Democratic Assemblyman Tom Ammiano of San Francisco will introduce a bill into the California Legislature today that could close tax loopholes in Proposition 13. Some believe industrial and commercial property owners are using the loopholes to avoid paying their fair share of taxes. Others, however, believe the problem is overstated and that the bill will only hurt the state’s economy.
AB 2492 seeks to redefine the codes that determine how property is assessed and taxed. Currently, under California tax codes property value is reassessed every time there is a change in ownership. When a home or business changes ownership a new tax rate is established based on what the existing market value is. However, a report released last week by the California Tax Reform Association found instances, statewide, of companies that are paying the rates of the former property owner.
The report stated, “We have found major changes of ownership in major properties which have gone without reassessment. The ones we examined are predominantly those of private equity buyouts, corporate purchases of companies and bank mergers which have avoided reassessment.”
According to the report, at least five Long’s Drug properties have not been reassessed since the 2008 buyout by CVS. One store in Oakland is paying a property tax rate based on its 1975 assessment.
There are other examples. When Shell Oil merged with Pennzoil in 2002 it acquired daughter company Jiffy Lube, but the report found that many Jiffy Lube properties have not been reassessed since the 1980s. One Contra Costa County station is still listed as last changing hands in 1995.
According to California Tax Reform Association, the tax codes have contributed to the larger effects of Proposition 13 and moved the bulk of taxes away from commercial and industrial property owners onto residential property owners. The 1978 proposition set a baseline amount on property, and restricted taxes to an increase of no more than 2 percent annually regardless of what the surrounding real estate value was. Originally the idea was born out of a desire to keep long-term home owners from getting priced out of their homes. But many believe the lasting effect was that large firms benefited because they had a slower turnover rate than homeowners.
To that, the California Tax Reform Association report found that Alameda County’s residential taxes increased from 55 percent in 1973 to 74 percent in 2009. Likewise, Contra Costa County’s residential tax burden has increased from 48 percent in 1970 to 74 percent in 2009.
The new bill aims to reform the current codes so that there are better definitions of ownership. For instance, when a corporation, partnership, or other legal entity obtains control of more than 50 percent of the voting stock, the purchase or transfer of that stock would constitute a change of ownership. In addition, the bill would require the State Board of Equalization to notify assessors of when a change in ownership has occurred.
Lenny Goldberg of the California Tax Reform Association said that reformers are only going after the most egregious cases. He said Ammiano was forced to amend his bill to make it more palatable to legislators. “This is going to be part of an organizing effort that will take place over the next two years,” said Goldberg. It’s his association’s hope that the report will attract more people who are interested in researching these issues and will join the cause.
However, opponents argue that the bill would merely increase the cost of doing business in California. “If you’re increasing the tax on employers, it will do the opposite of what the desired effect is,” said Kyla Christoffersen, policy analyst with the California Chamber of Commerce. “A robust economy is the answer.” In addition, she believes the tax burden on residential property is overblown, and says about two-thirds of the taxes in California come from the non-residential sector.
Indeed, more taxes during a recession can be a dodgy proposition. Increased property taxes would raise the overhead for a company, which would ultimately be covered by higher prices on the shelves. The higher prices could drive down consumption and raise unemployment.
A 2008 Field Poll found that a split-roll property tax gets mixed reactions based on how the question is posed. “Voters are divided if this means increasing the property taxes of business and commercial property (47 percent approve and 44 percent disapprove).” The poll also found “voters approve 61 percent to 28 percent if this means lowering the property tax rates of residential property owners.”