Background on Prop. 15: On November 3, 2020, California voters will decide whether to adopt the “Split Roll” Initiative, Prop. 15. If passed, many commercial and industrial properties would lose “Prop. 13 protection,” and would be re-assessed and taxed based upon market value.Properties can be reassessed as early as the July 1, 2022 – June 30, 2023 fiscal tax year, as discussed in California’s Controversial “Split Roll” Initiative (Prop. 15): The Basics.
Question: Under Prop. 15, will an owner-user of a commercial or industrial property in California have its property re-assessed (and pay property taxes based on the market value of its property)?
Answer: Yes, unless the owner-user qualifies under the $3 Million Property Value Exemption.
$3 Million Property Value Exemption: Prop. 15 provides for re-assessment of properties and taxation based upon market value, however there is an important exception. A commercial or industrial property would be exempt from re-assessmentunder Prop. 15 if: (1) the value of the property is $3 million or less; and (2) none of the owners of the property own real estate in California where the collective value of the properties (including the subject property) is more than $3 million.
Example: Assume a California industrial property (“Property A”) is worth $2.5 million. John Smith own 10% of Property A, as well as 10% of a $1 million office building elsewhere in California (“Property B”). The total equity of John Smith is only $350,000 (10% interest in each property). Nevertheless, neither Property A nor Property B would qualify under the “$3 Million Property Value Exemption.” The reason is that there is a common ownerof these two properties. This common owner essentially ties these two properties together, and since the collective value of the properties exceeds $3 million, neither Property A or Property B qualifies.
Does the $3 Million Threshold Increase Over Time?: Yes, it increases with inflation beginning January 1, 2025.
Annual Certification Requirement: To qualify under the $3 Million Property Value Exemption, the owner must make a claim and certify annually to the county assessor, under penalty of perjury, that the conditions described above have been met.