It should surprise no one that homeowners support the Local Taxpayer Protection Act to Save Proposition 13 (LTPA), which has qualified for the November ballot. LTPA will make it harder to raise taxes. It will close two court-created loopholes in Proposition 13 by both strengthening the two-thirds vote requirement for local special taxes and reversing the recent explosion of real estate transfer taxes, which have the effect of robbing property owners of their equity when they sell.
When Prop. 13 passed in 1978 by more than 65% of the statewide electorate, the primary base of support was from homeowners, with additional support from mom-and-pop owners of small apartment buildings and agricultural interests. Most big corporations and other business interests were either opposed or neutral on Prop. 13. Fortunately, business interests, large and small, have fully embraced Prop. 13 as the only tax policy in the state that makes any sense.
This is especially true for small businesses, which are particularly vulnerable to the vagaries of California’s most hostile business environment in the nation. As a counter to these bad policies, the nation’s largest small business organization, the National Federation of Independent Business, has endorsed the LTPA.
NFIB has a special interest in restraining the imposition of excessive real estate transfer taxes. To understand why, consider the infamous ULA tax in the City of Los Angeles. Measure ULA, commonly known as the “mansion tax,” is a Los Angeles city tax on high-value real estate transactions that took effect on April 1, 2023. It imposed a 4% tax on property sales between $5 million and $10 million, and 5.5% on sales over $10 million, in addition to existing transfer taxes.
While a single home worth over $5 million might indeed qualify as a mansion, the ULA tax is imposed on all real estate transactions irrespective of the property classification. For many small businesses, their facilities typically have much higher values than residential properties. Both in terms of size, improvements, and location, even a small business operating on thin margins typically has a sizable portion of its assets tied up in real estate. Seventy-three percent of NFIB members own the property on which their business is located. So, when they sell, they will have a huge chunk of their equity seized by government.
Nor should one assume that small businesses that rent their property are immune from paying property taxes or transfer taxes. If the owner sells the property, the commercial tenants will see their rent increase. Higher property taxes resulting from a reassessment to market value, plus a transfer tax, are typically passed through because most small business leases are triple net.
California small businesses have also been hurt by the erosion of the two-thirds vote requirement for local special taxes. The court decision responsible for that damage to Prop. 13 was California Cannabis Coalition v. City of Upland. That 2017 ruling, although somewhat oblique, gave the green light to local governments to impose local special taxes without the two-thirds vote required by the plain language of Prop. 13, if the taxes were put on the ballot by citizens’ signatures on petitions instead of an action by the government.
In response, local governments exploited the ruling to impose all kinds of unconstitutional taxes – backed by tax-and-spend special interests – costing taxpayers billions of dollars that they would not have had to pay if the courts had followed the letter and the spirit of the law.
As with transfer taxes, the dismantling of the two-thirds vote requirement has left small businesses vulnerable to targeted tax hikes that pass with a simple majority vote. Excess sales taxes are increasingly a problem, not only for consumers, but for retailers and restaurants that are required to calculate, collect, and pay them. It’s one more thing that disproportionately burdens small businesses, along with local minimum wage laws and other labor restrictions.
To ensure that the LTPA passes this November, proponents will have to rely on a very broad coalition of support. The National Federation of Independent Business’ integral role in the campaign will benefit all California taxpayers.
For more information on the Local Taxpayer Protection Act to Save Prop. 13, visit SaveProp13.com
Jon Coupal is the President of the Howard Jarvis Taxpayers Association (HJTA). Tim Taylor is the California Policy Director for the National Federation of Independent Business (NFIB).