Legislation calling for a study of how much revenue a split roll property tax might collect in California has been withdrawn by its author. Assemblyman Mike Davis canceled an Assembly Revenue and Taxation Committee hearing on his bill, AB 2461, on April 14 and indicated that he does not intend to pursue it further.
The bill would have required the Board of Equalization to conduct a study on the amount of revenue that would have been generated during the previous fiscal year if nonresidential commercial property had been reassessed at its fair market value at the prior fiscal year. The BOE would have been required to report the results of that study to the Legislature and the California Department of Finance by January 1, 2010.
Cal-Tax and other opponents of AB 2461 viewed the measure as a first step toward trying to undo Proposition 13 protections for California property owners. A statement from the author printed in a committee analysis indicated that Mr. Davis supports returning to a system in which property owners would be taxed based on assessors' opinions of market value:
"California's current budget crisis provides us an opportunity to explore practical solutions to the problems being faced by our State. Solutions often require that we confront the past and remove barriers to building a better future. Since the passage of Proposition 13 – nearly 30 years ago – there have been numerous studies and articles printed that highlight the many problems identified with the State's commercial property tax system. Those problems include the inequities in the business marketplace and the overtaxing of homeowners. Additionally, these studies have shed light and inspired legislation to the possibility of changing how commercial property values are assessed in the State. The data we seek will provide information to help better decide on funding education, healthcare and other valuable state programs."
Cal-Tax President Teresa Casazza said a split roll would be "the single most damaging tax policy change that could occur in California."
"Estimates indicate that a split roll would increase property taxes $3.5 billion to $7 billion, which would result in higher prices for consumers and a less competitive climate for California entrepreneurs to expand and create jobs," Ms. Casazza said.
Cal-Tax Vice President and General Counsel Michele Pielsticker testified against the legislation at a recent Board of Equalization hearing, and she contacted legislators from both parties to explain the importance of Proposition 13 protections, and to warn of the economic consequences of the multibillion-dollar tax increases that would hit California businesses if a split roll system were adopted.
Ms. Pielsticker said AB 2461 called for a one-sided study that would not adequately report on the many negative side-effects of a split roll system. A complete analysis, she said, also would delve into these issues:
· What would be the impact on local government revenues under a split roll property tax system when an economic downturn or recession devalues business property?
· What would be the additional cost for county assessors, who would bear the burden of more frequent reassessments under a split roll property tax system?
· Would small businesses bear a disproportionate cost from a property tax increase under a split roll system due to pass-through provisions addressing property taxation in many commercial leases?
· If the split roll disproportionately impacted small businesses, would it likewise place a disproportionate burden on women- and minority-owned businesses?
· What effect would increased property taxes for businesses have on the value of California public employee pension funds?
· What would be the dynamic "spin-off" effects of higher business property taxes on consumers?
· What would be the dynamic "spin-off" effects of higher business property taxes on the unemployment rate?
Opponents of the legislation also countered the proponents' overriding contention that a split roll system would ensure more "fairness" in the way competing businesses are taxed. They noted that the lack of equal treatment under the "fair market value" system of assessing was one of the major factors that led voters to support the "acquisition value" system in Proposition 13.
Before Proposition 13, property often was assessed based on assessors' opinions of the "highest and best use" of a parcel – meaning a mom-and-pop grocery in a popular location could be assessed not on its actual value, but on what the assessor believed it would be worth if it were converted into a high-rise, restaurant, gas station, or some other use that would bring in more revenue than a small grocery store. This system was highly subjective, and led to unpredictable property tax bills for taxpayers. Proposition 13 is based on an objective standard – sales price – and has made California's property tax predictable for taxpayers, and a stable and predictable revenue source for the government.
Proponents of AB 2461 included government employees' unions and Lenny Goldberg of the labor-financed California Tax Reform Association. Mr. Goldberg, who previously has sponsored ballot initiatives seeking to increase business property taxes through a split roll, spoke in favor of Mr. Davis' bill at the April 8 BOE hearing in Sacramento.
Cal-Taxletter April 18, 2008
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