment of residential and commercial property in California when a new buyer purchases a property and caps the property taxes at 2% of the assessed value.

While residential property tax assessments would not change, business and commercial-retail properties would be re-assessed every 36 months or sooner. The climbing property values in much of the state would create a challenge for commercial investors and business owners who would be taxed based on the re-assessment to current market values.

The tax assessor now considers commercial and residential properties in the same matter but if signed into law, this measure would create a “Split Roll’ where large commercial properties would be subject to current tax rate (upon implementation of the law and the commencement of re-assessments) no matter when they bought the property. Residential properties would not be re-assessed until a sales transfer and the existing prop 13 protections would remain in tack.

Potential implications for businesses in the event voters approve the measure include: passing along the tax liability to commercial-retail tenants. This could affect the state’s employment numbers as businesses would have to consider cutting jobs. The economy could take a hit as businesses raise prices to off set large tax bills, which could have consumers deciding to hold onto their spending dollars. The real estate market could be negatively impacted if businesses decide to leave the state.  There could be a property devaluation crisis in the commercial real estate market as sellers drop their asking prices to flee the state. And the effects on the entire real estate market may be more far reaching due to the uncertainty this would cause.

Realtors and California commercial real estate associations along with the Howard Jarvis Tax Payer Association oppose the measure. The industry will need the support of business and political leaders to help defeat the initiative in November.

By M.A Williams