A major tax hike for California businesses hung in the balance Tuesday as voters considered an effort to raise money by overhauling the state’s property tax system.
The measure was trailing in early returns, with 54 percent opposing and 45 percent in support.
Proposition 15 sought to make the biggest change to California property tax law since 1978, when voters approved Proposition 13, an anti-tax measure that set all property taxes in the state based on purchase price.
Under the proposed change, California businesses that own more than $3 million dollars in commercial or industrial property would be taxed based on current market value.
The initiative promised to be a big increase for large businesses that have owned property for a long time because of rising property values. It was forecast to bring in between $8 billion and $12.5 billion in additional tax revenue per year by 2025, according to the nonpartisan Legislative Analyst’s Office. Currently, property taxes bring in about $65 billion per year.
Some of the money would go to increasing staffing in county assessors offices that will be responsible for a much greater workload under the law. The rest will fund schools and local governments, which are desperate for more money because of the COVID-19 driven recession.
The measure exempts residential property and farmland. It also delays implementation for buildings that primarily rent their space to small businesses.
Opponents of the measure argue small businesses that rent their spaces would be hit hard by the reassessments because the increased costs would be passed to them through their lease agreements. Independent economists say there will likely be some effect on small businesses, but how much will vary depending on market forces.
Supporters argue that the measure adequately protects small businesses and that many will actually see an overall tax cut because of a provision that exempts their business equipment from taxes. Businesses that are too large to qualify for the complete exemption will still be able to exempt $500,000 of their business equipment from taxes.
Although the measure is expected to bring in more revenue for most communities, some rural communities could see a reduction because of the business property tax exemption, according to the Legislative Analyst’s Office.
In the final weeks before Election Day, the campaign supporting Proposition 15 emphasized that the measure will close tax loopholes that allow large businesses to keep their property taxes low and give the money to firefighters, schools and other local services.
Although the measure does not affect residential property, opponents had targeted homeowners with their message about protecting California’s 1978 measure.
The measure was one of the most closely watched contests on California ballots. The race attracted more than $130 million in spending. On the supporting side, the California Teachers Association and Service Employees International Union were the biggest contributors. Real estate companies including Blackstone were the largest donors to the opposition.
Joe Biden, Kamala Harris and Gov. Gavin Newsom all backed the measure. Many business groups and the California Farm Bureau fiercely opposed it.
Another property tax measure, Proposition 19, was also on California ballots Tuesday. That measure would allow homeowners over 55 to transfer their property tax rates to a new house. It also would end a policy that allows people who rent out inherited homes to keep their inherited property tax rate.