​Is California a Low Property Tax State?​

urban-housing-sprawl-366c0During Arnold Schwarzenegger’s first campaign for governor, one of his biggest backers, super wealthy Warren Buffet, famously said his property taxes on his Laguna Beach home were not high enough. The comment caused California homeowners to question Arnold’s bona fides as a conservative so he threatened to make Buffet do 500 sit-ups for his transgression. While the controversy blew over, there seems to be no record of Buffet making a voluntary additional payment to the county tax collector to assuage his conscious.

Most California homeowners don’t have Buffet’s wealth and rightfully believe they are already paying enough to finance local services. But still, the question of just how California property taxes measure up against other states is the source of a lot of angst and disinformation. (Rumors have it that some on the far left are preoccupied with this subject as they look for opportunities to force the “evil landowning elite” to pay their “fair share.”)

For years, the curious could consult information made available by the Tax Foundation, a Washington, D.C.-based think tank whose mission is to educate taxpayers about sound tax policy and the size of the tax burden borne by Americans at all levels of government.

If one consulted the Foundation earlier this year they would have been informed that California ranks 19th out of all 50 states in property tax burden. However, if one were to check today, they would find that our state now ranks 34th.

Have California property taxes suddenly been reduced or is it possible that more than a dozen states have recently increased their tax rates? No, none of the above. Looking more closely, the explanation is simple. The ranking of 19 is based on the per capita property tax burden, while the 34 rank is based on taxes as a percentage of property value.

This is like the ancient story about the six blind men who examine an elephant, and each comes to a different conclusion about its appearance. The first touches a leg and says that it is like a pillar, the second the tail and says it is like rope, and so on. None of the blind gentlemen are wrong, but then none are correct; their views must be integrated to understand the whole elephant.

In fact, measuring tax burden based on taxes as a percentage of value is probably the least informative. The reason is that, according the California Legislative Analyst, an average California home costs $440,000, about two–and–a–half times the average national home price of $180,000. Only homes in Hawaii are more expensive.

So does this mean that all California homeowners are rich? Absolutely not. It means that they are paying much more for homes and as a result, the taxes they pay to government are much higher than what residents in many other states are paying for similar homes. For example, $250,000 doesn’t even buy closet space in San Francisco but, in many parts of the country, that kind of money buys a very nice house.

This, of course, brings up the importance of Proposition 13, which limits the increase in a property’s taxable value to no more than two percent annually. Proposition 13 assures property owners they will not be taxed out of their homes by the mercurial and unpredictable housing market in which double digit increases in home values are not unusual. And even when housing values decline, because of Proposition 13, local government receives a reliable and stable source of tax revenue. For both property owners and government it is a win, win situation.

Originally published by HJTA.org

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Certainty in Taxation: Prop. 13’s Best Feature

property tax​In its more than 160 plus year history, few things have remained constant in California.  However, since the 1800’s California has taxed all classes of property the same.

Thus, when the iconic Prop. 13 passed in 1978, it did not differentiate between different kinds of property.  All real property – whether residential or commercial – was bestowed with the benefits of a reasonable one percent tax rate cap and, just as importantly, a two percent limit in the annual increase in taxable value.

In 1978, the predominant fear permeating California was an exploding tax burden that was forcing people out of their homes. The one percent rate cap was important, of course, but a rate cap by itself does nothing to control a property tax bill that is based on the “market value” of one’s home. If market values double – as they frequently do in an overheated real estate market – then property owners remain vulnerable to wild fluctuations when tax time comes around.

By limiting the annual increases in “taxable value” or “assessed value” of property to two percent per year, Prop. 13 gave property owners something they never had before – absolute certainty in what their tax bills would be in future years. No more would property owners open their tax bills with trembling hands because they knew that, thanks to Prop. 13, any increase would be modest.

The certainty and predictability of property taxes is just as important to owners of business properties as it is to homeowners.

First, let’s dispel the myth that Proposition 13 created a loophole for business properties. As noted above, California has always taxed property at the same rate. Proposition 13 didn’t change that. Second, we often hear that, during the campaign in 1978, the fact that Proposition 13 protections would be extended to business properties wasn’t presented to the voters. Not true. The opponents hammered those arguments throughout the campaign and, specifically, in the official ballot pamphlet itself.

Moreover, during the Proposition 13 campaign, it was predicted that, over time, homeowners would pay an increasing percentage of the total property tax revenue because residential properties change hands more frequently than commercial properties and thus would be taxed closer to market value. But for many years the percentages remained relatively static.  Only more recently has there been an uptick in the percentage of property taxes paid by homeowners. And this appears to be due to land use changes, such as a shrinking industrial/manufacturing sector and luxury home development than it is to Prop. 13.

