NEW BLOG: Property Tax and Your Business

Recent changes to Proposition 13, specifically with the passage of Proposition 19, have a significant impact on California’s property tax system. While these changes primarily affect property owners, renters (and business owners) in California may also experience indirect effects. Let’s take a look at how…

Increased Property Taxes on Commercial Properties
One of the main aspects of the recent changes is the “split roll” provision, which mandates that commercial and industrial properties be reassessed at market value for tax purposes, while residential properties remain under the original Proposition 13 protections. This increase in property taxes for commercial properties could lead to:

Higher Operational Costs for Businesses:
Businesses that own their properties will face higher property taxes, which may lead to increased operational costs. These businesses might pass on these additional costs to consumers in the form of higher prices for goods and services.

Increased Rents for Commercial Tenants:
Commercial property owners might increase rents for their business tenants to offset the higher property taxes. Small businesses, in particular, may struggle with these higher rents, potentially leading to closures or relocations. This can impact renters indirectly if local businesses they rely on close or move.

Potential Impact on Housing Market
Changes in property taxes can influence the housing market, which, in turn, affects renters:

Shift in Property Investment:
Property owners might shift their investment strategies. For instance, some may convert commercial properties to residential use to benefit from the more favorable residential tax treatment. This could increase the supply of residential units, potentially stabilizing or even reducing rents in some areas.

Impact on Housing Prices:
Increased taxes on commercial properties could lead to higher housing prices if property owners decide to pass on costs to residential properties they own or develop. This may tighten the rental market, leading to higher rents as housing becomes more expensive.

Renters’ Stability and Security
Proposition 19 also affects residential properties by altering the rules for property tax transfers and inheritance. These changes can have implications for renters:

Inherited Properties:
Under Proposition 19, children who inherit their parents’ homes will face reassessment of property taxes unless they make the home their primary residence. This could lead to higher property taxes on inherited rental properties, which might incentivize owners to sell these properties rather than rent them out. A reduction in the number of rental properties can lead to a tighter rental market and increased rents.

Tax Benefits for Seniors and Disabled Homeowners:
Proposition 19 allows seniors, severely disabled homeowners, and victims of natural disasters to transfer their property tax base to a new home up to three times. This could lead to more mobility among these groups, potentially freeing up rental properties previously occupied by these homeowners. However, this effect may be limited.

While the recent changes to Proposition 13 via Proposition 19 are aimed at addressing property tax inequities and generating additional revenue, renters in California may face indirect effects. These include potential increases in the cost of goods and services, higher commercial rents that affect local businesses, and changes in the availability and cost of rental housing. It’s crucial for renters and all stakeholders to stay informed about these changes and engage in discussions about how to mitigate potential negative impacts on the rental market.