San Diego Since the passage of Proposition 13 in 1978, there have been multiple efforts to require commercial properties to be periodically reassessed for tax purposes. The newest effort is the California Schools and Local Communities Funding Act of 2018, which was filed with the State Attorney General’s Office in December.
This proposed change to the California Constitution provides that for the 2020-2021 fiscal year and each lien date thereafter, the “full cash value” of commercial and industrial property not zoned for agriculture or otherwise exempt from property taxes is the fair market value of the property as of that date. Residential properties and small businesses under specific defined provisions are exempt.
There would be a phase-in of the reassessments to establish new taxable base of these properties followed by reassessments no less frequently than every three years. The formula for reassessing commercial properties at “fair market value” is not stated in this measure.
Appraisal Every 3 Years?
Do the sponsors of this measure propose a certified fair market value appraisal of all commercial and industrial properties in California between now and 2020 and every three years thereafter?
The impacts of the proposed commercial property reassessments and resulting property tax increases do not consider the consumers of the products and services that come from these commercial properties. Uncontrollable increases to overhead costs will be passed through to consumers.
In May 2015, the University of Southern California published a document promoting changes to Proposition 13 to increase taxes on commercial properties. The premise of their document is commercial properties do not sell as frequently as residential properties and benefit from a lower taxable basis.
The proposed methodology to correct inequity involves applying disparity ratios to the value of non-sold commercial properties by county and base year to generate an estimate of the total market value of all properties within a county. Then, calculate the difference between estimated market value and assessed value for all properties and take one percent to determine the revenue gain.
The fatal flaw in using disparity ratios to establish “market value” can be seen in San Diego County’s research and development and biotech communities in which highly improved buildings often sell for more than $600 per square foot in some instances.
One prominent biotech company occupies multiple buildings valued at more than $388 million. Another technology company occupies buildings with an assessed value of $221 million. Applying a disparity ration formula to all non-sold commercial and industrial buildings within a county with a large amount of technology related properties is inequitable.