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What You Need to Know About Proposed Property Tax Changes on the November 3 Ballot

Prop 15: The California Schools and Local Communities Funding Act of 2020

Ballot Title: Increases Funding for Public Schools, Community Colleges, and Local Government Services by Changing Tax Assessment of Commercial and Industrial Property. Initiative Constitutional Amendment.

Proposition 15 is a proposed amendment to the California State Constitution which would require commercial and industrial property to be taxed based on their market value. In 1978, Proposition 13 was passed requiring residential, commercial and industrial properties be taxed on their purchase price and that property tax is limited to 1% of the purchase price at the time of the purchase and the annual adjustment is limited to the rate of inflation or 2%, whichever is lower, usually the 2%.

Under Proposition 15 Proposition 13 would be changed partially. Residential properties would continue to be assessed based on the original purchase price plus limited annual increases, but commercial and industrial properties, with the exception of commercial agriculture, would be reassessed at market value. This would be phased-in beginning in the fiscal year of 2022-2023. Properties such as retail centers where 50% or more of the occupants are small businesses would be taxed based on market value beginning in fiscal year 2025-2026, or at a later date set by the legislature.

Typically, commercial leases provide that any increase in property taxes flow directly to the tenants, which could create an impact on small business owners who lease space in large retail centers. Proposition 15 has an exception for properties whose business owners have less than $3,000,000 in holdings in California. These properties would still be taxed based on their purchase price.

The funds generated from the increased taxes that would result if Proposition 15 were enacted would be not be distributed to the general fund. , Instead they will be distributed to the state, to supplement decreases in revenue from the state’s personal income tax and corporation tax due to increased tax deductions, and to counties to cover the costs of implementing the measure. After that distribution, 60% of the remaining funds would be distributed to local governments and special districts, and 40% would be distributed to school districts and community colleges (via a new Local School and Community College Property Tax Fund). Revenue allocated to education would be divided as follows: 11% for community colleges and 89% for public schools, charter schools, and county education offices.

A ”yes” vote supports the constitutional amendment to require commercial and industrial properties be taxed at the market value.

A “no” vote opposes the amendment and supports the continuation of taxing commercial and industrial properties based on the purchase price.

Prop 19: Property Tax Transfers, Exemptions, and Revenue for Wildfire Agencies and Counties Amendment

Ballot Title: Changes Certain Property Tax Rules. Legislative Constitutional Amendment

Proposition 19 is an amendment to the California State Constitution which would make several changes to property tax assessments and transfers. Currently under Propositions 60 and 90, eligible homeowners who are 55 or older, have severe disabilities or are victims of natural disasters and hazardous waste contamination can transfer their property tax assessments to a different home of the same or lesser value, allowing them to move without paying higher property taxes. This eligibility currently depends on the county in which the homeowner resides and the county to which they are planning to move. Proposition 19 would eliminate the county by county variances and allow those eligible homeowners to transfer their property tax basis to anywhere within California and would allow them to transfer that property tax basis to a more expensive home, reducing the higher property taxes from a more expensive property. Currently, a property tax assessment can only be transferred once, but if Proposition 19 passes, property tax assessments would be allowed to be transferred up to three times for persons over 55 or with severe disabilities. For persons eligible to transfer their tax assessments because they are victims of a natural disaster or hazardous waste contamination, they would still only be allowed to transfer their tax assessment once.

Proposition 19 also affects the property tax assessment for inherited properties. Currently, under Propositions 58 and 193, parents or grandparents can transfer primary residences plus additional property up to an assessed value of $1,000,000 to children or grandchildren without reassessment. Proposition 19 would eliminate parent to child and grandparent to grandchild exemptions in situations where the child or grandchild does not use the inherited property as their primary residence. If the child or grandchild does use the inherited property as their primary residence and the property has a market value of over $1,000,000, an upward adjustment in assessed value would occur. This exemption from reassessment would also apply to certain farm properties. This measure would take affect February 16, 2021 with inherited primary residential property having its taxable value adjusted each year at a rate equal to the change in the California House Price Index, instead of being capped at 2% per year.

The funds generated from Proposition 19 would create the California Fire Response Fund (CFRF) and County Revenue Protection Fund (CRPF).  The Fire Response Fund would be used to fund staffing for fire suppression as well as full-time station-based personnel. The County Revenue Protection Fund would be used to reimburse counties for revenue losses related to the property tax changes.

A “yes” vote supports the constitutional amendment to allow eligible homeowners to transfer their tax assessments freely within California, event to a more expensive home, up to 3 times for persons over 55 or with severe disabilities, only for properties used as principal residences. Savings resulting from the ballot measure will go to wildfire agencies and counties.

A “no” vote opposes the constitutional amendment and will keep the current transfer exemptions of unlimited primary residence transfers between parents and children and grandparents and grandchildren, and additional property up to $1,000,000. It will also keep the limitation of eligible homeowners to transfer their tax assessments to participating counties only for homes of equal or lesser value and only once per lifetime.

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