Californians need to keep in mind the stability and predictability of Proposition 13 is as important to owners of business properties as it is to homeowners. Indeed, this is more true now than it was in 1978. Back then, California was a pro-business state with a growing economy, a vital aerospace industry and an infrastructure system that was the one of the world’s best. Now, California is rated dead last as a place to do business, we have the highest poverty rate and a tax and regulatory environment that has caused countless businesses – both large and small – to move elsewhere.

Stability and predictability of future property tax liability afforded by Prop. 13 is one of the few remaining pro-business policies in California. Why on earth would we want to repeal that?

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Prop. 13 overhaul targets commercial property tax rates

As reported by the Sacramento Bee:

Facing long political odds, state Sens. Loni Hancock and Holly Mitchell introduced a constitutional amendment Wednesday to overhaul portions of Proposition 13, California’s landmark tax-limiting measure.

Under current law, property tax reassessments occur only after changes in ownership or new construction. SCA 5 would introduce annual assessments of commercial and industrial properties to more closely tie their tax rates to current market value.

Mitchell, D-Los Angeles, said the proposal is targeted at the largest corporations and property owners, many of whom have avoided reassessment in the nearly four decades since voters passed Proposition 13, sometimes by taking advantage of loopholes in the law. Homeowners and agricultural properties are exempted from SCA 5, which also includes a tax break for small businesses.

Click here to read the full story

Follow the Big Money as it Ripples Through L.A.

Los Angeles’ major daily newspapers this weekend each had separate stories that reflected big money in Los Angeles and, in a way, the two stories are connected.

The Los Angeles Times reported than many Silicon Valley entrepreneurs were spending big bucks for Los Angeles area real estate. We’re talking on the high end about $70 million for a custom mansion in Beverly Hills. One realtor said the techies are buying second, third or fourth homes on the West Side of Los Angeles and the beach communities in the $2 to $5 million range.

The Los Angeles Daily News reported on the top salaries of employees of the Los Angeles Unified School District. The article focused on the dismissed Superintendent John Deasy and his $440,000 paycheck. Of note, number five on the list was an elementary teacher who took in $235,000, much of it in unexplained “back pay.” The top ten annual salaries were at $200,000 and above.

Infusion of high tech money into the real estate market means increased property taxes for Los Angeles County. It also makes you think of the trouble long time residents would be in with their property taxes if the pre-Prop 13 property tax system were in place. Dramatic increases in property sales prices would ripple through the community increasing property valuations and thus taxes for all.

The top dollars for educators comes with an additional price tag. Teachers’ union officials, currently in tough negotiations with the LAUSD over pay increases, will use the information about top administrators’ salaries in their quest for more money. High pay for administrators and wage increases for teachers will lead to larger pension obligations for the district.

Will the buying splurge and increased housing payments raise enough tax revenue for the schools to offset the teacher salary demands and increased pension obligations? It’s all connected. My suspicion is the school demands for money will still fall short of the new revenue so the debate over more taxes will continue.

Originally published by Fox and Hounds Daily

Top 5 Taxes You May See on 2016 Ballot

Last June, I wrote a column forecasting from least likely to most likely the tax increase measures that might be on the November 2016 ballot given the conversations going on then.

Time for an update.

As is nearly always the case in the political world, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

By measuring fact, rumor and innuendo I’ll offer my reading of the top five tax possibilities for the November 2016 ballot.

First, a word about those that did not make the list this time. Previously, a soda tax was on the list but that possibility seems to have faded for the moment. Instead, advocates are considering labeling sodas with more information about the sugar content.

There is a constant buzz about restructuring the entire tax system and that has been heightened by the introduction of a bill by Senator Bob Hertzberg that would re-do the tax system, cut some tax rates, and introduce a service tax. Hertzberg hasn’t developed the plan in full as yet. Both the left and the right have attacked the idea. However, he also is working closely with the Think Long Committee, which has the resources to qualify a measure for the ballot. As of now, the idea is not ready for consideration.

To the list, then:

  1. OIL SEVERANCE TAX. Previous Ranking #3.

Whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire Tom Steyer. He said he would rather work through the legislative process but the bill would unlikely pass the legislature. Steyer also is said to be interested in promoting an initiative that would require a two-thirds vote in local communities to approve fracking for oil. While he has the resources to do more than one measure, the odds are he would focus on just one, if any.

