In 1978 California voters approved Proposition 13, a landmark measure that set—and has kept—property taxes at a low rate. This November’s ballot includes a proposition known as the “split roll” initiative that would make significant changes to Proposition 13.
Currently, California treats commercial and residential properties almost identically when it comes to property taxes. A homeowner and a business owner pay taxes on the value of the property based on its fair market value when it was acquired, with increases in property taxes limited to a maximum of 2% per year. This keeps property taxes low for both homeowners and businesses, especially for those who bought property a long time ago in now-pricey regions like the Bay Area. The Split Roll initiative proposes that California treat commercial property differently than residential properties. Under the proposal, businesses would have their properties reassessed to market values every three years. Nothing would change for residential properties and the ballot measure preserves fundamental Prop 13 protections for homeowners and residential rental properties.
For many cities, the distinctions between residential and commercial can become blurred, especially with mixed-use properties such as buildings that have retail on the first floor and residential units on other floors. For these blended properties, the Split Roll initiative ensures that only the portion of the property that is used for commercial and industrial purposes would be subject to reassessment. The measure even provides an exclusion from reassessment for the commercial share of mixed-use property provided seventy-five percent (75%) or more of the property, by square footage or value, is residential.
Backers of the initiative, led by a coalition of civil rights groups and community organizations, argue that if the Split Roll initiative passes, the state will have more funding for cities, counties, special districts, schools, and community colleges. Those who oppose the Split Roll initiative argue that the measure would have indirect effects on the state’s economy by increasing taxes paid by many businesses, thereby increasing their costs of operating in California relative to other states. This would influence some businesses’ decisions about whether to expand in or move out of California. The initiative is included on the November 2020 ballot.