Californians Reject Prop. 15November 10, 2020 – Client Alert
While national attention over the past week has been focused on the outcome of the presidential election, Californians have also had their eyes on the fate of a number of propositions that made their way onto the November 3 ballot. Among them is Proposition 15, which called for increased property taxes on commercial and industrial properties. Although the result has not yet been certified, the reported vote tally indicates that Proposition 15 will be defeated by a 51.86% to 48.14% margin.
What would a Proposition 15 victory have meant?
For the past 40 years, Proposition 13 has provided that all California real property is taxed at a base rate of no more than 1% of its assessed value and assessed values generally cannot be increased by more than 2% per year until there is a change in ownership of the property or new construction. Upon a change in ownership, the entire property is reassessed at its fair market value. In the case of new construction, the newly constructed improvements are reassessed at their fair market value.
If passed, Proposition 15 would have amended Proposition 13 to require the periodic reassessment of commercial and industrial property. Subject to certain exceptions and exclusions, commercial and industrial properties would be reassessed to their fair market value over a phase-in period beginning on the lien date for the 2022-23 fiscal year. After the initial reassessment, commercial and industrial property would be periodically reassessed at least every three years.
What does Proposition 15’s defeat mean?
The defeat of Proposition 15 means that Proposition 13 will continue to apply to commercial and industrial properties, which will retain their current assessed values (subject to the 2% increases described above) unless and until there is a change in ownership or new construction. Accordingly, owners of commercial and industrial properties in California should continue to plan ahead in order to avoid an inadvertent change in ownership and the accompanying reassessment.
Will there be future attempts to amend or repeal Proposition 13?
Since its passage in 1978, there have been numerous attempts to amend and repeal Proposition 13, either in whole or in part. Given the relatively close margin of the Proposition 15 vote, it is reasonable to expect that similar measures may find their way onto future California ballots.