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Sunday, May 13, 2012

Prop 13 reports

Two reports on Prop 13 were issued recently:  (1) A chapter in the Joint Venture 2012 Index (pages 7 - 11 and 62 - 71, and (2) a March 2012 report focused on Silicon Valley by the California Tax Reform Association. A few highlights:

1. Prop 13's valuation method and the fact that residential property changes hands more frequently than does non-residential property has led to a greater aggregate assessed value for residential property than for non-residential property.
Source: Joint Venture Index, page 66;
2. "Rather than providing an incentive for new economic activity, Proposition 13 places a higher tax burden on new investments. The result of the 2 percent limitation on assessed value increases as long as property does not change hands results in a situation where new home owners or new business owners are paying much higher property taxes than those who bought homes or business property years or decades earlier."  [page 67 of JV Index]

3. Property taxes per square foot of land for high tech companies in Silicon Valley ranges from $.005 to $2.18. [CTRA, page 9]

4. "The disparities in assessed land values and taxes, by which land indistinguishable in purpose and location are assessed in wildly different ways, cannot be explained in any rational or defensible way. There is no theory of taxation by which indistinguishable parcels of land should be taxed at many multiples of each other." [CTRA, page 22]

5. A significant portion of assessed property is in recently valued properties. With prices down, we are not likely to see significant increases in property taxes for many years.  [page 62 of JV Index]

While there are some oddities with Prop 13, such as having people pay vastly different amounts for similar services. Also, having different tax liabilities for businesses depending on how long they have owned the property and avoided changes in ownership, creates competitive disadvantages to new companies. 

While there is sometimes talk of modifying Prop 13, such as to allow reassessment to market of non-residential properties, transition rules would be needed, such as to phase-in the change. A changes to provide horizontal equity should improve business competitiveness and fairness (and bring in more revenue).

A part of Prop 13 that makes it difficult to improve the tax system is the 2/3 vote requirement in the legislature.

Do you think any changes should be made to Prop 13? If yes, what?

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