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Prop 13 Changes Worry Property Owners

Insight from Robak Advisory Group of Pacific Coast Commercial on Prop 13:

"If this initiate passes the consequences will be monumental. It will have huge negative financial impacts on business both small and large. If approved by voters, the measure will hurt all Californians, who will pay higher prices for everything they buy and will drive businesses out of California," stated Ken Robak, Vice President of Brokerage.

Nick Mane, Broker Associate stated, "“Split roll taxes negatively impact California and your favorite spots to eat and shop. It also will hinder new development as builders will be looking elsewhere.”

By The Business Journal

For the last 42 years, California’s Proposition 13 has kept tax increases for residential and commercial property at a 1% rate of the purchase price, capping it at 2% annual increase per year, but certain groups want to make some changes.

The California Schools and Local community Funding Act of 2020 — the initiative proposal for a split-roll property tax — has been qualified for the November ballot by labor unions and advocacy groups to repeal parts of Prop 13 and increase taxes on business properties, with exemptions on residential and farm land properties.

Anti-Prop 13 groups are currently working to gather more signatures to qualify a second version of the repeal, however, the first initiative will not be pulled until the second initiative qualifies.

California voters passed Prop 13 into law in 1978 to provide more certainty on future tax rates and to help owners from being taxed out of their homes and businesses.

According to the Howard Jarvis Taxpayers Association, some properties were being reassessed 50% to 100% in just one year.

Simply put, both measures raise taxes on commercial and industrial property by requiring reassessment at current market value at least every three years.

Business properties that have a market value of $3 million or more will be subjected to the tax increase in the new initiative.

Should a business owner be in a partnership with another businesses owner, and their combined business properties are valued at $3 million, both businesses will be subject to the increased tax.

David Kline, vice president of communications and research for the California Taxpayers Association in Sacramento, said it is very easy for a business in California to get over the $3 million mark.

“The last thing this state needs is higher taxes, and especially a tax that would increase the cost of everything we buy in California,” Kline said. “The state has $21 billion in reserves, and local property tax revenue has been going up every year for the last nine years, so there is absolutely no reason to add to the cost of living in California with higher taxes.”

Most small businesses rent the property they operate in through a triple net lease, a real-estate lease agreement where the tenant is responsible for the property taxes, building insurance and maintenance.

“Despite what proponents say, the $12.5 billion-a-year tax hike will fall on the backs of small businesses,” said John Kabateck, state director of the National Federation of Independent Business. “Nearly 78% of small businesses do not qualify for the so-called ‘small business exemption’ because they rent, and the increased property tax bills will just get passed onto them as part of their lease agreements, making the cost of doing business even more expensive.”

Since the tenant of the property will be the one covering the increased property taxes, they will pass on those costs to consumers.

County assessors would have a big role in the accurate and equitable administration of the split-roll system, as well as finding the adequate funding for additional staff, preparation and implementation.

The California Assessors Association (CAA) commissioned Capitol Matrix Consulting to independently review the results of a 64-question survey of assessors conducted in 2015.

According to Capitol Matrix, as many as 900 new positions would need to be created statewide to manage the increased workload, and that training new appraisers and auditors to assess complex appraisal and business audits typically requires up to five years.

“In my capacity as Fresno County Assessor, my office will be responsible for the implementation of the Split-Roll should it pass in November 2020,” said Paul Dictos, Fresno County assessor/recorder. “Our analysis confirms that I would be required to double my commercial appraisal staff and also add an equal number of supporting staff, to meet the requirements of the split-roll.”

According to Dictos, there is not a big enough pool of qualified candidates to fill the estimated 900 assessor roles. If the split-roll initiative is passed in November, assessors will have 18 months to prepare, which Dictos said is a restrictive amount of time.

Dictos also said that bigger counties like Los Angeles will poach assessors from other areas. He said that he has already had assessors leave for jobs with Tulare County and Kings County because they pay more.

Dictos has said that he is working with local colleges to create a curriculum to train and prepare assessors to meet the possible demand that might arise.

Derrel Ridenour, owner of Derrel’s Mini Storage in Fresno, has been building lots all over the state since the 1960s and currently has about 60 locations around California and another 15 planned to be built in the next five to seven years.

Ridenour said that the proposed changes to Prop 13 would cause his older properties to be reassessed and increase his property taxes, which means he would have to increase his rental rates by 20% to pay them off.

He is also concerned that rising taxes are moving businesses out of the state, and that the government will keep raising rates as they deem fit.

“If this passes, I will stop building,” Ridenour said. “I’m going to have to make some business decisions. It’s going to raise the cost of everything. Everything is going to go up.”

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