2020 California Election – Proposition 15

August 19, 2020

California Proposition 15, the Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative, was on the ballot in California as an initiated constitutional amendment on November 3, 2020. Proposition 15 was defeated.

A “yes” vote supported this constitutional amendment to require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value, rather than their purchase price.

A “no” vote opposed this constitutional amendment, thus continuing to tax commercial and industrial properties based on a property’s purchase price, with annual increases equal to the rate of inflation or 2 percent, whichever is lower.

Election results
California Proposition 15

Result Votes Percentage
Yes 8,213,054 48.03%
Defeated No

8,885,569 51.97%
Results are officially certified.
Source

Overview
What would Proposition 15 have changed about how properties are taxed in California?

Proposition 15 would have amended the California State Constitution to require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value. In California, the proposal to assess taxes on commercial and industrial properties at market value, while continuing to assess taxes on residential properties based on the purchase price, was known as split roll. The change from the purchase price to market value would have been phased-in beginning in fiscal year 2022-2023. Properties, such as retail centers, whose occupants are 50 percent or more small businesses would have been taxed based on market value beginning in fiscal year 2025-2026 (or at a later date that the legislature decides on). Proposition 15 would have defined small businesses as those that that are independently owned and operated, own California property, and have 50 or fewer employees.

The ballot initiative would have made an exception for properties whose business owners have $3 million or less in holdings in California; these properties would have continued to be taxed based on their purchase price. The ballot initiative would have exempted a small business’s tangible personal property from taxes and $500,000 in value for a non-small business’s tangible personal property.[1]

The state fiscal analyst estimated that, upon full implementation, the ballot initiative was expected to generate between $8 billion and $12.5 billion in revenue per year.[2]

Proposition 15 would have made the California State Legislature responsible for passing laws for a phase-in of the market value-based tax on commercial and industrial properties, how often reassessments would occur (no less than three years between reassessments), and an appeals process for challenging reassessments.[1]

Where did the current tax assessment formula, based on purchase price, come from?

In 1978, Californians approved Proposition 13, which required that residential, commercial, and industrial properties are taxed based on their purchase price. The tax is limited to no more than 1 percent of the purchase price (at the time of purchase), with an annual adjustment equal to the rate of inflation or 2 percent, whichever is lower. According to the state Legislative Analyst’s Office, market values in California tend to increase faster than 2 percent per year, meaning the taxable value of commercial and industrial properties is often lower than the market value.[2]

How would revenue from the change in taxation have been distributed?
Proposition 15 would have created a process in the state constitution for distributing revenue from the revised tax on commercial and industrial properties. The ballot initiative would have distributed the revenue to specific areas, rather than the General Fund. First, the revenue would have been distributed to (a) the state to supplement decreases in revenue from the state’s personal income tax and corporation tax due to increased tax deductions and (b) counties to cover the costs of implementing the measure. Second, 60 percent of the remaining funds would have been distributed to local governments and special districts, and 40 percent would be distributed to school districts and community colleges (via a new Local School and Community College Property Tax Fund). Revenue appropriated for education would have been divided as follows: 11% for community colleges and 89% for public schools, charter schools, and county education offices. There would have also been a requirement that schools and colleges receive an annual minimum of $100 (adjusted each year) per full-time student.[1][2]

Text of measure
Ballot title
The ballot title was as follows:[3]

“Increases Funding for Public Schools, Community Colleges, and Local Government Services by Changing Tax Assessment of Commercial and Industrial Property. Initiative Constitutional Amendment.[4]”

Ballot summary
The ballot summary was as follows:[3]

Increases funding for K-12 public schools, community colleges, and local governments by requiring that commercial and industrial real property be taxed based on current market value, instead of purchase price.

Exempts from taxation changes: residential properties; agricultural land; and owners of commercial and industrial properties with combined value of $3 million or less.

Any additional educational funding will supplement existing school funding guarantees.

Exempts small businesses from personal property tax; for other businesses, provides $500,000 exemption.[4]

Fiscal impact statement
The fiscal impact statement was as follows:[3]

Increased property taxes on commercial properties worth more than $3 million providing $6.5 billion to $11.5 billion in new funding to local governments and schools.[4]

Constitutional changes

The ballot initiative would have added Section 8.7 to Article XVI, Section 8.6 to Article XVI, Section 2.5 to Article XIII A, Section 3.1 to Article XIII, and Section 15 to Article XIII B of the California Constitution.[1]

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