Beware the slippery slope leading to confusing tax policy if Senate Bill 1021 becomes law. As previously discussed on this site, SB 1021 would allow a form of property taxation for schools based on square footage of a parcel or the classification of property. To many, this measure is the first step in a campaign to create a split roll property tax in California in which business property would be taxed differently than residential property.
The road to reclassifying property for tax purposes could lead to confusing consequences, different tax rates for different classes of property, while setting off a mad scramble for tax breaks sought by well-connected lobbyists.
In Minnesota, so many interests petitioned government for their own property classification that as late as 1988, there were 68 property classes on the books. The state tried to clean up that mess and ended up creating five broad property classifications for residential, agricultural, business, rental and mining. But those classes have subgroups that number 27 different classifications.
New York claims to have a simple system of nine property classifications. However, in trying to explain the nine tax classification system, a New York state website notes that each category is composed of divisions and, in some cases, those divisions have subdivisions.
That is the road that could lie ahead if the legislature and governor agree that SB 1021 is a good idea. It’s not. It’s a plan to raise taxes on business in a state that already subjects business to excessive burdens.
If SB 1021 becomes law, it is not hard to imagine other government agencies beyond schools requesting the ability to tax based on property classifications. The politics of the situation are obvious. Certain kinds of business could be targeted for higher tax rates. Raise a higher tax on a business, which cannot match the voting power of those who would have to pay a smaller tax.
As Senate Minority Leader Bob Huff argued against the bill on the Senate floor, “Different parcel tax rates would likely target both small and large businesses. Small businesses would be hit hardest, because they won’t be able to absorb higher lease costs that will be passed onto them. Large businesses, which provide hundreds of jobs on a large piece of property – such as a manufacturing facility – take an even bigger hit. There is nothing to stop a school district from imposing a higher rate based upon square footage.”
Another probable outcome, influential business lobbyists would turn to the legislature to seek exemptions and different classification categories to protect their kind of property from the tax collector.
Remember Minnesota’s 68 different property classifications. A similar situation could happen here if SB 1021 starts California sledding down that slope.
The measure passed the Senate and is on the way to the Assembly.