Commercial Split Roll Taxes

On May 2nd, we had Christopher Carlisle, C.A.R. lobbyist, speak to AAR members about Commercial Split Roll Taxes and the implications involved if this were to come into effect. Currently under Proposition 13, commercial property taxes are only reassessed when the property is sold and title changes to a new owner. However, this newly proposed legislation would require commercial property to be reassessed at fair market value instead of from the date it was purchased according to Prop 13. It would also institute reassessment and transfer of ownership if there was a change in the ownership of the company that owns the commercial property even though it did not change title to the real property itself.

Split roll tax disregards the protections Proposition 13 allotted to property owners and has a negative impact on job-producing operations and the state’s property tax structure. Commercial properties already contribute approximately two-thirds of the property tax revenues, just as they did before the passage of Proposition 13. Implementation of a split roll tax would mean tax increases for California businesses likely to exceed $3 billion per year. Increasing commercial property taxes will negatively affect businesses, their ability to provide jobs, and prohibit benefits and cost savings to tenants and customers. Consumer costs could increase as a result of the increased cost of doing business.This Issue would have major affects not just on property owners but also tenants, customers and businesses. If apartment buildings are re-assessed, this would mean additional costs are passed along to tenants. Retail operations typically have a pass-through clause on increased taxes or fees, which will most affect small businesses. Increased fees on businesses are likely to drive more businesses out of California. We have already experienced business practices being affected by rising health care, insurance and other costs, this would increase their vulnerability. It could have effects on pensions, benefits, pay and sustainability.

When considering this legislation, it is important to look at the underlying consequences our community would face:

• How would increased fees affect the property values of your client's properties.


• How would increased taxes affect the sustainability and business practices for companies throughout California?- How would increased fees affect the ability of your clients to lease their properties?- How would increased taxes affect your clients looking to lease property?- What would the affect be on multi-family residential units, and how would the government likely react?
  

It is important to look at the repercussions of such legislation. This would increase tax revenue, however, if businesses and property owners cannot thrive, they will take their businesses and exchange their property to a different state or simply go out of business. It will also continue to force investors to look to other states for more profitable ventures. Property values and cost of doing business in California is already significantly higher than in most other states, this legislation would cause further detriment to the situation making the business climate of California less competitive and negatively affecting the state’s economic activity.


The information in this article was obtained through CAR.org, Caltax.org and CalChamber.com. If you have any questions or comments on this article, please write to Linda.Vidov@Century21.com or call 626-930-9392.

Linda Vidov is a Commercial REALTOR at CENTURY 21 Adams & Barnes and Local Goverment Relations Chairwoman for the Arcadia Association of REALTORS. For additional information on her practice, visit her on-line at sgvcommercial.com