Why You Should Consider Selling Your Commercial Property in 2020: The Split Roll Tax Ballot Initiative

If you’ve been on the fence about selling your commercial property in California, 2020 is the year to do it.  One of the reasons is the Split Roll tax initiative. In this article, I will explain and how it can reduce the value of your property, and what you can do about it.

Vote against split roll tax initiativeIn November of 2020, there will be a ballot that will likely be called the “California Schools and Local Community Funding Act of 2018” which aims to have commercial property taxes reassessed every three years.  It’s also known as the Split Roll tax initiative, which is a simpler name, but still not very self explanatory.

A “split roll” means that commercial and residential properties will be taxed differently.  In this case, property taxes on residential properties would not be affected – only commercial properties.

If the ballot is passed, it means that your property tax could jump significantly every three years instead of the maximum 2% increase per year that was set forth by Proposition 13 back in 1978.

Since you would have to pay additional property tax, this would reduce your profit on your property.  And since value is based on income, lower net income from the property means a reduced property value.

Even if you are passing on the property taxes onto the tenants, higher property taxes will make it a lot harder for those tenants to remain profitable.

So what will those tenants do?  They will have to raise their prices to their customers.  So the legislators are trying to protect the regular citizens but will end up hurting them anyway.  So this is not a good thing for the California economy.  Do we really need more taxes, when the state is running a budget surplus?

Sign showing that California taxes are too highAnd what about the confusing name?  The California Schools and Local Community Funding Act?  Of course they call it something that makes you want to support it.  I mean, who wouldn’t want to support California schools?

The reality is that of the money that this bill is supposed to raise, it will first go toward additional staff at the county assessor’s office to do all the additional work of reassessing property values – with no cap on that amount, then to the state general fund to backfill income tax losses coming from higher property tax deductions.

FINALLY, of the amount left over, 60% goes to local governments, and 40% to schools.  So the first priority is not going to schools, although that’s what you’d think if you only saw the name of the ballot initiative.

So my goal for you in reading this is to do two things:

  1.  Vote against split roll in November 2020.  If you want to learn more about the issue in more depth, click here.
  2. If you have been on the fence about selling your commercial property, then it’s best to do it sooner rather than later, before this ballot might get passed and reduce the value of your property.

If you are looking for a valuation of your property, please contact me by phone at 949-209-9696, or by email at mike@progressiverep.com, and I would be happy to help you out.

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Mike Lin, CRE