A Split Property Tax Roll is a Bad Idea

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Not surprisingly, considering the size of the projected state budget deficit, some are calling for tax increases that are unique or rarely heard: A tax on beer, on iTunes and movie downloads, even on strip clubs. Then there is the old standby—raise business property taxes; Peter Schrag called for an increase of business property taxes in his column yesterday in the Sacramento Bee.

This effort is commonly called the “split roll” because the idea is to split the property tax roll placing residential properties in one category and business properties in another while increasing the tax rate or assessment requirements that will tax business properties more heavily.

Even when Proposition 13 was on the ballot in 1978 an alternative was offered to the voters to treat business property differently from residential property. That measure went down to defeat. Since then a number of efforts to create a split roll have gathered signatures. The one to reach the ballot was defeated.

A split roll has not been passed for very good reasons. Those reasons have not changed even with the shadow of a large budget deficit hanging over the state. In fact, considering that the budget deficit is the result of a sour California economy there are even more sound reasons to reject the idea of a split roll.

Proponents of a split roll salivate at the idea of taking billions of dollars out of business – the estimates range from $3.5 billion to $7 billion annually depending on the tax mechanism used — and putting that revenue in government coffers. But who pays those new taxes?

Small businesses will probably be the first to feel the split roll pinch. As commercial property taxes rise, property owners will pass on the cost in the form of higher rents to their small business tenants. In most cases, rental leases require that tenants of a building share in any tax increases. And what will small businesses do? The restaurants, car repair shops, nail salons, dry cleaners and other businesses will likely pass the costs onto consumers.

Take a look at our current economic conditions. As gas prices surge, the cost of manufacturing and moving goods is being passed onto consumers through, among other things, skyrocketing food prices.

Jobs will also suffer under a split roll. As businesses feel the crunch of skyrocketing property taxes, they will have to make tough choices between keeping their doors open and keeping their valued workers and providing them with benefits. In this economy, we need to promote job retention and creation, not quash it like a split roll threatens to do.

According to the Milken Institute Cost of Doing Business data, California ranks sixth in the country as the most expensive place to do business. Raising business property taxes will just do more damage to the bottom line for California businesses.

Local government treasuries are also in the cross-hairs if a split roll is enacted. Under the current Proposition 13 property tax system, tax revenue in counties has been going up steadily over the past 30 years. The size of the increase may drop in tough economic times, but, with rare exception, property tax revenue in each county continues to increase annually. This will not happen under a split roll. If business properties are assessed at their current market values and there is a drop in those values, all businesses, not just recently purchased businesses, will pay less in taxes. This drop off in revenue will hit local governments hard and cause chaos for all the services they provide.

There are many negative consequences with implementing a split roll. It’s time we “split” away from this tax increase proposal for good.

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