Proposition 15 and Commercial and Industrial Property Taxes

California Proposition 15, which is also known as the Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative, is on the ballot in California for November 3, 2020 as an initiated constitutional amendment. Here is more information about the amendment and what it means for commercial and industrial property owners.

New Tax Assessments

If the amendment passes, commercial and industrial properties, except those that are zoned for commercial agriculture, will have their taxes assessed on their market value versus the purchase price. 

At the same time, residential properties will continue to have their taxes assessed on the purchase price. This difference in assessment between property types is called a split roll. The change would take effect on a phased--in basis, beginning during fiscal year 2022-2023. Properties like retail centers would be taxed based on market value, beginning in fiscal year 2025-2026 or even later.

Exceptions to the Tax Assessment Changes

The exception would be any properties where business owners have $3 million or less in holdings within California. Those properties would also continue to be assessed on their purchase price. 

Also exempt from taxes are the tangible personal property of a small business along with $500,000 in value for a non-small business in relation to its tangible personal property. 

Plans for Revenue

The initiative is set to generate approximately $8 billion to $12.5 billion in annual revenue for the State. The revenue is planned to be given to the State to assist with revenue decreases in the State's personal income tax and corporation tax. 

California counties are also set to receive some of the money to cover the costs of implementing the new tax assessment measure. The remaining funds would be distributed to local governments and special districts as well as to school districts and community colleges.

If Amendment Doesn’t Pass

If it does not pass, these properties will continue to be taxed based on their purchase price, with annual increases equal to the inflation rate or two percent, whichever is lower at that time.  

Supports and Opponents 

Each side has their own perspective about what the proposition means. Supporters believe the revenues will help statewide education without placing any further burden on homeowners, renters, or small businesses. Opponents argue that the increase in taxes does put pressure on businesses at a time when they are already struggling due to the pandemic and that it undermines Proposition 13’s taxpayer protections that have been in place for a long time.   

Businesses will need to do their research before making a decision about the proposition to determine the impact greater property tax costs will have on operating budgets as well as decisions related to other types of transactions. 

Need more advice about buying and selling commercial or industrial properties during such tax changes? Contact me for more information at Liz@jonesrealtysocal.com or visit us at JonesRealtysocal.com.