  1. SURPLUS! NO NEW TAXES. Previous ranking: Unranked

Okay, this is obviously not a tax increase measure. However, with the recent announcement of one billion unexpected dollars in the state treasury many experts predict that the state budget will have a surplus of two billion dollars or more. Under such conditions, some observers suggest new taxes won’t fly with the voters, so why try? A lot will depend on the fiscal situation heading into next year’s budget, but even if the economy holds steady and the budget is in good shape, it is hard to imagine there won’t be at least one tax increase measure on next year’s ballot. Still, the chances are more likely today than they were a year ago that a surplus could stall the tax increase movement.

  1. SPLIT ROLL. Previous ranking: #2

While there is still an on-going grassroots effort to promote a split roll property tax requiring business property to be taxed on a different basis than residential property, big players have yet to commit to funding such an initiative. Certainly, there would be big money spent to oppose such a measure so both sides are considering the issue carefully. The school establishment would have to step up to support a split roll and consider how a property tax on the same ballot with an extension of the Prop 30 taxes will play. Also, a school bond measure may be on the ballot attracting attention from the school folks. A couple of sources tell me a little air has come out of the split roll effort, so while it certainly hasn’t gone away, it drops to #3.

  1. CIGARETTE TAX: Previous ranking: #4

The possibility of a cigarette tax on the ballot has moved up simply because some of the items in front of it moved down in the rankings. There really hasn’t been a change in the emphasis of a cigarette tax by proponents. They will try the legislative route but if unsuccessful will consider going to the ballot where they were very close to passing a measure the last time they tried. No Lance Armstrong on their side this time, which is a good thing, although they’ll miss the money his group donated.

  1. EXTENSION OF PROPOSITION 30. Previous ranking: #1

No change here. Many insiders believe Proposition 30 would be the easiest tax to pass since it is already levied. Especially if the sales tax piece is removed, many voters would not directly feel the tax’s pinch. All the spending interests may not be happy since schools get most of the money, but extending Prop 30 still stands as the most likely tax measure to be on the ballot. The biggest question: What will Governor Brown say about continuing the “temporary tax?”

Joel Fox is Editor of Fox & Hounds and President of the Small Business Action Committee

Follow Joel Fox on Twitter @1JoelFox1

Originally published by Fox and Hounds Daily

Split Roll Debate Continues

While supporters of changing Proposition 13 to increase taxes on commercial property usually focus on raising the tax rate or frequently reassessing property, UCLA Law School professor Kirk Stark has a different idea – broaden the base of business property taxes by reassessing more often but at the same time lower tax rates on property and other business taxes. Stark made the proposal yesterday in Los Angeles at a panel discussion on the split roll that also featured Jon Coupal, president of the Howard Jarvis Taxpayers Association and Gina Rodriquez, Vice-President of the California Taxpayers Association. The event was sponsored by the Bisnow website, which covers people and projects in the commercial real estate business.

Stark suggested reassessing property on a regularly scheduled basis but lowering the 1% tax rate, eliminating property taxes on business equipment and reducing other business taxes. Stark said his goal was to harness the impulse to tweak Proposition 13 and gain sound tax policy rather than ratchet up the tax burden.

However, proponents of the split roll are after more money and lowering a series of other taxes doesn’t fit into the game plan. Nevertheless, Stark’s proposal in another in a line seeking changes to Proposition 13.

Cal-Tax’s Rodriquez argued there was no need to change any aspect of Proposition 13. She said there has been no shift of the property tax burden from commercial property to residential property, citing the fact that residential properties which claim the homeowners exemption saw property taxes increase by 6.8% since Prop. 13 passed compared to commercial property increasing 7.3% over the same period.

Rodriquez added that under Proposition 13 property tax is the most stable tax in the state and it produces growing revenue for local governments.

Jon Coupal from the Howard Jarvis Taxpayers Association agreed, pointing out that assessor officials around the state noted that because of the Proposition 13 tax system, which produces steady rising revenue even during difficult economic times because of the way it functions, counties were spared “horrible damage” during the Great Recession.

Coupal said California government is not starving for revenue, as tax increase proponents would have you believe. He said California has the highest income tax in the nation, the highest sales tax, the highest gas tax even before the inclusion of cap and trade fees and property taxes that are ranked in the top half of all states.

The issue of when a business property changes ownership triggering a reassessment of property under Proposition 13 received much attention during the discussion.

