READ IT FOR YOURSELF

Read It For Yourself

THE PROPERTY TAX HIKE IS A FLAWED INITIATIVE

READ IT FOR YOURSELF

THE PROPERTY TAX HIKE

HURTS FARMERS & CONSUMERS

 

 

The Initiative Says:

“Real property used for commercial agricultural production” means land that is used for producing commercial agricultural commodities.”

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know it Hurts Farmers and Consumers:

Under current law, “real property” is divided up into “land” “improvements” and “fixtures,” which all have different specific meanings, and are applied to different types of property. They are all separately assessed and are separated on the property tax bill.

Existing California Revenue & Taxation Code, Section 104:
“Real estate” or “real property” includes:
(a) The possession of, claim to, ownership of, or right to the possession of land.
(b) All mines, minerals, and quarries in the land, all standing timber whether or not belonging to the owner of the land, and all rights and privileges appertaining thereto.
(c) Improvements.
Existing California Revenue & Taxation Code, Section 607:
Land and improvements thereon shall be separately assessed

 

Assessor’s Handbook Section 501: Basic Appraisal,” Board of Equalization, January 2002, Page 22:
Fixtures is a category of improvements…. A fixture is classified as real property.”

 

Examples of “land” and “improvements” can be found in Board of Equalization Property Tax Rule 124. Some examples of “land” include alfalfa, artichokes, bushes, ditches, levees, shrubs and strawberry plants. Some examples of “improvements” include mature fruit and nut trees, grape stakes and trellises, buildings, fences, dams, paved roads, sprinkler systems, and mature grapevines.

Examples of “fixtures” can be found in the Assessors Handbook Section 501: Basic Appraisal from Pages 196 – 200. Some examples of “fixtures” include air compressors, ovens, walk-in refrigerators, and silos or tanks, like ones used for breweries and refineries.

Board of Equalization Property Tax Rule 131 defines mature fruit and nut trees and vineyards as taxable improvements.
The fruit, nuts, or grapes, until harvested, are growing crops exempt from taxation under Section 3(h), Article XIII, California Constitution. … After the exemption expires their value is to be enrolled in the improvement column.

The Initiative Says:

“Residential property” shall include real property used as residential property, including both single-family and multi-unit structures, and the land on which those structures are constructed or placed.

AG 2019-0008, Amdt. #1, Initiative Sec. 6

What This Means for Farmers and Consumers:

The property tax initiative defines “real property used for commercial agricultural production” to exclude improvements and fixtures – and only apply to land. In other places, the initiative excludes residential “land” and “structures,” so the proponents knew what they were doing when they drafted the initiative to apply to agriculture. Further, the initiative sweeps in all commercial and industrial “real property” for reassessment. This means that other “real property” (i.e., improvements and fixtures) used by agriculture will be reassessed with a huge financial impact on California’s agricultural industry.

Note: Agricultural “land” is excluded from reassessment. However, agricultural “improvements” and “fixtures” will be reassessed at least every three years if their value exceeds $3 million. “Fixtures” and “improvements” could also be reassessed under that value if certain ownership requirements are met.

 

THE PROPERTY TAX HIKE

HURTS CALIFORNIA’S RENEWABLE ENERGY GOALS

The Initiative Says:

Notwithstanding Section 2 of this Article, for the lien date for the 2022-23 fiscal year and each lien date thereafter, the “full cash value” of commercial and industrial real property that is not otherwise exempt under the Constitution is the fair market value of such real property as of that date as determined by the county assessor of the county in which such real property is located, except as provided by the Legislature pursuant to subdivision (b).

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know it Hurts California’s Renewable Energy Goals:

Under current law (Prop 13), real property is not reassessed at current market value unless it changes ownership or is “newly constructed.”

In November 1980, voters passed Prop 7 which authorized the Legislature to exclude the construction of any active solar energy system from the term “newly constructed.” Upon Prop 7’s passage, the Legislature added Section 73 to the Revenue and Taxation Code:
(a) Pursuant to the authority granted to the Legislature pursuant to paragraph (1) of subdivision (c) of Section 2 of Article XIII A of the California Constitution, the term “newly constructed,” as used in subdivision (a) of Section 2 of Article XIIIA of the California Constitution, does not include the construction or addition of any active solar energy system, as defined in subdivision (b).

What This Means for California’s Renewable Energy Goals:

The measure eliminates the term “new construction” and subjects all nonexempt property to reassessment at least every three years. In doing so, the measure also eliminates all existing exclusions from new construction which will increase property taxes on current and future solar energy products.

Unless the measure is defeated by voters, all active solar systems excluded from property taxes will be subject to property taxes at their current market value as of January 1, 2022. Active solar energy systems on commercial/industrial property – and even major solar energy facilities selling renewable energy to California utilities – will lose their property tax protections. Prop 7 was passed to encourage the production of solar energy by deferring the cost of property taxes onto a new owner. This measure will undermine California’s renewable energy goals that help our state reduce its reliance on fossil fuels by removing the incentive to build solar energy systems. The measure will also drive the cost of energy up for California families.

