The Legislature soon may alter Proposition 13 in a way that would bring a measure of fairness to California’s property tax system and cause some corporations to pay higher taxes in the future.
The legislation, AB 2372 by Assemblyman Tom Ammiano, D-San Francisco, deserves support among even the most adamant anti-tax legislators.
Under Proposition 13, property is supposed to be reassessed each time it is sold. When you buy a home, you’ll pay taxes based on the purchase price, not on the amount prior owners paid.
The change-of-ownership rule is straightforward. But if you’re a rich guy or a corporation with fancy lawyers, it’s easily evaded, as The Los Angeles Times wrote last year when it described Texas computer magnate Michael Dell’s purchase of the iconic Fairmont Miramar Hotel in Santa Monica.
Despite his wealth – estimated by Forbes at $18.1 billion – and the hotel’s $200 million price tag, Dell evidently wanted to nick Los Angeles County out of roughly $1 million a year in property taxes.
The solution: split the purchase among himself, his wife and a limited liability corporation so that no single entity or individual owned more than half the property.
Since a majority of the property didn’t change hands, his attorneys reasoned, there could be no reassessment based on the 2006 purchase price. Instead, property taxes would continue to be based on its 1999 value, $86 million.
“The Miramar deal illustrates how businesses can easily – and legally – avoid property tax hikes under the California ballot initiative passed in 1978. As a result, the state loses tens of millions of dollars in revenue each year, officials estimate,” the paper reported.
The Los Angeles County assessor challenged Dell’s claim. The issue is pending before a California state Court of Appeal. The issue has played out in several other instances, particularly when publicly traded corporations buy property. It costs government about $73 million a year, according to the Board of Equalization.
Ammiano’s bill would close the loophole for future transactions. He has been seeking changes to Proposition 13 for much of his tenure in the Legislature, often at the urging of veteran lobbyist Lenny Goldberg and his left-leaning California Tax Reform Association. Their tenacity is to be admired.
The Howard Jarvis Taxpayers Association, the defender of the 1978 initiative that fanned the anti-tax movement, is neutral on the bill and uninterested in lobbying against it.
The California Chamber of Commerce, which opposed prior versions, appears willing to support a revised measure, depending on its final wording. Jarvis and the chamber are wise to take such stands.
Voters overwhelmingly approved Proposition 13 in 1978 because rapidly rising property taxes were forcing homeowners to sell. Since its passage, however, the burden of paying property tax increasingly has shifted away from business, toward homeowners.
Proposition 13 no doubt remains popular among homeowners. But the Public Policy Institute of California found in a 2012 poll that Californians are supportive of the so-called split roll by which businesses would pay higher property taxes than residential property owners.
Ammiano’s proposal, which is pending before the Assembly Appropriations Committee, stops short of creating a split roll. Rather, it focuses on one loophole.
Lawmakers ought to approve it. There is no justification for wealthy people and large corporations getting tax breaks at the expense of homeowners and small businesses.