Proposition 13, passed in California in 1978, caps the annual increase in property taxes on residential and commercial property. Prior to Prop 13’s passage, local jurisdictions had the power to raise property taxes, and rapid, dramatic increases by some localities resulted in some homeowners losing their residences. A taxpayer revolt ensued, leading to passage of Prop 13, which shifted the responsibility for property taxes to the state, and limited annual tax increases. Property tax increases are now limited to the lesser of the rate of inflation or 2 percent each year, based on the current property assessment. When a property is sold or undergoes significant new construction, it is reassessed to its current market value. In a state known for its high tax rates, Prop 13 has protected residential and commercial property owners from the unexpected increases that led to its passage.
The November 2020 election will include a state ballot initiative that would significantly change the way Proposition 13 is applied to commercial real estate. The initiative, called the “California Schools and Local Communities Funding Act of 2018,” would separate the tax treatment of residential property from that of commercial property by reassessing all commercial property to 2020 values and making that the new base year. The 2 percent cap would then be in place until the commercial property was assessed again, which would happen at least once every three years. That would create a “split roll” structure, with commercial property treated differently from residential housing.
NAIOP supports Proposition 13 in its current form, in order to protect both residential and commercial property owners from rapid increases in property taxes.
Senior Director for State and Local Affairs
703-904-7100, ext. 116