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Evolve is working to reform Proposition 13 so that commercial property pays its fair share, and funding is restored to schools and public services.

           

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Staff Blog

Loopholes

Brad Johnson

Here at Evolve we are taking turns writing one post a week. It’s my turn, and I thought I’d take the opportunity to go over some of the amazing loopholes in Proposition 13. These loopholes mostly benefit large corporate landlords, who lease their property at current market value but pay property taxes based on value from decades ago.  These various scams rob the state of billions a year.

The first major loophole is simple. Under Proposition 13 reassessment of property occurs when the property is “transferred.” For normal people, this is straightforward, as you must file paperwork to get the deed transferred to the new owner (or the bank). But if you have lawyers and the ability to form various corporate entities, you simply create a shell company that has only real estate as assets. Then to sell your property and cheat Proposition 13 requirements, you sell the stock in the shell company.

This scheme gets more complex. In San Francisco Equitable Life Assurance and the IBM Pension Plan got caught in a massive scheme to obscure the sale of 1 Market Plaza. Equitable designed a scheme that turned the building into an annuity, which it then sold to the Pension Plan. The Pension Plan then took control of the building and collected tenant’s rents.  This elaborate arrangement allowed Equitable’s name to remain on the deed while the other company took essentially full ownership of the building. Corporations will go to elaborate lengths to avoid paying their fair share. San Francisco collected $23 million in penalties and back taxes when the corporate cheaters were eventually caught.

We have no idea how many other stories like this there are. The solution is simple – we need to require corporate properties to be regularly reassessed. It’s high time corporations paid their fair share of property taxes.