 

 

THE PROPERTY TAX HIKE

HURTS SMALL BUSINESSES

The Initiative Says:

“…each commercial and industrial real property with a fair market value of three million dollars ($3,000,000) or less shall not be subject to reassessment…”

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know There Is No Exemption From Reassessment for Small Businesses (Part 1):

Contrary to claims by the measure’s proponents, there is absolutely NO exemption for small businesses in the measure’s reassessment provisions. In fact, there is no mention of the term “small business” at all in the reassessment provisions as you can read to the left.

The size of the business – owning or occupying the property – is irrelevant. Instead, the exemption hinges on a property’s dollar amount being worth less than $3,000,000.

The Initiative Says:

“…real property that would otherwise comply with the exclusion set forth in paragraph (1) of this subdivision shall be subject to reassessment pursuant to paragraph (1) of subdivision (a) if any of the direct or indirect beneficial owners of such real property own a direct or indirect beneficial ownership interest(s) in other commercial and/or industrial real property located in the State, which such real property in the aggregate (including the subject property) has a fair market value in excess of three million dollars ($3,000,000) .

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know There Is No Exemption From Reassessment for Small Businesses (Part 2):

The next section of the proposition revokes the exemption for property worth less than $3 million if any direct or indirect owner of the property in question also has a direct or indirect ownership interest in other commercial or industrial property with an aggregate of $3 million.

Example: A $50,000 building can be reassessed if a 1% partner that owns the building is also a partner in owning other commercial/industrial property with an aggregate value exceeding $3 million in California. This loophole means that the alleged “exclusion” for properties under $3 million is nothing more than an illusion.

Furthermore, 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. This proposition includes ZERO protections for small businesses who rent their property.

There is no exemption for small businesses, but there is a so-called deferred reassessment for landlords that rent to “small businesses” as narrowly defined by the proposition.

 

The Initiative Says:

Provided fifty percent (50%) or more of the occupied square footage of a commercial or industrial real property is occupied by a small business as defined in paragraph (4) of this subdivision, the provisions of paragraph (1) of subdivision (a) shall not take effect prior to the lien date for the 2025-26 fiscal year

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know The Proposition’s So-Called “Deferred Reassessment” Won’t Help Most Small Businesses

The proposition claims to defer reassessment until 2025-26 for properties where 50% or more of the occupied square footage is in use by a “small business.” But we know that a fraction of businesses will actually meet the new definition of a “small business” created by the proposition because…

The Initiative Says:

“… the term small business shall include only those businesses which meet all of the following conditions:
(A) The business has fewer than 50 annual full-time equivalent employees.
(B) The business is independently owned and operated such that the business ownership interests, management and operation are not subject to control, restriction, modification or limitation by an outside source, individual or another business.
(C) The business owns real property located in California.
AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know The Proposition’s Definition of “Small Business” Doesn’t Really Mean Small Business:

The proposition defines the term “small business” so narrowly that it is virtually impossible for a small business to meet the requirement. The measure requires all three criteria must be met. The business must:
1) Have fewer than 50 full-time employees
2) Be independently owned and operated
3) Own real property in California

It is worth noting that franchisees of a major chain, like a small business Subway franchisee, would likely fail the second criterion as it is not “independently owned and operated” as defined by the initiative.

Additionally, we know that most small businesses rent their property, so they would fail the third criterion that requires them to own their property.

The Initiative Says:

(A) (i) For a taxpayer that is a small business, as defined in paragraph (4) of subdivision (e) of Section 2.5 of Article XIII A, all tangible personal property owned and used for business purposes is exempt from taxation…
(B) Except for a taxpayer subject to subparagraph (A) of paragraph (1) of this subdivision, an amount of up to five hundred thousand dollars ($500,000) of combined tangible personal property and fixtures, per taxpayer, is exempt from taxation.

AG 2019-0008, Amdt. #1, Initiative Sec. 7

How We Know The “Personal Property Tax Exemption” is an illusion:

Lastly, the measure claims that “small businesses” are completely exempt from the personal property tax. This is yet another illusion because the personal property tax exemption applies only to “small businesses” as defined in the initiative. In order to qualify as a “small business” and receive the personal property tax exemption, all three criteria must be met. As discussed above, very few businesses will meet the definition of a “small business,” and thus will not qualify for the personal property tax exemption.

 

What This Really Means For Small Businesses:

While this flawed measure claims to exempt small businesses, it is simply an illusion – smoke and mirrors – to hide the truth. Almost all businesses, no matter size, the value of the property, or number of employees, will pay higher property taxes or higher rents.

THE PROPERTY TAX HIKE IS A FLAWED INITIATIVE

VOTE NO IN NOVEMBER

JOIN THE COALITION