(April 10, 2013) A California Chamber of Commerce-opposed “job killer” bill that completely alters the definition of “change of ownership” for commercial property for the purpose of increasing their property taxes, will be considered by the Assembly Revenue and Taxation Committee on April 15.
AB 188 (Ammiano; D-San Francisco) unfairly targets commercial property by redefining “change of ownership” so that such property is more frequently reassessed, which will ultimately lead to higher property taxes that will be passed on to tenants, consumers, and potentially employees.
Currently, under Proposition 13, commercial property is reassessed only when there is an actual change of ownership in the entity that owns the property. That is, another entity or person has acquired at least 50% of the ownership interest of the entity that owns that property and therefore has a controlling interest in the property. This is the most common-sense interpretation of Proposition 13’s requirements. It creates a bright line to determine when property ownership has changed, and it is consistent with the underlying purpose of Proposition 13, which intended to provide property owners certainty and stability about the amount of property taxes due – on sale and thereafter.
‘Change of Ownership’
AB 188 would drastically alter the definition of “change of ownership” under Proposition 13 by dictating that a “change of ownership” occurs whenever 100% of the ownership interests in the legal entity that owns the commercial property are sold within a three-year period, regardless of whether any person or entity actually obtains control through direct or indirect ownership of at least 50% of the voting stock or ownership interest in the entity owning the property.
This new definition, which merely focuses on ownership rather than control, will subject commercial property, especially property held by publicly traded corporations, to continuing reassessment that will at some point result in higher property taxes – the obvious intent of this legislation. However, given that a reassessment could be triggered under this definition on a daily, weekly, or even monthly basis, the anticipated revenue gain by AB 188 is vastly overstated, as the market value of commercial property does not change within such a short time frame. AB 188 will provide a tool for harassing owners of commercial property with constant reassessments, and an overwhelming workload for county assessors.
Increases Property Taxes
Ultimately, increasing property taxes for commercial property will have detrimental impacts on the general public, including small businesses, apartment residents, employees, and consumers.
Any higher taxes imposed on companies who own commercial property will likely be passed on to the tenants of such property through higher rent, including businesses as well as individuals who rent apartments in which to live. The increased costs could result in reduced employee benefits, workforce reductions, or even higher prices for consumers.
Moreover, the proposed definition of “change of ownership” under AB 188, will trigger reporting requirements for multiple “owners” of these entities. Despite the percentage of ownership acquired, an individual or entity will be required to report this change in ownership or face a penalty up to 20% of the assessed fair market value of the commercial property. A penalty for failure to file a statement is imposed even if the county assessor ultimately determines no “change of ownership” has occurred. This duplicative and onerous reporting requirement that AB 188 seeks to impose creates a potentially unfair monetary trap for a minority owner in a company who is unaware that a 100% change of ownership has even taken place within the previous three years.
AB 188 will be heard in Assembly Revenue and Taxation on April 15. Contact members of the policy committee and your Assembly representative and urge them to oppose AB 188.