Prop. 15: What You Should Know About the California Business Tax Overhaul

Sentence 15 would loosen the tax limits on commercial and industrial real estate and spend the resulting income on local governments and schools.

Here’s a quick rundown of the suggestion:

The details

Since 1978, all California property taxes have been collected according to the system introduced by Proposition 13 voters. The value of a property is based on its last purchase price, even if it last changed hands decades ago and similar properties nearby were sold more recently and are subject to higher taxes. Proposal 13 limits the tax rate to 1% of the estimated value and this estimate cannot increase by more than 2% per year.

The new electoral measure would retain all existing rules for residential real estate. However, many commercial and industrial properties would be re-valued, with the updated values better reflecting current conditions in the real estate market – which would result in more taxes being paid by their owners. Exceptions would be made for most commercial properties less than $ 3 million and agricultural land. Large corporations, which are likely to be expected to pay much higher property tax payments, may be the most obvious target of Proposition 15.

Opponents claim the impact of the measure will be far greater than advertised, and insist that many of Proposition 15 proponents are also hoping one day to reconsider current property tax restrictions on homeowners.

Proponents argue that the change would primarily affect large corporations by removing the low-tax protection of Proposition 13 from 1978 while protecting California entrepreneurs and farmers.

The state of the race

Polls have shown Proposition 15 to be a close race. A poll by UC Berkeley’s Institute of Governmental Studies last week found that Proposition 15 was supported by 49% of likely voters – as in September. However, the opposition rose to 42%. Less than one in ten voters in the poll, which was conducted between October 16 and October 21, was undecided. The Berkeley poll found evidence that a key allegation made by opponents of Proposition 15 resonated with voters – that the move is a first step towards eventually lifting Proposition 13’s property tax limits for homeowners. The proposed constitutional amendment specifically states that the rules governing home taxation will not be changed. But 56% of likely voters agreed that these changes could be on the horizon.