Senator Patricia Bates (R-Laguna Niguel) announced today that the Senate Governance and Finance Committee approved her Senate Bill 259 on a bipartisan vote. Her bill would correct an outdated interpretation of property “change of ownership” that has been the long running debate around commercial property and Proposition 13.
“It’s encouraging that Democrats and Republicans came together today to approve my bill to ensure that Proposition 13’s tax protections are not abused,” said Bates. “Proposition 13 exists to ensure that property taxes do not go out of control for any California homeowner or business. It does not exist to enable some to avoid paying the property taxes they legitimately owe. I hope my bill will continue to garner additional support and avoid the fate of a similar bipartisan reform effort in 2014.”
SB 259 would alter the definition of “change of ownership” in the California Revenue and Tax Code for determining the property tax base value of commercial property. Current law allows for a property to be reassessed if a majority of the ownership interest changes hands. SB 259 would require any property to be reassessed if 90 percent of the ownership interest changes hands within any three-year period.
Bates’ bill is designed to prevent a repeat of examples similar to the 2006 purchase of a hotel in Santa Monica where the purchaser realized he could structure the transaction without any one entity owning a 50 percent majority share in the property. Despite the fact that 100 percent of the ownership of the hotel changed hands, the property was not reassessed, resulting in a tax loss to Los Angeles County of over a million dollars annually.
Bates’ bill is supported by the Howard Jarvis Taxpayers Association, the California Chamber of Commerce, the California Business Roundtable and the California Business Properties Association. A similar bill authored by former Assembly Members Tom Ammiano (D-San Francisco) and Raul Bocanegra (D-Pacoima) earned bipartisan support in 2014 and cleared the Assembly, only to die in the Senate.
In response to today’s vote, key stakeholders made the following statements:
Jon Coupal, President of the Howard Jarvis Taxpayers Association
“SB 259 is entirely consistent with the letter and spirit of Proposition 13. Indeed, Howard Jarvis himself was opposed to the abuses addressed by SB 259 involving change of ownership when complete control of a fictitious entity is acquired by new interests.”
Rob Lapsley, President of the California Business Roundtable (@CalRoundtable)
“The business community has worked hard to address this issue. Prop. 13 was intended to protect homeowners and businesses from unpredictable and fluctuating property tax rates. Businesses rely on Prop. 13’s stability to create long-term plans, hire more employees and remain in California despite our high taxes and burdensome regulations.”
Rex Hime, President and CEO of the California Business Properties Association
“The commercial real estate industry applauds this bi-partisan effort to fix this change of ownership issue. Our industry has sought for years to correct abuses in the system and this bill closes down the issue that we have heard so much about.”
SB 259 now goes to the Senate Appropriations Committee for its consideration. It requires a two-thirds vote of both houses of the Legislature and Governor Brown’s approval to become law.