The anti-tax folks are back in their “woe is us” mode, complaining loudly that the state and its minions (i.e., Democrats, labor unions and poor people) are plotting to grab their hard-earned money in a desperate and dangerous ploy to keep the lights on in the Capitol and see that California’s bills get paid.
Along with the governor’s effort to put a tax boost initiative on the November ballot, the latest call to arms involves yet another attempt to revise Prop. 13 and allow a split property tax roll, with commercial property getting reassessed more often than homes and other residential property.
San Francisco Assemblyman Tom Ammiano and Los Angeles Mayor Antonio Villaraigosa want the change. The Assembly Revenue and Taxation Committee held a March 12 hearing on the possibility of a split roll. People are even collecting signatures for a ballot measure that would reassess commercial property every three years (Don’t hold your breath).
While nothing will stop the “tax everything” movement, I’ve got a suggestion that might ease some of that pressure for a split roll:
Play fair.
Prop. 13 sounds simple enough. When it passed back in 1978, the idea was that the annual property tax would be 1 percent of assessed value and that the property value would increase no more than 2 percent a year. The property itself would only be reassessed if it was sold or changed ownership.
That’s easy enough for residential property. You sell your home, it gets reassessed and the new owner pays the new, higher property tax rate.
Reassessment of commercial property, on the other hand, all too often depends on your definition of the word “sold.”
As the Board of Equalization says in its FAQ section on change of ownership, “It is very complicated.”
That’s music to the ears of accountants and tax attorneys, who make their livings trimming tax liability for their clients.
Take the recent deal to sell the Los Angeles Dodgers. While Frank McCourt sold the team, he held onto 50 percent of the stadium parking lot, although he won’t collect any money from it and has no control over any future development there.
Now most people would say McCourt holds a minority interest in the property, say 49 percent. But in the world of Prop. 13, a 51-49 split would trigger an automatic reassessment of the parking lot, something syndicated California columnist Tom Elias suggested would cost the owners more than $2 million a year, money that would have gone to Los Angeles, its schools and other public uses.
Then there’s the way the Gallo family “bought” about 1,300 acres of prime Napa vineyards from the Louis Martini family. By structuring the deal so that individual members of the Gallo family bought the land, rather than the company itself, no one ended up with the 51 percent stake in the land that would have triggered the reassessment.
The transaction was “absolutely legal, even though 100 percent of the shares changed hands,” Napa County Assessor John Tuteur told the Bay Citizen.
There are plenty of other examples of property owners playing games with what was supposed to be a fairly straightforward part of Prop. 13, and not always legally.
It was never any secret that commercial property owners were going to be the big winners in Prop. 13, since people change houses a lot more often than companies change factories. As one opponent of the measure told me back in 1978, “it’s going to be a long time before Chevron sells its El Segundo refinery.” Although it is true, as with residential property, when a business remodels, as it does from time to time, the remodeled portion of the property is reassessed.
But Prop. 13 was driven by an immediate crisis: soaring property taxes that were forcing older residents on fixed incomes to give up the homes they had lived in for decades. They needed instant relief and weren’t concerned about what may happen 30 years down the road.
So homes continue to get sold and reassessed, while the El Segundo refinery and plenty of other factories, plants and other commercial properties hang on to their 1975 assessments, bumped up at a steady 2 percent a year even as California’s property values soared.
And most Californians are OK with that, complaints from groups like “Close the Loophole” notwithstanding. Residential property taxes are a bigger and bigger percentage of the state’s total, but most homeowners just chalk that up as the price they have to pay to get Prop. 13’s advantages for themselves.
That’s where the fairness question comes in. As long as both sides are seen as playing by the rules the way they were written back in 1978, the clamor for a split roll will continue to be little more than part of the state’s political background noise.
But if voters start thinking the state’s commercial interests have decided that increased property taxes are something other people should pay, everything changes. Angry voters who think they’ve been played for suckers might just put one of those property tax initiatives on the statewide ballot and see what happens.
John Wildermuth is a longtime writer on California politics.