Stark complained that the Prop. 13 system allows legal entities to own commercial property making it difficult to determine a change in ownership. He mentioned the highly publicized case of a Santa Monica hotel purchased by computer entrepreneur Michael Dell, his wife and others without anyone getting 50-percent of the purchase denying a change of ownership reassessment which a court found legal.

Coupal told of a legislative bill authored by two Democrats last session aimed at reigning in abusive transactions under change of ownership statutes such as the Dell case. The bill failed, Coupal said, because public labor unions urged defeat of the bill as they want a full-blown split roll to change Prop. 13, not a corrective fix of the statutes.

Coupal argued there are no loopholes in Prop. 13 as critics charge. Proposition 13 calls for reassessment on change of ownership. The legislature wrote the rules on how that occurs, so legislative statutes are at the center of the change in ownership discussion, not the article put in the constitution by Prop. 13.

Originally published by Fox and Hounds Daily

Joel Fox is editor of Fox & Hounds and President of the Small Business Action Committee.

(Full disclosure, I am a member of Californians to Stop Higher Property Taxes)

Follow Joel Fox on Twitter @1JoelFox1

Tax Hikes Loom for 2016 Ballot

Although it may seem far in the distant future, there has been a great deal of speculation regarding what ballot propositions might appear on the 2016 General Election ballot in California.  Focusing on just those proposals having the potential for real harm to taxpayers, here is our short list:

SALES AND INCOME TAX EXTENSION — An extension of the temporary sales and income tax increase voters approved with Proposition 30 in 2012 is being advocated by public sector labor leaders.  The proponents will argue that, since Californians are accustomed to paying these higher rates, it should be more palatable to voters to make these tax increases permanent as opposed to some “new” tax.

OIL SEVERANCE TAX — An oil severance tax – taxing petroleum as it is extracted – is likely to be advanced by those who see an opportunity to soak an unpopular industry. They will count on the public not noticing that these taxes will be passed on to California drivers in the form of higher gas prices.

SPLIT ROLL PROPERTY TAX — Those on the far left are salivating over the prospect of an increase in property taxes for commercial property.  This attack on Proposition 13 would split the tax roll so that business property will pay much more. The impact on small business and jobs will be glossed over with the usual platitudes like, “It’s for the children.” They will totally ignore that higher taxes on businesses are passed through to consumers in the form of higher costs for goods and services.

TOBACCO TAX — A tobacco tax is also in the offing.  The state tax on a pack of cigarettes is 87 cents.  Those wanting more tax revenue would like to add another two dollars and will probably also claim it is a blow for public health because it will help smokers quit.  Even if one opposes smoking, it has to be acknowledged that tobacco taxes are highly regressive as well as leading to more black market commerce which, by the way, goes untaxed.

LOWERING OF THE TWO-THIRDS VOTE FOR BONDS AND/OR PARCEL TAXES – Of greatest concern to California homeowners is the possibility that the two-thirds vote requirement for local bonds and parcel taxes will be eliminated.  These levies are repaid only by property owners.  How realistic is this threat?  Considering that, for the first time since Prop 13 was passed in 1978, a house of the California legislature actually passed this anti-13 proposal (ACA 8) the threat is very real.

BAG TAX – The “bag tax” – a charge on single use bags – is actually not a tax increase proposal. Rather, this tax was enacted by the legislature but is now subject to repeal via the referendum power by those opposed to the tax. The tax reflects “nanny government” at its worst.

Here are a couple of observations about this potential tax “tsunami” at the ballot box. First, the threat from anti-taxpayer initiatives is even higher than in prior years because, for 2016, it is much easier to qualify initiative measures generally.This is due to the fact that the signature requirement is based on the most recent election’s voter turnout. 2014’s historically low turnout means that initiative measures now need far fewer signatures to qualify than in previous years.

Second, what happens if all these tax hikes appear on the ballot?  Would this be the ultimate “Dooms Day” for taxpayers?  Perhaps.   But, in an odd way, it might be a positive development. By overreaching and asking for the moon, the tax-and-spend crowd might ensure defeat of all the measures as voters begin to add up how much these proposals, in the aggregate, are going to cost.

Third, while Californians in the last election were fairly generous in passing local tax measures, this does not necessarily translate into support for state tax hikes. Voters’ recent support for Proposition 30, discussed previously, was based on a perceived crisis for education if the taxes were not approved. Plus, the hikes were sold as “temporary.” Those conditions are not currently present. Californians are increasingly aware that we live in a high tax state and resistance to higher taxes will be high for the foreseeable future.

