Who says California has a bad business environment?

It’s very nice to buy commercial property in California under the existing Prop 13 rules:

“Liberal San Francisco Assemblyman Tom Ammiano, the man behind a legislative proposal to legalize marijuana, wants to close some of the loopholes in state tax law that have allowed some businesses to change hands without being reassessed for rising property values and corresponding taxes.”
Bill Would End Tax Loopholes Under Prop. 13 For California Businesses, by Dennis Romero, LA Weekly, May 11, 2010

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“Proposition 13 made property taxes predictable and, for many California homeowners, affordable. It’s no wonder that there’s a fierce backlash whenever anyone suggests rethinking any aspect of the 1978 ballot initiative.

“But here goes.

“A new study concludes that the rules adopted by the Legislature for commercial property sales have had the effect of shifting the tax burden to residential property owners. The California Tax Reform Association says changing those rules would produce millions of additional tax dollars for schools, police and fire protection and other local services that have been cut time and again — without any impact on taxes paid by homeowners.

“Here’s why: Under Proposition 13, residential property taxes are straightforward. When a house is sold, the tax bill is fixed at 1 percent of the sale price with increases limited to 2 percent annually. The formula is written into the state constitution and can be changed only by the voters.

“If a business property changes hands in a single transaction with a single buyer, the same rules apply. But if no one buys a majority interest all at once, the property tax base remains unchanged. Most business deals are structured to avoid a reassessment. Among the examples cited in a recent legislative report was the 2002 sale of Louis M. Martini Winery to E&J Gallo, which would have resulted in $700,000 a year in additional property tax revenue, mostly in Napa and Sonoma counties, if not for the special treatment of commercial property sales.”
PD Editorial: Old Prop. 13. It’s time to revisit the rules for commercial property sales. Sales of commercial property, such as office space, can be treated differently than sales of residences for property tax purposes, by Kent Porter, The Press Democrat, May 14, 2010

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“On November 5, 2009, two ballot initiatives to remove certain Proposition 13 property tax protections for California commercial property were filed with the state’s Attorney General.

“The first initiative, titled the “Protect the Homeowners and Close Corporate Tax Loopholes Act” (No. 09-0077, the “Reassessment Initiative”), would remove the Proposition 13 limits on assessed value of commercial real property and subject such property to reassessment at fair market value at least once every three years.

“The second initiative, titled the “Education and Taxpayer Fairness Act” (No. 09-0078, the “Rate Initiative”), would raise the property tax rate on commercial real property by 55 percent (from 1 percent to 1.55 percent) and reserve the incremental property tax revenue for California public schools.

“Neither initiative would change any of the existing Proposition 13 protections for residential real property.”
California Ballot Measures Would Cut Proposition 13 Protection for Commercial Properties, By Craig A. Becker and Lawrence L. Hoenig, tax partners in the Palo Alto office of Pillsbury Winthrop Shaw Pittman LLP, December 2009

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“Proposition 13, the famous – or infamous – California property tax limit passed by voters in 1978, requires property to be reassessed upon a “change of ownership.”

“For homeowners, that’s an easily understood provision. When one buys a house, its base tax value is pegged at its sales price.

“When it comes to commercial property, however, change-of-ownership rules adopted by the state three decades ago are anything but simple. If business property changes hands entirely in a single transaction with a single buyer, the rules governing homes also apply – but business deals are typically more complex.

“If no one buyer purchases more than 50 percent of the property at any one time, it generally does not constitute a ‘change in ownership.’ Business deals in California are frequently structured to avoid reassessment.

“That, say critics, is a giant loophole that artificially depresses commercial property taxes, thus costing local governments – and indirectly the state – untold billions of dollars.”
Dan Walters: Bill looks to fix Prop. 13 ‘loophole’, by Dan Walters, Sacramento Bee, May 11, 2010

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“On May 5 the San Francisco Bay Guardian, a leftist political pamphlet, weighed in with a different view of the 1978 measure in an unsigned editorial supporting Assemblyman Tom Ammiano’s AB 2492, which would preserve Prop 13’s tax breaks to residential property owners, while eliminating certain breaks for owners of commercial property.

“‘Millions of homeowners love their low taxes, and even the liberals among them are dubious about giving up their cherished perk,’ said the editorial, before going on to suggest Prop. 13’s homeowner tax breaks aren’t nearly as bad as Buffett makes them out to be.”
Guardian Editors Would Benefit from Prop. 13 Legislation They Endorsed, by Matt Smith, SF Weekly, May. 7 2010

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“In Los Angeles, residential property accounted for 53% of the property taxes paid in 1975. In 2009, that figure had mushroomed to 69%, according to the report.

“Lenny Goldberg, executive director of the California Tax Reform Assn., which wrote the study, said a broken property tax system has allowed companies like Chase, which purchased Washington Mutual in 2008, to avoid paying higher property taxes on all the bank branches’ land.”
Companies ‘laughing at us’ over property tax loopholes, says lawmaker, by Shane Goldmacher, LA Times blog, May 6, 2010

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“What businesses dodge, of course, the homeowner pays. It’s fair to say that lots of well-off California businesses are making out like bandits at the homeowners’ expense.

“Goldberg calculates that Disneyland, which hasn’t had a reportable change of ownership since, well, forever, is currently taxed at an average of about a nickel per square foot. For comparison, a median California home bought last year (2009) out of foreclosure, measuring 1,600 square feet and selling for about $330,000 (these are averages from the California Assn. of Realtors), would incur property tax of about $3,300 per year, or $2.06 per square foot.”
It’s time to close a big tax loophole for businesses. California’s property tax burden has gradually shifted to homeowners because commercial and industrial property doesn’t change hands as often as homes and the sales can be easily disguised, by Michael Hiltzik, California Tax Reform Association, July 13, 2009 (Even Disneyland is screwing California. Or maybe especially Disneyland is screwing California. Disneyland seems to own the City of Anaheim now, too.)

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Here is the new report mentioned above at California Tax Reform Association.

Making mega-corporations, like Chase Bank, pay their fair share of California property taxes isn’t going to destroy small businesses in California any more than updating property taxes on multi-million dollar homes is going to throw seniors out of their cottages. AB 2492 isn’t going to solve all of California’s problems, but it’s a step in the right direction. And taxing legalized marijuana should get the old long green rolling right into the States coffers. Also get rid of the 2/3 majority rule, and we be stylin’.

Otherwise we’ll turn into Mississippi with a surf culture and not much else to define us and nothing left to be proud of.

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