Supporters of a hotly debated California ballot proposal to change how commercial and industrial property is taxed said the measure would generate the vast majority of revenue from only the wealthiest properties and exempt most small businesses.
Speaking at an online video conference Tuesday, Schools and Communities First presented a study saying that about the top 10% of commercial properties would generate 92% of the revenue from the proposal, Proposition 15, which the group supports.
Small businesses would be protected in two ways, according to the group. First, all properties worth $3 million or less would be exempt from the measure. Second, Proposition 15 contains a provision that would exempt all businesses from property taxation for up to $500,000 in business personal property, such as any equipment needed to run the business. Small businesses would be completely exempt from such taxes, the proponents said.
Instead, the increased tax burden would be paid by “really big, really valuable, really underassessed properties,” said Alex Stack, a spokesman for Schools and Communities First.
Proposition 15, which qualified for the November ballot May 29, seeks to change the method by which certain commercial and industrial properties are assessed and taxed by carving them out from the state’s landmark Proposition 13.
That law, passed in 1978, requires using purchase price to assess and tax all residential, commercial and industrial properties and limits the tax to 1% of the purchase price with minimal annual adjustments for inflation. Proposition 15 would switch certain commercial and industrial properties to assessment on their fair market value.
The proposed partial rollback of Proposition 13 has generated both intense support and opposition in California. Supporters such as Walter Wilson, CEO of the state’s Minority Business Consortium, say California needs the revenue that Proposition 15 would provide, estimated to be about $8 billion to $12 billion. Small businesses haven’t benefited from the current system, said Wilson, which he contended is only a tax break for the wealthiest businesses.
Small and minority-owned businesses are at “a great disadvantage under the current system of loopholes for these large businesses,” Wilson said.
However, other business groups in the state are largely opposed to Proposition 15.
John Kabateck, California state director of the National Federation of Independent Business, told Law360 that it is a myth that small businesses are exempt. Most of them don’t own property, he said, and the large businesses they rent from will simply pass on the costs of paying more property tax.
“We believe the study is flawed,” Kabateck said. “We caution everyone out there not to be fooled. It blatantly ignores the effect on small businesses who will pay more as a condition of their lease agreements.”