Half of all California Employees Work for a Small Business
SACRAMENTO, CA – A coalition of small business advocates across California exposed a major flaw in the state proposition likely headed to the November ballot that will raise property taxes by up to $12.5 billion annually. Contrary to claims by the measure’s proponents, small businesses are not excluded from the property tax hike. The proposition hikes taxes on most business properties in the state. The size of the business – large or small – owning or occupying the property is irrelevant. Because of how the initiative is drafted, businesses across California will face higher real property taxes and soaring rents, at a time when hundreds of thousands struggle to reopen their doors and ask state and federal governments for relief.
Furthermore, the proposition defines the term “small business” so narrowly that it is virtually impossible for any small business to qualify for their so-called “small business” personal property tax exemption. In reality, this “small business exemption” is an illusion. Almost all businesses, no matter the size, the value of the property, or the number of employees, will pay higher property taxes or higher rents, as owners pass on the high property taxes to their small business renters.
“This is a challenging time for small businesses. The $12.5 billion-a-year property tax hike added to an already historic COVID-19 recession will only make any reopening and, in some cases, survival that much more difficult,” said Betty Jo Toccoli, president of the California Small Business Association. “The so-called ‘small business exemption’ touted by special interests does not exist. Nothing in this measure protects small businesses from the burden of higher property taxes and increased rents.”
Numerous studies, including those by the NAACP California, Berkeley Research Group and Pepperdine University conclude that most small businesses do not own the property on which they operate. Instead, they rent and have what is called a “triple net lease,” where property owners pass along property taxes, insurance, and maintenance costs directly to the tenants. The proposition does nothing to prevent a building owner from passing on its property tax increase through a triple net or other form of lease to its small business tenants once the building is reassessed.
“There is hardly any protection for small businesses in this flawed proposition. If we want small businesses to have a future in California, voters must reject this massive property tax hike in November,” concluded Nathan Ahle, president and CEO of the Fresno Chamber of Commerce. “For mom and pop businesses in the Central Valley operating on slim margins, the measure will force rents to skyrocket…and could mean the difference between declaring bankruptcy or making payroll.”
“Read the fine print before casting ballots this November,” said Dennis Huang, executive director and CEO of the Asian Business Association of Los Angeles. “The proponent’s claims that small businesses will not be impacted by the $12.5 billion-a-year property tax hike is smoke and mirrors designed to fool voters. Study after study has shown that small businesses pay higher rents and costs when property taxes increase.”
Claim after claim made by proponents’ disputed:
During the last few months, backers of the measure, including the president of the California Teachers Association, have gone so far as to say that they “made sure that small businesses and farms would not be unfairly impacted.” In a stark rebuttal, organizations across California impacted by the tax measure’s broad reach have called into question the accuracy of the proponents’ claims. In February, the California Farm Bureau Federation announced its opposition to the measure as it would result in higher property taxes on the improvements needed to bring food from farm to fork, such as barns, dairies and processing plants.
Read more about the flaws in the $12.5 billion-a-year property tax hike here.