The November 2020 ballot will contain the first commercial property initiative since Proposition 13 (Prop 13) in 1978. The measure is called “The California Schools and Local Communities Funding Act of 2018.” While the measure preserves the Prop 13 benefits for homeowners and residential rental property owners, it will cause a significant increase in property taxes for commercial and industrial property owners. If passed, the provisions would become operative on January 1, 2020.
The initiative provides that the assessed value for property tax purposes will be the fair market value (FMV) on the lien date for the 2020-2021 fiscal year and thereafter. The initiative applies only to commercial and industrial properties, with an exception for certain small property owners. It will not apply to residential properties whether occupied by a homeowner or a renter, and it will not apply to properties used for commercial agricultural production purposes. After the initial reassessment for the commercial and industrial properties, there will be subsequent FMV reassessments occurring no less frequently than every three years.
Commercial and industrial property means real property either used or zoned as commercial or industrial and vacant land that is not used or zoned for residential or agricultural use. Vacant land will not be subject to the provision if it is zoned for open space or the equivalent designation for land free of structures and natural in character to provide for recreation, education, scenic or cultural values.
Residential property is defined to include property used or zoned as residential including both single-family and multi-family or multi-unit structures.
The measure does contain a recognition of mixed-use properties. In these cases, only the commercial or industrial portion of the mixed-use property will be subject to the reassessments.
Finally, there is an exemption to these provisions for small business owners. Real property owned by a taxpayer who operates a business on that real property will not be subject to the reassessments. The owner must operate his/her business on a majority of the real property and the total FMV of all the property owned by the taxpayer in the state in which the business operates is less than $2 million.
Greg Dresdow is an Advisor in the Real Estate Industry Group at BPM. Contact Greg at [email protected] or call 925-296-1088.
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