Taxes are never appreciated when they’re raised, but how does a community fair when they’re lowered? Property Tax is up for review  again with a proposal to expand the limits set by Proposition 13. Up front and center is the proposal to allow seniors to transfer the property tax they pay to a new home, anywhere, at any price and as many times as desired.

Tax Day in USA

Proposition 13 is Up for Discussion

California’s landmark legislation was, on the face of it, designed to keep high property taxes from driving people out of their homes. The argument was that California real estate is so expensive and was going up so fast that people were being pushed out of their homes to pay the property taxes.

Highly popular, two propositions were passed to make it possible for seniors to downsize without losing their low tax basis. Now the California Board of Realtors has a new initiative seeking even further expansion of the 1978 tax law that actually rolled back taxes to a 1975 valuation and limited the property tax to 1% of the value of the home, and perhaps more importantly, taxes could not to be increased by more than 2% annually. Voters approved the proposition, officially named the People’s Initiative to Limit Property Taxation, in 1978.

Losing to Tax Liens

In 1980, the average home cost was less than $70,000. Since then, home values have gone up something between 300-1000%! Homeowners and corporations holding property in the same title for over 25 years have seen enormous equity growth in their assets without their taxes reflecting that increase in value. This, of course, is a double-edged sword. Without taxes, are government wouldn’t run, our roads would be unpaved and our fires left to burn. But given that on average families move every 7-9 years, it isn’t unreasonable to conclude that new taxes at new rates will make their way into the tax system as people move and buy up.

More of a Good Thing?

Just like in sugar, a tax cut can leave us wanting more of a good thing. Proposition 13 has been expanded over the years by three important piece of legislation: Propositions 60, 90 and 110.

Amendments to Taxes?

In 1986, the voters of California passed Proposition 60 to provide homeowners the ability to transfer the base-year value of their principal residence to another home within the same county (intra-county). To qualify, the replacement dwelling has to be purchased and occupied within two years of the sale of the tax base residence and located in the same county and the homeowner has to be over 55.

Proposition 90 allows you to transfer your base tax value from one county to another (inter-county), however only at the discretion of each county. Currently Santa Barbara does not allow inter-district transfers. The homeowner can move the tax base just once. The theory here is that no one is served if the tax basis traps people in their homes by making it so unattractive to for people to move. Voters approved seniors to carry their tax base across counties without paying more taxes than they had paid in their previous home.

The third proposition to expand Prop 13 was Proposition 110 gives those who are disabled a one-time transfer of their existing tax assessment to a new principal residence so long as it’s in the same county or in one of eleven California counties that opted to accept “inter-county” transfers as long as the new home value is equal or less than the old one. Proposition 110 has an exception clause. In one circumstance you can move your tax basis two times. If you received relief for age and subsequently became severely or permanently disabled and have to move because of the disability, you can move your tax basis for a second time if you are disabled. However, if you received relief for disability, you cannot later receive relief for age.

People vs Corporate Taxes

The benefit to homeowners and communities is clear. But not only homeowners are eligible for this limit on property taxes through Prop 13. There are slippery loopholes that have allowed corporations to hold title to large real estate assets and limit the tax to the 1% of assessed value per annum. Proposition 13, which currently allows corporations to claim the same property tax protections as the homeowners the measure was intended to protect, but in fact the tax laws are a huge benefit to companies holding real estate assets.

“Most people don’t even realize that commercial property is part of Prop. 13 and certainly don’t realize that there is this minority of corporations and wealthy individuals that are essentially paying 1975 levels of property taxes,” says Anthony Thigpenn, President of California Calls, an alliance of 31 community organizations throughout the state, and which is a member of Make It Fair. There have been calls in the past to eliminate the business protection, but you can imagine that they haven’t made the news, as there are plenty of opponents there.

2017 Taxes Due Today

2017 Taxes Due Today

What is gaining some momentum is an effort to expand the transferability or ‘portability’ of a senior’s tax basis across all counties in California. But should the state of California’s voters force all counties to be required to accept the low tax basis that someone brings to Santa Barbara from say, Bakersfield?

Under the proposal to expand Proposition 13, called the Portability Initiative, brought forward by California Realtors, there would be no limit on how many times, or to where, a senior homeowner could move her tax base. The initiative states that the property tax base of a home could be transferred by a senior to a home of any price, located anywhere in the state, any number of times within two years of selling the qualifying home.

Arguments in favor claim that more seniors would move to smaller homed which would in turn free up large homes for new buyers who would come in and pay the new taxes. Proponents claim the change would be revenue neutral with increased transfer taxes and property taxes based on market value.

Proposition 13, limits general property taxes to 1% of a property’s market value and restricts increases in assessed value to 2% per year. Those two rules combine to keep California’s effective property tax rate at just 0.81%, compared with a national average of over 1.1% When you compare California’s median household income of $64,500 – 10th best nationally – to property tax bills, you find the burden equals 4.8 percent of the household pay. Some 30+ states pay more property taxes than we do.

Property tax is an expensive business, especially in Santa Barbara. But keeping us safe and beautiful, keeping new books in schools and all our emergency personnel is essential. Taxes are necessary, and messy, but we are so grateful to all of the public servants who are there for u filling potholes, responding to emergencies and keeping us safe.