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Carl DeMaio
“We already know that Prop 15 immediately imposes a massive tax hike on California’s small businesses, but we are also now learning that the fine print in Prop 15 also authorizes state politicians to impose a new tax on home-based businesses,” said Carl DeMaio, Chairman of Reform California.
DeMaio and the small business coalition he assembled decried the cost of Prop 15’s tax hike to small businesses that are already struggling with Covid-19 lockdowns and an economic downturn.
“If Prop 15 passes, it will be the final nail in the coffin for many of these struggling small businesses and the job losses will be immense,” DeMaio warned.
DeMaio also released analysis of Prop 15 provisions that he says authorize the state legislature to impose a new tax on home-based businesses.
“Many small businesses are operating out of people’s homes and Prop 15 opens these home-based businesses up to a massive tax hike,” DeMaio warned.
Prop 15 would increase property taxes on commercial, retail, industrial and other properties to the tune of $11 billion. Prop 15 is seen as just the first step of a two-step effort to completely repeal Prop 13 from 1978 and increase property taxes on all properties – especially single family homes.
Initiative Text: What Prop 15 Says
AG 2019-0008, Amdt. #1, Initiative Sec. 5, adding Cal. Const. Art XVIII A, Section 2.5(c)(4)(B):
“The Legislature shall also define and provide by statute that limited commercial uses of residential property, such as home offices, home-based businesses or short-term rentals, shall be classified as residential for purposes of paragraph (2) of subdivision (a).”
AG 2019-0008, Amdt. #1, Initiative Sec. 6, adding Cal. Const. Art XVIII A, Section 2.5(c)(2):
“’Mixed-use property’ means real property on which both residential and commercial or industrial uses are permitted.”
AG 2019-0008, Amdt. #1, Initiative Sec. 5, adding Cal. Const. Art XVIII A, Section 2.5(c)(4)(B):
“The Legislature may provide for 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.
AG 2019-0008, Amdt. #1, Initiative Sec. 5, adding Cal. Const. Art XVIII A, Section 2.5(d)(1):
Subject to paragraph (2) of this subdivision, upon reassessment pursuant to subdivisions (a) and (b), each commercial and industrial real property with a fair market value
of three million dollars ($3,000,000) or less shall not be subject to reassessment pursuant to paragraph (1) of subdivision (a) and shall be assessed as required by Section 2 of this Article.
How We Know Prop 15 Gives The Legislature the Power to Tax Residential Property Used For a Home-Based Business:
Prop 15 gives the State Legislature the power to define and provide by statute what constitutes “limited commercial uses of residential property.” The Legislature could define “limited commercial uses of residential property” in any number of ways—including how much income a home-based business generates.
If a home-based business does not meet the Legislature’s definition of “limited commercial uses of residential property,” it will be treated as “mixed-use property,” as defined by the initiative, because it has both a residential and commercial use.
In doing so, the Legislature would create two classes of home businesses: one that qualifies as “mixed-use property” subject to reassessment and another that will retain residential designation with “limited commercial use.”
How We Know the Legislature Can Pick and Choose Which Businesses to Raise Property Taxes On:
The Legislature may provide an exclusion from reassessment for the commercial share of mixed-use property but is not obligated to under Prop 15. This is purely optional and is subject to the political whims of state politicians.
This discretion gives the Legislature the power to impose higher property taxes on the commercial portion of home-based businesses with mixed-use designations. The Legislature’s power to define “limited commercial use” will allow politicians to pick winners and losers among home-based small businesses and target those homeowners higher property taxes.
How We Know Residential Properties of ANY Value Operating a Home-Based Business Can Be Reassessed:
The three-million-dollar exclusion from reassessment is for “commercial and industrial real property” only. Thus, it will not apply to a home-based business that is designated as “mixed-use property.”
There is no dollar threshold for “mixed-use property” in Prop 15, so a residential property of any value operating a home-based business could be subject to higher property taxes.
What Prop 15 Means for Residential Property Used For Home-Based Businesses:
Prop 15 strips long-standing Prop 13 protections from residential property. Prop 13 limits property tax increases to 2% annually, providing certainty to homeowners and small businesses that they can afford their taxes in the future. Prop 15 allows state politicians to raise property taxes on millions of home-based businesses – meaning skyrocketing property taxes for homeowners.
More Californians than ever are conducting businesses from their homes, and Prop 15 gives the Legislature the power to raise taxes on these homeowners. If past actions by the Legislature are an indication of future behavior, it’s likely that many home businesses will be subject to Prop 15’s higher property taxes.
Taxing home businesses is just another step towards the full repeal of Prop 13 for all homeowners.
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