19 Jun 2019
Split property tax rolls – where commercial and residential properties are subject to different property tax rules or rates - are currently used by over a dozen states. Some states utilize separate property tax rates for residential properties and commercial properties while others tax a percentage of a property’s value based on its classification (for example 55% of the standard rate for residential properties, 70% for commercial properties and 75% for industrial properties).
Since its passing in 1978 Proposition 13 has limited state property tax assessments on any property in California to 1% of the purchase price of that property, subject to an annual increase of either the rate of inflation or 2%, whichever is less. Reassessments occur only when a property is sold.
A ballot initiative that will be on the November 2020 ballot in California is to split the property tax roll – continuing the protection that Prop. 13 affords residential property owners while allowing assessors to tax commercial and industrial properties based on their current market value and reassess these commercial and industrial properties every 3 years!
If you don’t believe this will impact you, or that Californians will oppose this “split roll” you may consider that a recent USC / Los Angeles Times poll found that over 54% of California voters support the measure. With over 800,000 signatures submitted this measure is already qualified for the ballot. The estimated impact of this measure would increase property taxes by anywhere from $6.5 billion to over $12.0 billion per annum.
In one self-storage specific example, a property that I recently valued has been under family ownership for 20+ years. They currently pay approximately $113,328 in property taxes while generating close to $3,200,000 in revenue and $2,100,000 in NOI (net operating income). Based on today’s market that property would be valued at close to $42 million. At a 1% rate the fair market taxes would be over $420,000, an increase of over 475%. To throw salt on the wound, a 2% annual increase at the current assessed value is an increase of $2,267, while at the newly assessed value that would equal an increase of $8,400!
