California Voters Split on Property Tax Initiatives in 2020

Voters defeated a proposed property tax increase on commercial property but approved changes to certain tax assessment transfers.

California voters rejected a wholesale change to the state’s Proposition 13 property tax system but made significant changes to the tax treatment of inherited properties. Proposition 15, which voters rejected by a 52-48% margin, would have reassessed business property valuations for tax purposes. Proposition 19, which voters approved by a 51-49% margin, protects tax assessment transfers made by older and disabled homeowners but limits the parent-child property-tax exclusion.

Proposition 15 - Tax Increase on Commercial Property

California’s real property tax system does not distinguish between business and residential property, but Proposition 15 would have amended the state constitution to split the property tax roll between business and residential property. Under this “split roll” system, business properties valued at more than $3 million would have been reassessed at their fair market value every three years instead of at their purchase price, with certain exceptions for small businesses. Residential properties would have been left unchanged.

Governor Gavin Newsom supported Proposition 15 as a “long-overdue reform to state tax policy.” The proposition was the latest in several attempts since the passage of Proposition 13 in 1978 to create a “split roll” property tax system.

With the defeat of Proposition 15, the property tax system will remain under the system established by Proposition 13. Under that system, property values are reassessed at market value when the property is “purchased, newly constructed, or a change in ownership has occurred”; property taxes are limited to 1% of property value; and the increase in property values are limited to the rate of inflation or 2% of its base year value, whichever is lower.

Proposition 19 - Property Tax Transfers

California voters passed Proposition 19, which made significant changes to Proposition 13 protections for certain property transfers.

Proposition 19 allows homeowners who are older than 55 years of age, disabled, or the victims of natural disasters to transfer the tax assessment on their primary residence anywhere within the state to a different primary residence (purchased or newly constructed) of any value with an upward adjustment. Previously, these homeowners were limited both to where they could transfer the tax assessment and to residences of the same or lesser value. Persons older than 55 years of age or with severe disabilities can now transfer their tax assessments three times. Previously, they were limited to one transfer. This aspect of the measure goes into effect for transfers on and after April 1, 2021.

The measure also changes the determination of the “full cash value” of a property. It excludes from the terms “purchase” and “change in ownership” the purchase or transfer of a family home or family farm of the transferor in the case of a transfer between parents and their children, or between grandparents and their grandchildren if all the parents of those grandchildren are deceased.

Proposition 19 also requires that a transferred family home continue as the family home of the transferee. If the home does not continue as the family home of the transferee, it must be reassessed at market value when transferred. The proposition also requires the transferee to claim the homeowner’s or disabled veteran’s exemption within one year of the transfer. This aspect of the measure goes into effect for transfers on and after February 15, 2021.