There has been quite a bit of recent debate around Proposition 13, the California Constitutional amendment that places limitations on property tax increases, which some say allows businesses to exploit certain loopholes. Proposition 13 was enacted in California more than three decades ago, though, so why all the controversy now? In a time when state budgets are stretched as thin as they can go, opponents of the amendment, such as Los Angeles Mayor Antonio Villaraigosa, say we can’t afford to have businesses and individuals unfairly paying fewer taxes than they should. On the other hand, proponents of the amendment say it was set up to protect individuals and businesses from over-taxation, and it should not be dismantled.
The History of Proposition 13
The road leading to the passage of Proposition 13 emerged in the late 1960s as sort of a “taxpayer revolt” to protect individuals from unfair taxation. An assessor’s scandal influenced the legislature to pass a reform bill in 1966, which maintained that all assessments would be kept at a uniform level based on a specific percentage of a property’s market value. When real estate values went through a rapid and unexpected escalation during the 1970s, however, home assessments went through the roof. As a result, many people risked losing their homes. Proposition 13 was passed in 1978 to maintain that all properties would be assessed for taxes based on the value at time of acquisition, either through new construction or change of ownership. According to the legislation, taxable property values could not increase by more than 2 percent per year, or by the rate of inflation – whichever was smaller. The amendment also included a requirement for a two-thirds vote before any new taxes could be passed in the state of California.
The Current Controversy over Proposition 13
In recent years, this legislation has become a source of controversy, and various parties have sought to reform Proposition 13 to make sure everyone is paying their fair share. Opponents say the amendment has reduced tax liabilities for property owners to such a point that it is difficult to provide services such as higher education, public schools, assistance for needy families, freeways, state parks and prisons. With the cost of public higher education increasing exponentially each year, public parks shutting down and public schools losing billions, these opponents have some valid points. The issue of what exactly should be done about it, however, is another matter entirely.
For more information on how Proposition 13 can affect your property taxes, please give us a call at 866-631-3470 to schedule a free consultation with one of our tax professionals.