Proposition 15 – Close Corporate Tax Loophole to Raise $12 billion for local schools & community services – YES
Proposition 15 would close a corporate property tax loophole created by the passage of Proposition 13 in 1978. Specifically, Proposition 15 would require non-residential commercial and industrial property to be reassessed based on its current market value. Currently, non-residential commercial and industrial property taxes are assessed on purchase price, not their market value as is the case in most other states. Proposition 15 is commonly referred to as “split roll” due to the fact that its passage would only impact how property taxes are assessed for non-residential commercial and industrial property, and not how taxes are assessed for residential property. Proposition 15 also includes language that exempts small businesses from the proposed market-based property tax and it would not change how agricultural land is taxed.
Passing Proposition 15 would generate an estimated $12 billion in revenues a year across California. These revenues would be allocated between K-12 schools and community colleges, which will receive 40% of revenues, and local governments, which would receive the remaining 60% of revenues. Funds allocated to local governments could go towards supporting needed services such as housing, fire protection, healthcare, or other local priorities. Prop 15 requires that every school district, community college, city, county, or special district publicly disclose the Proposition 15 funds they receive and how they are spent.
Prop 15 opponents claim that it would negatively impact California’s economy and businesses. This claim does not hold up to scrutiny. In reality, only 10% of California’s commercial and industrial property will generate 92% of Proposition 15 revenues. Furthermore, Prop 15 maintains the 1% limit on property taxes (annual property taxes can not exceed 1% of their assessed market value), which is a lower rate than many other states.
Some people have good-faith concerns about the impact of Prop 15 on small businesses. These are mostly misplaced. While many commercial leases are “triple-net” which means taxes are automatically passed along to renters, most leases currently in effect will end and be up for re-negotiation before reassessment begins to increase property taxes in late 2022. In a market where there is an overabundance of commercial real estate (due to the pandemic and other factors), small businesses will have the upper hand in negotiating lower total rents, even with higher taxes factored in. Higher taxes will largely be taken out of the windfall profits currently enjoyed by these long-time property owners, not out of the pocket of small businesses.
There are additional protections for small businesses built into Prop 15. Buildings worth less than $3 million owned by small businesses are exempt from reassessment. Businesses will also no longer have to pay taxes on the first $500,000 of non-real estate property (things like office furnishings and restaurant equipment). This will entirely eliminate a cumbersome tax for 90% of California’s small businesses, saving them thousands each year, and $1 billion statewide.
It’s also important to note that Prop 15 will not result in higher taxes for any residential properties. In the case of mixed use buildings, which combine housing with retail, only the commercial part of the buildings will be subject to regular reassessment of their taxable value.
Much has changed since the passage of Proposition 13 in 1978. At that time, home owners and owners of commercial and industrial properties shared a roughly equal property tax burden. However, over the past 40 years, the share of property tax burden for residential property owners has jumped to 72%. Furthermore, when Prop 13 was passed, California was among the top ten states in per pupil education spending. Since then, California has dropped in national ranking and is currently positioned among the lower third of states in per pupil education spending. With revenues decreasing as a result of the covid-created economic recession, local schools and communities need additional sources of funding. Starting in 2022, Prop 15 would deliver those much needed resources by taxing the windfall profits enjoyed by California’s biggest and wealthiest corporations.
Passing Prop 15 is an opportunity for California to generate much needed revenue and support vital services by closing a corporate tax loophole. Now is the time for California to make an investment in our education system and our local communities, and to create a fairer property tax system in which wealthy commercial and industrial land owners pay their fair share.
We strongly urge you to vote YES on Proposition 15.
Join our campaign to let voters why Prop 15 is so important: