The flawed argument in favor of Proposition 15
In my previous article, I expressed my arguments in favor of voting “no” on Proposition 15. I used an example of a Downtown Napa commercial property owner who has owned a property for decades and is currently paying property taxes on an assessed value of $250,000. Their current market value is $10 million.
Their current annual property tax bill of $2,500 will increase to $100,000 for the ad valorem tax alone.
A reader of my article in the Napa Valley Register expressed their opinion in a letter to the editor on the distortion in the law and the lack of fairness between a new owner and someone who has owned a property for many decades.
It seems my article swayed this undecided voter to vote in favor of Proposition 15 being there is “no good reason” to tax a commercial property for less than its market value.
I appreciate the writer taking the time to send in their article and to provide their perspective on this historical debate. I would like to make several comments.
Under Proposition 13, which came into effect in 1978, its purpose is to cap the ad valorem tax of real estate owned to an annual increase of the cost-of-living index or 2%, whichever is less. Once sold, a reassessment of the property occurs to the current market value. The tax is calculated based on the new value.
Proposition 13 includes all types of real estate in California. The opinion letter implied that the current law is unfair to new owners of commercial property only. The current law mistreats all new property owners. For example, you could have two similar houses next to each other, with one property owner paying much less in property taxes than their neighbor.
My purpose in writing these articles is to show the imbalance in requiring the property owner of a specific type of real estate to pay more in tax than the owner of a different kind of real estate. Though I do not desire Proposition 15 to include all real estate types, the alternative is to vote “no,” keeping Proposition 13 in effect as originally intended.
Proposition 13 has been in the crosshairs of many politicians in the past who desire to destroy the tax benefits all California property owners experience today. The agenda is well-known to eliminate the reprieve gradually--Proposition 15 is only the beginning.
Commercial properties affected by Proposition 15 are those with a market value of over $3 million. These properties include those occupied by Walmart, Target, Whole Foods, Lucky, McDonald’s, and the fine dining restaurant you frequent. The tenants of these types of properties have included in their leases an expense called triple-net. It is a reimbursement to the landlord of costs to operate the building. One of the expenses is property taxes.
The tenant will be directly affected by the passing of Proposition 15, but it will not end there. Next, in line to absorb the added cost will be the consumer. We will all be affected in the passing of Proposition 15 indirectly. It will not stop there, as the opinion letter from this individual stated, “...our local governments need revenue more than ever…” Next in line for the removal of Proposition 13 protection could be your home.
Burt M. Polson is the CEO of ACRESinfo.com, a commercial real estate brokerage company and CEO of StoneMarkerInvestments.com, a private equity real estate fund. Call him at (707) 254-8000 or email [email protected] and [email protected].