February 2020

PROPOSITION 13:
California doesn’t have a revenue problem -            but rather a spending problem

The Amador County Tax Assessor has been quoted as taking credit for the title of this article. California already has the worst climate for business and job creation in the country, according to Jon Coupal, president of the Howard Jarvis Taxpayers Association. 

Proposition 13 (2020) would amend the state constitution to require commercial and industrial properties to be taxed based on their market value, not their purchase price as dictated by Proposition 13 passed in 1978. Residential properties would continue to be taxed based on purchase price, creating a “split roll.” 

A split roll tax system will increase pressure on many businesses that already find it hard to do business in our state. The taxes on a commercial property are either paid by the landlord (a gross lease) or the tenant (net lease). If the property tax increases, the landlord will increase the rent to cover those costs, and the tenant will have to increase operating costs to pay the higher rent. If the tenant pays the tax, operating costs will have to increase accordingly. In either case, the price of the product to the consumer will reflect the increase. In the end, the consumer will be the ultimate victim of the tax increase. Retailers always have pressure to keep the costs down. This change in bottom line expenses could be detrimental to our economy.

In my previous life, I operated a retail store in Needles, California, bordered by Nevada and Arizona. Every time California would pass sales tax increases, taxes on liquor and tobacco, or recycling (CRV) fees, we would notice a decrease in sales. We ultimately closed the store. Any increase in taxes will have a negative effect on consumer spending.

For those property owners who are longtime landlords of commercial or investment property, who pay the property taxes because they are low, this proposed change may force them to sell the property, or renegotiate their leases to cover the increased costs. Hopefully, the landlord will have the back-up capital to weather the storm. 

While the proposal carves out exceptions for agriculture, number of employees and value, in limited cases, the majority of the increases will be paid by the consumer, just another way to derive more taxes out of an already tax-burdened economy. It is time to look at the other side of the balance sheet.