One of the several unintended consequences of Prop 13, the 1978 initiative that froze homeowner and commercial property tax rates, was creating a property tax system riddled with loopholes that give commercial property owners the ability to avoid paying billions in tax dollars for schools, libraries and critical neighborhood services. Specifically, the “change of ownership” loophole allows commercial property owners to avoid reassessment of their properties when they are sold. In 2006, billionaire computer founder Michael Dell bought the Fairmont Miramar Hotel in Santa Monica and found a way—via high-priced lawyers—to change up the deal to avoid a legal change in ownership. That move saved him about $1 million in property taxes each year, an option homeowners do not have themselves.
Earlier this year, Assemblymembers Tom Ammiano (San Francisco) and Raul Bocanegra (Los Angeles) coauthored AB2372, a bill that sought to close the “change of ownership” loopholes created by Prop. 13. The bill, which only changed the threshold for commercial property tax reassessment from 100% change in ownership to 90% and excluded publicly traded companies, was not meaningful reform. Because of this, the bill quickly gained support from many in the business community.
After quickly passing through the State Assembly, AB 2372 failed to make it out of the Senate Appropriations Committee just two weeks from the end of the legislative session.
Currently California Calls is one of 37 organizations which have joined together to research the impacts of Prop 13, current commercial property tax assessment policies, and corporate property tax loopholes in search of ways to bring real reform to California. Find out more about what the diverse group of labor, civil rights, housing, social justice and community groups are working on now, here.
As a seasoned expert in the field of property taxation and legislative impact, I've delved into the intricacies of various initiatives, including Proposition 13 (Prop 13) from 1978. Prop 13, which froze property tax rates for both homeowners and commercial properties, has had far-reaching unintended consequences, and one of the focal points of concern is the creation of loopholes that enable commercial property owners to avoid significant tax payments, depriving essential services like schools, libraries, and neighborhood services of crucial funding.
One particularly contentious loophole mentioned in the article is the "change of ownership" provision. This loophole permits commercial property owners to sidestep reassessment of their properties when they are sold. The case study involving billionaire computer founder Michael Dell's acquisition of the Fairmont Miramar Hotel in Santa Monica in 2006 exemplifies the issue. Through the adept maneuvering of high-priced lawyers, Dell exploited this loophole, saving approximately $1 million in property taxes annually. Notably, this privilege is not extended to homeowners, creating an imbalance in the tax system.
The article also touches upon legislative efforts to address these issues. Assemblymembers Tom Ammiano (San Francisco) and Raul Bocanegra (Los Angeles) collaborated on AB2372, a bill aimed at closing the "change of ownership" loopholes established by Prop 13. However, the bill's impact was limited, merely altering the threshold for commercial property tax reassessment from 100% change in ownership to 90% and excluding publicly traded companies. Despite receiving support from the business community, the bill faced a setback in the Senate Appropriations Committee, ultimately failing to progress further in the legislative process.
Currently, California Calls is actively involved in a coalition of 37 organizations dedicated to researching the impacts of Prop 13, evaluating current commercial property tax assessment policies, and identifying corporate property tax loopholes. Their collective goal is to bring about meaningful reform to California's property tax system. This coalition comprises diverse groups representing labor, civil rights, housing, social justice, and community interests.
In summary, the article sheds light on the intricate issues surrounding Prop 13, particularly the "change of ownership" loophole, legislative attempts to address these concerns, and the ongoing efforts of organizations like California Calls to bring about substantial reform in California's property tax system.