In any event, expect to see the groundwork laid for these and other tax raising initiatives very soon.   It will be important for taxpayers to pay close attention and to keep a tight grip on their wallets.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

This article was originally published on HJTA.org

It’s Scary Season Again — Property Tax Season

For many the real scare this time of years is not the monsters at our doors on Halloween but the property tax bill in the mail box.

Fortunately, as a direct result of Proposition 13 which limits increases in a property’s assessed value to two percent annually, most property owners have a good idea what their tax bill will be even before opening the envelope.  However, like we do every year about this time, the Howard Jarvis Taxpayers Association reminds taxpayers to carefully examine their latest property tax bill.  Although not common, assessors sometimes do make mistakes.

Taxpayers should understand the various charges and make certain that they are not being assessed for more than they are legally obligated to pay.  The best way to check a tax bill is to have your previous year’s bill handy for reference.

Checking the bill is especially important for those who bought their homes a few years ago at the height of the market.  If the current home value is actually lower than the assessed value shown on the tax bill the owner is entitled to file for a reduction in taxes.

Typically the property tax bill will show three categories of charges. They are the General Tax Levy Voted Indebtedness and Direct Assessments.

General Tax Levy

The General Tax Levy is what most people think of when talking about property taxes. It is based on the assessed value of land improvements and fixtures.  This charge usually makes up the largest part of the tax bill and it is the amount that is limited by Proposition 13.

Proposition 13 passed overwhelmingly by voters in 1978 established a statewide uniform tax rate of one percent of assessed value at the time of purchase and limited annual increases in assessed value to no more than two percent. From a practical standpoint this means that once the base year value of your property is established the General Tax Levy cannot be increased more than two percent each year. This allows all property owners to predict their property tax bills into the future and budget accordingly.

The best way to check to make sure that your current General Levy of Assessment is correct is to compare it with the previous year’s bill. The increase should be no more than two percent unless there have been improvements to the property like adding a room to a house or if you previously received a “reduction in value.” This bears repeating: Because the real estate market in many parts of California is recovering many homeowners who previously received a temporary reduction in “taxable value” from their assessment may now see an increase in their tax bill more than two percent from last year.  But in no case will the taxable value be more than the initial Prop 13 base year plus two percent annually from the date of purchase.  Although that may seem unfair, keep in mind that while the reduction was only temporary, the savings you received when your property was worth less are permanent.

If in doubt about the current value of your property, check sales of comparable homes in your neighborhood.  If homes like yours are selling for less than the valuation on your latest bill contact your county assessor and ask that the value and resulting tax be adjusted to reflect true current value.

Voted Indebtedness

Voted Indebtedness is made up of those bonds and per parcel taxes approved by the voters.

Local general obligation bonds for libraries parks police and fire facilities and other capital improvements are repaid exclusively by property owners. Because a minority of the population is required to pay the entire amount the California Constitution of 1879 established the two-thirds vote for approval of these bonds. This assures a strong community consensus before obligating property owners to repay debt for 20 or 30 years.

Until the year 2000 local school bonds also required a two-thirds vote but the passage of Proposition 39 lowered the vote to 55 percent. (Of course this did very little to improve schools as was promised). Because the 55 percent requirement guarantees that most school bonds will pass regardless of merit many homeowners are seeing a significant increase in the Voted Indebtedness column on their tax bills.

Less common than bonds are per parcel taxes — although this could change as a result of efforts by the Legislature to make parcel property taxes easier to pass. These are taxes on property ownership not on property value. Under Proposition 13 they require a two-thirds vote and are also listed either under “Voted Indebtedness” if they are being imposed to repay bonds or under “Other Levies” if they are for operational expenses of a local government entity.

Direct Assessments

Ironically under the system in place for over a century property taxes go into the general fund and are used for local services unrelated to property. For services to property such as sidewalks and sewers we pay extra. These charges are known as direct assessments.

Because of Proposition 218 — the Right to Vote on Taxes Act placed on the ballot by the Howard Jarvis Taxpayers Association in 1996 — property owners must be given a meaningful say in approving new assessments. Before an assessment can be imposed or increased property owners must be informed in writing and be given the opportunity to cast a protest vote on the new assessment or assessment increase.

For more information regarding your property tax bill go to HJTA.org and click on Frequently Asked Questions then scroll down to “About Property Tax Assessments”.

If you have a question about your property tax bill you should contact the office of your county assessor. It’s your money and you have a right to be certain that your bill is correct.

This piece was originally published on HJTA.org

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.