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California Ballot Initiative Would Establish "Split Roll" Tax System

Business and residential properties would be assessed differently
by Kerana Todorov
October 12, 2020

A Nov. 3 ballot measure that would raise billions of dollars in new commercial and industrial tax revenues for local governments and school districts has drawn the ire of agricultural groups, retail trade associations, chambers of commerce and others. They call the measure an unprecedented tax hike, flawed and full of unintended consequences. 

At the same time, Prop. 15 has the strong support of labor unions, Democrats and Gov. Gavin Newsom and others who say the wealthiest corporations have not paid their fair share of property taxes for decades under Prop. 13, the tax cut initiative California voters approved in 1978. 

“This initiative invests in our communities all across the state,” David Goldberg, vice president of the California Teachers’ Association, one of the measure’s backers, at a virtual forum organized by the Public Policy Institute of California in September.

Growers, wineries as well as transportation, agricultural supply companies, will pay more in property taxes, according to agricultural trade associations. 

The California Association of Winegrape Growers, the California Farm Bureau Federation, the Napa County Farm Bureau and Napa Valley Vintners are among the agricultural groups that oppose the measure.

“It is a terrible time to be considering massive tax hikes on California businesses,” said Rex Stults, vice president of Industry Relations at Napa Valley Vintners. “The Covid crisis has caused many businesses to close. Many remaining businesses are struggling to keep their doors open and employees employed. Add in two wildfires, with the Glass fire being extraordinarily harmful to commercial structures in Napa County, including wineries, and you can’t help but wonder what the consequences of a massive tax increase on businesses would be,” he said. “There couldn’t be a worse time for this idea. Vote no on Prop. 15.”

If approved, Prop. 15 would raise an additional $6.5 to $11.5 billion for local governments, public schools and community colleges, according to the non-partisan Legislative Analyst’s Office. Sixty percent of the funds would go to local governments and 40 percent to public schools. Property taxes now total $65 billion a year, according to the Legislative Analyst’s Office. 

Under current rules set by Prop. 13, residential, commercial and industrial properties based on the purchase price; property tax bills increase up to 2 percent a year. 

Most properties are taxed below their market value – or what they could be paid for, according to the Legislative Analyst’s Office. That’s because their market value grows more than 2 percent a year, Brian Uhler, deputy legislative analyst for the Legislative Analyst’s Office told the California State Assembly this summer.

Prop. 15 would establish a “split roll” tax system under which business and residential properties are assessed differently. Commercial and industrial properties would be re-assessed at least once every three years based on their current market value.

Prop. 15’s provisions do not apply to agricultural lands. However, the California Farm Bureau Federation and others stress that vineyards, fruit tree orchards, wineries, barns, milking parlors, processing facilities and other improvements would be taxed under Prop. 15’s provisions.

Under Prop. 15, properties whose owners possess $3 million or less in commercial holdings statewide would continue to be taxed based on their purchase price. In addition, businesses with $500,000 worth of machinery and other equipment would pay no taxes on these items, according to the Legislative Analyst’s Office.  

But Michael Miiller, director of government relations at CAWG, said there are “very few, if any” wineries whose equipment is valued at less than $500,000. Many growers have more than $3 million in total California holdings, he noted.

Opponents also include the California Business Roundtable, chambers of commerce, the Latino Business Association, the Cemetery and Mortuary Association of California and the Howard Jarvis Taxpayers Association. The California Assessors’ Association also voted to opposed Prop. 15, citing implementation costs estimated at $1 billion over the first three years after passage and administrative issues. 

The association said Prop. 15 would trigger massive re-appraisal appeals and warned the demand for appraisers would be overwhelming. It would take years for counties to fill vacant appraisers’ positions, according to the association.

Larry Stone, longtime assessor in Santa Clara County, said Prop. 15 would be “impossible” to implement.

Stone questioned how he could hire 50 to 60 new and experienced appraisers to implement Prop. 15 when he cannot even fill five vacant positions. It takes five years to train an entry-level appraiser to be able to assess malls and business buildings, Stone also said. The measure only gives him 18 months, he added. 

Rural counties would end up with less property tax dollars, according to the California Assessors’ Association. Plumas County’s assessment roll, for instance, could decline by $90 million, according to the analysis. 

That’s because the county has “very few” commercial properties with market values in excess of $3 million that would be taxed under Prop. 15, according to an analysis provide by the association. At the same time, most businesses in the county have assessed values under $500,000 and qualify for the tax breaks.

Charles “Chuck” Leonhardt, Plumas County assessor, told the California State Assembly this summer Prop. 15 would create an “unfunded mandate on rural counties.” 

In the meantime, both sides continue to raise money. The measure has raised about $48 million, according to Voter’s Edge California. That includes nearly $7 million from the Chan Zuckerberg Initiative Advocacy, a foundation created by Facebook’s co-founder Mark Zuckerberg and wife Priscilla Chan, according to the California Secretary of State. Opponents have raised about $37.5 million, including more than $15.7 million from the California Business Roundtable and more than $503,000 from the California Farm Bureau Federation, according to Voter’s Edge California.

The measure needs a simple majority of the vote to pass — or 50 percent plus one, according to the California Secretary of State. As of Sept. 4, there were more than 21.2 million registered voters in California. 

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