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Proposition 15 Would Increase Property Taxes on California Commercial and Industrial Properties

10.01.2020

California commercial real estate taxes would increase significantly if Proposition 15 passes on November 3.

If Proposition 15 (Prop 15) is passed by California voters this November, commercial real estate property taxpayers would lose the tax benefits of the Golden State’s famous “Prop 13” law, now in effect for all real estate parcels.

Current Law

Prop 13 dictates that all real estate value be based on the subject’s previous purchase price, with some very modest growth factors applied annually. The current law is considered to yield much lower real estate taxes for all California taxpayers.

Proposed Changes

Prop 15 would create a so-called split roll, creating a two-part system – one for residential and small business properties and the other for larger commercial properties.

Single and multi-family residential, as well as “small” business, property taxpayers have been promised that nothing will change from the status quo – their real estate taxes will not change.

However, larger, commercial properties would be part of the second, new tax roll that will use a market value basis for assessment. Switching to a market value basis is expected to lead to much higher taxes for those larger commercial taxpayers.

Prop 15 would also make some smaller changes concerning business personal property (BPP), namely a full exemption on BPP for “small businesses” and a $500,000 exemption of value for larger commercial personal property taxpayers.

What’s Next

If Prop 15 passes, there are still many details of the law to be determined by both the state legislature and local assessors. 

The implementation process by the California assessing authorities will be a difficult task.  For instance, defining exactly where to place the dividing line between “small” and “larger” commercial businesses will be especially problematic.

Therefore, we expect many lawsuits may be filed after passage, challenging parts of the law and changing or delaying it in whole or in part. 

If you own or lease any significant commercial real property in California, be aware of Prop 15 on the November 3 ballot. Your future real estate taxes could multiply soon if this momentous tax law change is passed.

If you have any questions regarding your property taxes please contact Jenna Kerwood, Partner, Property Tax Services, at 314.983.1360 or jkerwood@bswllc.com or Kevin Scoles, Real Estate Property Tax Director, at 314.687.2384 or kscoles@bswllc.com.

To access the full text of Proposition 15, click here.

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