Weekly BNA Insights: Why California’s Prop 13 is Still Controversial, Over 35 Years Later

From the Weekly State Tax Report:

Few laws, if any, have had a bigger impact on a state's taxing authority than California's Proposition 13 (Prop 13). Famously passed in 1978 amidst a housing market boom, Prop 13 was intended to protect taxpayers from dramatic rises in their annual property tax bills by limiting the ad valorem taxes on real property to 1 percent of the full cash value of the property at acquisition, with a 2 percent annual cap on assessment increases. From its genesis, proponents argued that Prop 13 would harness wasteful spending and promote economic growth by keeping taxes low. Critics said it would deprive local governments of essential funding for schools and public services. Throwing caution to the wind, Californians overwhelmingly approved the measure by a nearly two-thirds vote. Yet, despite the fact that Prop 13 is nearly 40 years old, it is just as controversial today as it was at its inception.

Perhaps the most friction-laden aspect of Prop 13 is the “change in ownership” requirement. Prop 13 permits local assessors to reassess tax based on current fair market value only when a change of ownership occurs. Because of the strict limitations on annual ad valorem tax increases, this reassessment trigger has become a focal point for controversy, as it presents assessors with their primary opportunity to reset a property's value to its current fair market value.

Charles Wakefield and Clark Calhoun from Alston & Bird LLP discuss the details of Prop 13’s change of ownership “loophole” in this week’s BNA Insights article, available here (subscription required). Or sign up for a free trial to the Weekly State Tax Report.

Compiled by Lauren Colandreo