Background to Proposition 13
The People’s Initiative to Limit Property Tax
On June 6th, 1978, a tax revolt took place. Nearly two-thirds of California’s voters passed Proposition 13, reducing property tax rates on homes, businesses and farms by about 57%.
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The Environment Prior to Proposition 13
Prior to Proposition 13, the property tax rate throughout California averaged a little less than 3% of market value. Additionally, there were no limits on increases for the tax rate or on individual ad valorem charges. (“Ad valorem” refers to taxes based on the assessed value of property. ) Some properties were reassessed 50% to 100% in just one year and their owners’ property tax bills increased accordingly.
Proposition 13 Tax Reform
Under Proposition 13 tax reform, property tax value was rolled back and frozen at the 1976 assessed value level. Property tax increases on any given property were limited to no more than 2% per year as long as the property was not sold.
Once sold, the property was reassessed at 1% of the sale price, and the 2% yearly cap became applicable to future years. This allowed property owners to finally be able to estimate the amount of future property taxes, and determine the maximum amount taxes could increase as long as he or she owned the property.
Objective Standard of Measurement
Proposition 13 introduced an objective standard upon which property is taxed. For most properties, the purchase price is the value placed on the roll, and this value is changed by no more than two percent per year until there is a change in ownership and another purchase price.
Under a market-value system, the assessor’s opinion of value is the basis of assessment. The State Board of Equalization admitted prior to Proposition 13 that “no assessor, even one given unlimited resources, could produce an assessment roll in which the appraisal of property was strictly current and precisely accurate in all respects.”
The subjective standard of the market value system led to assessment abuses in the 1960s and 1970s as assessors had enormous latitude to determine levels of taxation. Several assessors were sent to jail during this period. Acquisition value removes subjective judgment and discretion, and reduces the chances of corruption.
[faq title=”What Do You Tell a New Neighbor About Proposition 13?“][faq_question]What good is Proposition 13 to me? I’m not covered![/faq_question][faq_answer]Every owner of property in the state is covered. Proposition 13 is Article XIII A of the California Constitution.[/faq_answer]
[faq_question]Then how come I’m paying more in property taxes than some of my neighbors who have similar houses?[/faq_question][faq_answer]Under Proposition 13 you determine how much your property taxes will be. Your taxes are not based on your neighbors’ taxes, but are based on the price you voluntarily agreed to pay for your new home.[/faq_answer]
[faq_question]We all get the same services, but I pay more. How can this be fair?[/faq_question][faq_answer]In California, just like other states, services have never been related to the amount you pay in property taxes. If services were tied to what you paid, you might see four fire trucks assigned to a costly home while only one would protect a less expensive residence.B In fact, property taxes are not allocated for specific services. They go into the general fund along with other taxes and it is local public officials who determine how the money will be spent.[/faq_answer]
[faq_question]Well, it still seems like I’m paying too much. Don’t you agree?[/faq_question][faq_answer]We all feel that way, but in fact, thanks to Proposition 13, the tax rate for all Californians is only a third of what it was. If you think things are bad now, multiply your tax bill by three and see what you get.[/faq_answer]
[faq_question]That’s easy for you to say, you’re still paying less than I am.[/faq_question][faq_answer]That may be true, but I’ve been paying for years. It’s the neighbors that were here ahead of you that paid for all these local improvements you now enjoy.[/faq_answer]
[faq_question]I still don’t see what good Proposition 13 is to me.[/faq_question][faq_answer]Well, besides your lower tax rate, it makes your taxes predictable. In a few years when new houses sell in the neighborhood for two or three times what you paid, you will be protected. Under Proposition 13 your property taxes can’t go up more than two percent a year. You are going to find that very important when you get around to planning your retirement. If you ever find yourself on a fixed income, chances are, because of Proposition 13, you’ll be able to keep your home.[/faq_answer][/faq]