Prop. 13 FAQs
Prop. 13 FAQs
What is Prop. 13?
Proposition 13, or the People’s Initiative to Limit Property Taxation, was passed in 1978, stemming from concern over soaring property values and resulting in rising property taxes. It was championed by anti-tax activists Howard Jarvis and Paul Gann. Proposition 13 ensures valuations of property may not grow by more than 2% annually, and market value reassessment may only occur with a change of ownership. Additionally, Proposition 13 created the requirement that all state and local tax increases be approved by a two-thirds vote of the legislature or voting public.
Isn't Prop. 13 just for homeowners?
No. Most voters are unaware of this, but Prop. 13 applies to commercial property as well. This aspect of the law has led to significant unintended consequences. For example, Chevron alone is saving over $100 million a year by benefiting from Prop. 13's protections. Because homeowners move on average every ten years, and commercial property rarely, if ever, changes hands, the tax burden in California has shifted decisively onto residential property owners. Before Prop.13, residential accounted for 55% of the property tax and commercial paid 45%. Now residential shoulders 72% of the tax burden while commercial only pays 28%.
Will reforming Prop. 13 affect homeowners?
Our proposal will NOT change Prop. 13 for any residential property. Voters passed Prop. 13 to protect people, not corporate landowners. See Our Plan for details.
What about apartments?
No, apartments will not be affected either, nor residential renters of any kind. In mixed-use buildings, only the large commercial property will lose Prop. 13 protections.
What about farms?
All agricultural land will be exempted from this reform.
What about small businesses?
Small business owners will be exempt from this reform and also provided with direct tax relief through elimination of the business personal property tax.
Won't this be bad for business in California?
No. The Prop. 13 Corporate Loophole doesn’t incentivize creating jobs or economic activity – it incentivizes sitting on property for decades without doing anything productive with it. In fact, only 8% of commercial properties get 77% of the tax savings from this loophole. Under the current system, two identical businesses side-by-side may pay drastically different property taxes. This penalizes new businesses by making them subsidize their established competitors’ property tax. By leveling the playing field and bringing a minority of older businesses up to fair market rate, we will be creating a healthier and more competitive business climate.
Won't this cause businesses to leave California?
No. We are the only state in the country that does not regularly reassess commercial property. Most states actually tax their commercial property at a higher percentage than residential property. Texas, for instance, taxes their commercial property at 2.5%. Our property tax rate will remain capped at 1%.
Won't businesses just pass the cost for goods and services down to consumers? Won't rents go up?
No. Large commercial property owners don’t share their Prop 13 Corporate Loophole savings with consumers. Prices for goods and services are based on the market, not on the property taxes a business pays. Have you ever received a Prop. 13 discount from a gas station, store or for office space? The answer is no.
Throughout California there are examples of gas stations across the street from one another charging the same price for gas, despite one gas station paying ten times less in property taxes. The only thing California consumers get from the Prop. 13 Corporate Loophole are underfunded schools and community services and higher taxes and fees.
Will this change for commercial property happen all at once?
No, this reform will be gradually phased in over 3 years.
Aren't there other loopholes that corporations exploit to avoid paying property tax?
Yes. Currently, commercial property owners can split up the purchase of a property amongst several parties in order to keep all ownership shares under 50%. By ensuring that no one entity owns more than 50% of a property, no property tax reassessment is triggered. (For a famous example profiled in the LA Times, click here). By instituting regular reassessment of large commercial property, these tax evasions will no longer be possible because reassessment will occur every year regardless of the circumstances of the purchase.
Where will the new revenue from this reform go?
This is revenue that goes to our local schools, cities and counties to fund services that we all rely on like health clinics, parks and roads. In the 1970s California was tied with New York for 5th in the nation in per pupil spending. Today New York spends twice what we do for education and we have the most crowded classrooms in the country. Our cities and counties have no other choice than to levy regressive taxes and fees on individuals and small businesses just to make ends meet. Closing the Prop. 13 Corporate Loophole is the only way to restore over $10 billion a year to our schools and community services without increasing taxes on homeowners or renters.
At least $5 billion will go to directly to California public schools - which are currently ranked 44th in the nation in per-pupil funding and have the largest classroom sizes in the country. This will be local money that will stay local, and will not go to Sacramento. For more information, please read the USC-PERE paper on the proposed reform.