Brown Not In Favor of "Split-Role" to Modify Proposition 13

Governor Brown recently told a group of real estate professionals that despite pressure from his own party, he would not push to adopt a "split-role" system that would allow commercial properties to be reassessed more frequently than homes.  Governor Brown noted that modifying Proposition 13 is a difficult task given the economic complexities involved and entrenched special interests. 

“Do you include farms?” he told the group. “Do you include apartment buildings, and do you allow landlords to pass along the increased costs to tenants?”

While a ballot initiaive does not require Governor Brown's vote or approval to pass, it is perceived that his support, or absence thereof, can affect certain groups and independent voters. 

Get Ready For the Big Tax Ballot Initiative in 2016

For years, forces have been working to fix various Proposition 13 loopholes.  The most note worthy "loophole" is the "change in control" rule that allows 100% of a legal entity's ownership to change without triggering reassessment (as long as no one person or entity acquires more than 50% ownership).  In particular, this loophole was highly publicized when computer mogul Michael Dell purchase the Fairmont Miramar Hotel and no reassessment was triggered--saving him about $1 million a year in property taxes.

To attempt to close this loophole, CA Senator Tom Ammianno drafted AB 2372, which would require a change of ownership whenever 90% of a legal entity's ownership changed (regardless of whether someone acquired control).  Due to the pubic nature of the Dell transaction, the Ammiano bill began to pick up speed and low-tax groups actually began supporting it--mainly out of fear that Propostion 13 would be drastically changed.  Incredibly, the Ammianno bill passed the State Assembly.  However, the unions, who initially supported the bill actually pulled their support and the bill died.  At the time, it was curious why the uninions would all of a sudden oppose a bill that would actually fix Proposition 13 loopholes and raise revenues.

The reason is now apparent.  These groups are poised to push for a ballot measure in 2016 that will increase taxes.  The fear was that any tax increase now would muddy the waters for a ballot initiative in 2016.  In essence, they were willing to delay a guaranteed but "small" tax increase now in hopes for a much larger tax increase in 2016.  The ballot measure will likely take one of two forms. The first, and most likely, is an extension to Proposition 30, which raises sales taxes and income taxes.  Although Proposition 30 expires in 2018, the consensus is that it would have a much better chance at passing if it was on the ballot on 2016 (during a presidential election year).  The second form the initiative could take, would be a full assault on Proposition 13 and would call for a "split-roll"; whereby  commercial properties were excluded from the protections of Propisition 13 and reassessed every year.     

Regardless of the form of the ballot initiative in 2016, it is clear that Sacramento will attempt to increase taxes. 

The 2014 Nexus Symposium-Panel Discussion on California Tax Law

I had a wonderful visit to Orange, California last week where I participated in a panel discussion at the 2014 Nexus Symposium hosted by Chapman University and its Fowler School of Law.  I participated in the morning panel which focused on California tax laws and their impact on California businesses.  The Syposium was a great event and I was impressed with all the law students and faculty that worked diligently to make the event a success.

I was invited to speak specifically on Proposition 13.  A video of the the morning panel discussion can be seen here (my portion begins around the 48th minute).  More information on the 2014 Sympsoium can be found here