California’s Proposition 15 Would Raise Taxes On Businesses While Supporting Schools, Local Governments

California voters will decide this fall whether to approve Proposition 15, a major change to the state’s historic property tax law that would raise taxes on large businesses, while providing up to $11.5 billion per year to fund public schools, community colleges and local governments. 

The measure, also referred to as the “split roll” initiative, would raise taxes on commercial and industrial real estate worth more than $3 million. It would do this by removing the property tax protection for businesses granted in 1978 under the state’s landmark Proposition 13. The protection for homeowners would stay in place. 

“This initiative is about closing corporate property tax loopholes on the biggest, most profitable corporations in the state: The top 10%,” said Alex Stack, spokesperson for the Yes on 15 campaign. 

Stack said the measure would affect large, established Silicon Valley companies such as IBM and Intel, along with Hollywood movie studios and others that “haven’t changed ownership and are still paying property taxes based on assessments from the 1960s and ‘70s.” 

Under Proposition 15, the companies would have to pay property tax based on current market value. Right now, they pay a much lower tax based on the original purchase price. 

But Rob Lapsley, president of the California Business Roundtable and one of the measure’s opponents, says the tax hike would harm not just big businesses, but small ones, too. 

Lapsley said the owners of large commercial properties like shopping centers would pass the tax increase on to smaller tenants in the form of higher rents and fees. 

“Ultimately, everybody pays this tax,” Lapsley said. “But most importantly, the small business owner is going to get hit exactly at the wrong time in this economic crisis.” 

While both campaigns agree that property tax protections will remain for homeowners, they disagree on how home-based businesses will be treated. Stack said those are “totally exempt” from the measure’s tax increases. Lapsley, however, said the initiative gives the Legislature the authority to define a home-based business, creating uncertainty. 

The language in the initiative says “the Legislature shall also define and provide by statute that limited commercial uses of residential property, such as home offices, home-based businesses or short-term rentals, shall be classified as residential.” 

The higher property tax assessments would start in 2022 for some properties, but not until 2025 for those where half or more of the tenants are small businesses. 

How Would The Tax Revenue Be Shared? 

The nonpartisan California Legislative Analyst’s Office estimates Proposition 15 would generate between $6.5 billion and $11.5 billion in new funding each year for local governments and schools.

Sixty percent of the funds would be distributed to cities, counties and special districts. The total each receives would depend on the amount of new taxes paid by commercial properties in each community. 

“Not all governments would be guaranteed new money,” the LAO reported, citing a provision in the measure that reduces taxes on business equipment. “Some in rural areas may end up losing money because of lower taxes on business equipment.”

The LAO said the other 40% would go to K-12 schools and community colleges. 

“Each school or community college’s share of the money is mostly based on how many students they have,” the LAO reported.

False Claims On Social Media

Long before the measure qualified for the ballot, social media posts falsely claimed it would “repeal” the historic Proposition 13. PolitiFact California found those claims capture real concern about potential changes to Proposition 13 for large businesses, but also greatly misrepresent the specific changes the November measure would make for other properties. 

Homeowners, small businesses and most agricultural properties would not lose their Proposition 13 tax safeguards, as the social media posts suggest. That’s spelled out in the measure’s official state title and summary document.

Claims About Agricultural Land

Alex Stack of the Yes on 15 campaign said farms would retain their Proposition 13 protections. However, those with part of their property or an adjacent property that is used purely for commercial purposes and valued at more than $3 million would be subject to the tax increase under the measure. He estimated that few such properties exist, saying perhaps high-end winery tasting rooms or markets in Napa would be included. 

The Agricultural Council of California and other farm groups have opposed Proposition 15 saying it “would trigger reassessments at market value for agriculture-related facilities and improvements.”

Stack said Proposition 15 would have no effect on farms that make such upgrades. Existing state law already requires reassessments when property owners make improvements, he noted. 

Supporters and Opponents of Proposition 15

Many top Democratic leaders and public sector unions support the measure, according to a list compiled by Ballotpedia.org. They include presidential candidate and former Vice President Joe Biden, his running mate and California Sen. Kamala Harris, Gov. Gavin Newsom, Sacramento Mayor Darrell Steinberg, Oakland Mayor Libby Schaaf and San Francisco Mayor London Breed. 

Some of the unions that support the measure are the American Federation of State, County and Municipal Employees; the American Federation of Teachers; California Federation of Teachers; the California Teachers Association and the California Nurses Association. 

Opponents include Democrat and former Los Angeles Mayor Antonio Villaraigosa; the Howard Jarvis Taxpayers Association; the California Taxpayers Association; the California Farm Bureau Federation; the California NAACP State Conference; California Hispanic Chambers of Commerce; the California Small Business Association; and the California Grocers Association.

Campaign finance reports show supporters had raised $20.8 million as of June 30, the most recent filing period, Ballotpedia reported. The California Teachers Association Political Action Committee contributed $6 million, the largest amount. 

Meanwhile, opponents of the measure had pulled in $5.5 million up to June 30. The “No on Prop 15 - Stop Higher Property Taxes and Save Prop 13” committee contributed $3.1 million of the total.

Funding for that committee comes from the California Business Roundtable, the California Taxpayers Association and the Paramount Group, a real estate investment company.