The Hidden Small Business Tax Cut in Prop. 15

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.  Residential and agricultural properties would not lose “Prop. 13 protection.”

Commercial 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.

Although Prop. 15 increases property taxes on many commercial properties, Prop. 15 also contains a provision that reduces taxes on business equipment (i.e., personal property taxes).

Question: Does the Prop. 15 reduction in taxes on business equipment benefit California small businesses?

Answer: Yes.  Qualifying “small businesses” will be exempt from paying personal property taxes.  All other businesses will receive a $500,000 reduction in the taxable value of business equipment.

$500,000 Reduction For All Businesses: Regardless of whether a business is a qualifying “small business,” Prop. 15 reduces the taxable value of each business’s equipment by $500,000 beginning in 2024.  Accordingly, businesses with less than $500,000 of equipment pay no property taxes on those items.

Small Businesses Exemption For Business Equipment: Prop. 15 eliminates taxes on business equipment for each “small business.”  A business qualifies as a small business if: (a) it has fewer than 50 annual full-time equivalent employees; (b) it is independently owned and operated; and (c) it owns real property in California.  A qualifying small business is required to make a claim and certify annually to the county assessor, under penalty of perjury, that the conditions described above have been met.

Total Value of Tax Reduction: This reduction in taxes is estimated to save California businesses in the range of hundreds of millions of dollars to $1 Billion, annually.

By | 2020-09-23T04:25:54+00:00 September 15th, 2020|Leasing|0 Comments

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