Prop8

Businesses brace for possible rise in property tax

Posted by admin under CA Property Tax News

By Dan Walters , dwalters@sacbee.com

If you hang around those who deal with local and state government budgets in California long enough, sooner or later you’ll hear about a “split roll” as a potential solution to the state’s chronic fiscal problems.

The term is popping up again, not surprisingly, because the state budget is upside down by billions of dollars and many local governments are facing big deficits themselves.

A split roll would be a method for extracting more property taxes from business, but the fuller explanation requires a little historical background, specifically about Proposition 13, the landmark property tax law passed by California voters 30 years ago.

Proposition 13’s best-known aspect is a 1 percent annual limit on taxing real estate’s assessed valuation, but equally important is how property is valued for tax purposes.

Proposition 13 sets values at whatever a property was worth in 1976, with annual inflationary increases limited to 2 percent – unless the property changes hands. When ownership changes, taxable valuation is raised to the sale price and the 2 percent limit is reapplied.

Proposition 13 treats residential and commercial property identically, and critics have long complained that business benefits disproportionately because, they say, commercial property changes hands less frequently than homes and is less frequently reappraised.

Liberal groups have, in one form or another, long advocated keeping Proposition 13’s limits for homes but requiring business property to be reappraised regularly to upgrade its tax value, and therefore its property tax burden.

A split roll would raise a lot of money not only for local governments but indirectly for the state, since less state aid would be required for schools if they received more property taxes. The stakes are billions of dollars a year – but is a split roll really under consideration again or is it all just more Capitol hallway palaver?

A consortium of business and anti-tax groups called “Californians Against Higher Property Taxes” is sufficiently worried that it commissioned a lengthy study, co-authored by former Legislative Analyst William Hamm, refuting the claim of a business property advantage and declaring that a split roll would erase about 150,000 jobs by raising business costs and discouraging investors.

Those who worry about a split roll worry most about Gov. Arnold Schwarzenegger’s blue-ribbon commission on overhauling California’s tax system, although any proposals to raise taxes would have to obtain two-thirds votes in the Legislature (another Proposition 13 provision) or approval from the state’s voters.

There is a theory kicking around that by a simple majority legislative vote and a governor’s signature, a quasi-split roll could be implemented, changing the definition of property ownership changes to include instances in which more than 50 percent of a corporation’s stock had been traded. So far, however, Democratic legislators have been unwilling to test the theory by actually passing a bill.

Original Article HERE