By California Taxpayers Association
The issue of a split roll property tax, which has been raised seemingly every year since the passage of Proposition 13 in 1978, was back for another go-round during a March 12 hearing of the Assembly Revenue and Taxation Committee. No votes were taken at the hearing, which was held to take testimony from critics and supporters of Proposition 13 alike. Assemblyman Tom Ammiano, who is not a member of the committee, attended and provided comments in favor of a split roll.
CalTax Chief Tax Consultant David R. Doerr testified in support of the existing property tax system, and provided the committee with statistics and historical context that illustrated flaws with the earlier testimony presented by witnesses who favor higher property taxes.
The hearing, chaired by Assemblyman Henry Perea was titled, “Defining a ‘Change in Ownership’: Is it Time to Reassess?” While the main issue was raising property taxes on businesses, several witnesses launched into full-scale assaults on the entirety of Proposition 13, and called for major property tax increases on homeowners as well as commercial property owners. This was not what split roll proponents wanted to hear.
Assemblywoman Diane Harkey, the vice chair of the committee, responded with a strong defense of Proposition 13, calling it “one of the few business incentives that California has left.” Mr. Ammiano, who previously stated that he would like to “nuke” Proposition 13, targeted his criticism to business properties. “For over 30 years, Prop. 13 has allowed corporate landowners to benefit from tax loopholes while shifting the real tax burden to individual homeowners,” he said. “In almost every county, commercial property is paying a far smaller share of the property tax.”
Los Angeles Mayor Antonio Villaraigosa reiterated his support for a split roll. “Prop.13 has fallen the victim to the law of unintended consequences,” he said. “What was conceived as a measure to relieve the tax burden on homeowners has had the effect of benefiting commercial property owners at the expense of homeowners.” He further blamed school funding problems on Proposition 13.
Mayor Villaraigosa also renewed his called for a “grand bargain” that would include a split roll coupled with a new tax on services and some tax relief in other areas. Quoting former Assembly Speaker Bob Hertzberg, Mr. Villaraigosa said, “It doesn’t make any sense to tax doughnuts and not lawyers in California.” (CalTax: Doughnuts are exempt from sales tax under the food exemption.)
Approaching the issue from a neutral perspective, Chas Alamo, a fiscal and policy analyst in the Legislative Analyst’s Office, noted that the property tax is “a relatively stable source of revenue.” From 2007-’08 to 2008 -’09, the worst general fund revenue year of the recession, property tax revenue increased 6 percent while other revenue sources “declined precipitously,” he said.
Board of Equalization lawyer Richard Moon, Santa Clara County Assessor Larry Stone, California Tax Reform Association Executive Director Lenny Goldberg and former Oak Knoll Parent Teacher Organization Treasurer Jennifer Bestor all discussed the taxation of commercial property, and whether commercial property owners can avoid change-in-ownership reassessments by using complicated transactions when transferring property. While Mr. Goldberg alleged that such transactions are common, Assessor Stone said that is not the case.
Assessor Stone discussed the safeguards in place to track changes in ownership, and the hefty penalties that are imposed on those who attempt to evade taxes by not reporting changes. “The suggestion … that assessors are not picking up changes in ownership that aren’t recorded through a deed is simply not true,” he said.
Mr. Doerr, who previously served for 24 years as the chief consultant for the Assembly Revenue and Taxation Committee and, in that capacity, chaired the task force that developed legislation to implement Proposition 13, explained that the task force tried to determine what people considered a change in ownership at the time Proposition 13 was approved by voters. The task force locked in this definition in Revenue and Taxation Code Section 51.
Mr. Doerr stated that the committee has the same problem that it had when he was its consultant: Getting correct information to make decisions. Static estimates are provided instead of information regarding the most likely outcome, he noted.
According to BOE statistics, Proposition 13 has not resulted in homeowners paying a larger share of the property tax than other property owners, Mr. Doerr noted. And, he added, without Proposition 13, homeowners would be paying a larger share of property taxes.
Mr. Doerr’s final point to the committee was that a split roll system would mean a massive tax increase on California-based companies – the very companies that the Legislature was trying to protect during the last legislative session. Out-of-state companies would not be subject to a tax increase resulting from a split roll system. “California booksellers, for example, would be pay more, whereas out-of-state booksellers selling into California would pay the same,” he noted.
The hearing wrapped up with testimony from Douglas Wiele, secretary-treasurer of the California Business Properties Association, and David Wolfe of the Howard Jarvis Taxpayers Association. Mr. Wiele explained that many critics of Proposition 13 don’t understand the commercial real estate market, and wrongly assume that when the signs on the front of a building change, there must be a new owner. He gave the example of a hotel that switches from one franchise to another – while the signage, uniforms, sheets, towels and other aspects of the property look much different after the switch, the real property is owned by the same party before and after the makeover. He also warned the committee that a split roll would hit small businesses hard, since commercial leases typically include provisions requiring tenants to pay for any property tax increases.
In related news: A new study by Pepperdine University found that higher property taxes that would result from a split roll would cause $71.8 billion in lost output to the California economy, and would reduce employment by approximately 400,000 jobs during the first five years alone.
The study found that a split roll would hit California businesses with an estimated $6 billion annual tax increase. Further, because property no longer would be assessed on an acquisition-value method, market-value assessments would increase local government fiscal instability.
The study also notes that women- and minority-owned businesses would be disproportionately impacted by split roll, since many such businesses lease space, and their rent contracts can be changed to reflect higher property taxes.
CalTax President Teresa Casazza said: “Increasing property taxes is bad all the way around. It is bad for jobs, bad for small businesses and bad for local government budgeting.”
To view the Pepperdine report or other articles go to caltax.org.
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