‘Job Killer’ Increasing Property Taxes Held in Assembly Fiscal Committee

(May 16, 2013) A California Chamber of Commerce-opposed “job killer” bill that would have completely altered the definition of “change of ownership” for commercial property for the purpose of increasing their property taxes, was held in the Assembly Revenue and Taxation Committee this week.

AB 188 (Ammiano; D-San Francisco) unfairly targeted commercial property by redefining “change of ownership” so that such property is more frequently reassessed, which would have ultimately led to higher property taxes that will be passed on to tenants, consumers, and potentially employees.

Proposition 13

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 have drastically altered 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, would have subjected 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 would have provided 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 that own commercial property will likely be passed on in the form of higher rents for the tenants of such property, 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 would have triggered reporting requirements for multiple “owners” of these entities. Despite the percentage of ownership acquired, an individual or entity would have been required to report this change in ownership or face a penalty of up to 20% of the assessed fair market value of the commercial property. A penalty for failure to file a statement was imposed even if the county assessor ultimately determined no “change of ownership” had occurred. This duplicative and onerous reporting requirement that AB 188 sought to impose would have created 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.