Agreement garners support from business groups and progressive organizations
(Sacramento) – Assemblymembers Tom Ammiano (D – San Francisco) and Raul Bocanegra (D-Pacoima), announced an historic agreement today to close a major loophole in California’s Proposition 13. Assemblymembers Ammiano and Bocanegra have led weeks of negotiations, finally reaching a consensus earlier this week with a diverse group of stakeholders who are now supporting the proposal including: the California Business Roundtable, the California Chamber of Commerce, the California Business Properties Association and the California Tax Reform Association.
“Closing this loophole has been a goal of progressives for years because it has shifted the property tax burden onto the backs of homeowners and other individuals. We have never tried to target the businesses that are small property owners. This loophole is unfair to them, too. Now, thanks to Mr. Bocanegra, businesses are joining this effort to bring some fairness back to the tax system in a way that will benefit all Californians,” said Assemblymember Ammiano
The proposal, AB 2372 authored by Assemblymember Ammiano, is set to be heard today by the Assembly Revenue and Taxation Committee, chaired by Assemblymember Bocanegra.The hearing begins at 1:30 p.m. in Room 437 of the Capitol. Bocanegra will at that time become a joint author of the measure.
“This historic agreement will help to create a level playing field in California. A fair and equitable reassessment system will benefit businesses and help to generate additional revenue for state and local government,” said Assemblymember Bocanegra. “I’m excited that Mr. Ammiano and I have been able to bring diverse interests together to reach an agreement on this very controversial issue. I applaud Mr. Ammiano for his hard work and dedication as he has been a leader on this issue for many years.”
Currently, a property is reassessed when it is sold and/or changes ownership. However, there is a loophole that allows for no reassessment to take place, if none of the purchasers acquires more than a 50% interest. AB 2372 would ensure that as long as 90% of a property is sold, a reassessment would be triggered, regardless of whether any individual buys more than 50% of the property.
The loophole is not in the voter-approved proposition. It is a part of enacting language passed by the Legislature and can be changed by a two-thirds vote of the Legislature.
"When real property truly has a change of ownership, it should be reassessed in accordance with Prop. 13 and these amendments will bring clarity and certainty to commercial real estate transactions and ensure compliance with Prop. 13,” said Allan Zaremberg, President and CEO of the California Chamber of Commerce
In recent years, there have been reports of attempts to exploit the current loophole, such as the restructured purchase of the Fairmont Miramar hotel in Santa Monica, reported by the Los Angeles Times in 2013. AB 2372 would restore revenues in the tens of millions of dollars by correctly assessing properties after sale. If the bill passes the Revenue and Taxation Committee today, it will be heard in the Assembly Appropriations Committee next week.
“We believe it is fair and appropriate to reassess commercial property when ownership changes. CBRT supports that concept with AB 2372 to ensure that there are no unintended loopholes in this process and that the thresholds for reassessment are clear and transparent,” said Rob Lapsley, President of the California Business Roundtable.
Proposition 13 was passed by California voters in 1978 by a margin of 62%-38%. It limits the maximum amount of any ad valorem tax on real property to no more than 1% of the property's full cash value, as adjusted for the lesser of inflation or 2% per year. Essentially property must be reassessed to its current fair market value whenever a "change in ownership" occurs.
“AB 2372 deals with the most egregious loophole of Prop. 13,” said Lenny Goldberg Executive Director of California Tax Reform Association. “Over the past several decades the position of the opposition has been ‘we cannot have a discussion’. We’re very pleased that this bill is moving and that the discussion can be opened up.”