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Proposition 15 The “Split Roll” Initiative Deep Dive – Pinch Your Nose, It Stinks

Proposition 15 The “Split Roll” Initiative Deep Dive – Pinch Your Nose, It Stinks

Proposition 15, the “California Schools and Local Community Funding Act of 2020” will be on the California ballot in November.  If Proposition 15 is approved by a simple majority of California voters, Proposition 15 would amend the California Constitution and Proposition 13.

In 1978, California voters passed Proposition 13.  Proposition 13 provides, the assessed value of real property for property tax purposes is the purchase price. California taxes real property at 1% of the assessed value. Proposition 13 caps annual increases in the assessed value of a property at 2%, unless there is a change of ownership or new construction

What is the Split Roll

Proposition 15 would “split” the tax roll by providing for the reassessment of all “commercial and industrial real property” to the “full cash value.” Proposition 15 is to “[p]reserve in every way Proposition 13’s protections for homeowners and for residential properties.”

Commercial and industrial real property “means any real property that is used as commercial or industrial property, or is vacant land not zoned for residential use and not used for commercial agricultural production.” Full cash value is defined as “the fair market value of such real property as of that date as determined by the county assessor of the county in which such real property is located ….”

Proposition 15 further provides, after the initial reassessment of commercial and industrial real property, “such commercial and industrial real property shall be periodically reassessed no less frequently than every three years as determined by the Legislature.”

If passed, the Legislature is required to interpret and supplement Proposition 15 by statute.  Among the issues to be addressed by the Legislature is the phase-in of the reassessment of commercial and industrial real properties, which is to occur over several years with the lien date commencing in fiscal year July 1, 2022 to June 30, 2023. Property owners are obligated to pay property taxes based on the new assessed value beginning with the lien date for the fiscal year in which the reassessment is completed.

Reassessment Deferral and Exclusion

Proposition 15 provides for a reassessment deferral and exclusion.  If small businesses account for more than 50% of the occupied space of a property, the reassessment is to be deferred until fiscal year 2025-26. The purpose is to provide “small business tenants additional time to choose the leasing option that works for them ….” (i.e., for the tenant to relocate to a new space or negotiate with the landlord on the payment of any increased property taxes)

There is also an exclusion for properties with a fair market value of $3,000,000 or less.  However, the exclusion is not available “if any of the direct or indirect beneficial owners of such real property own a direct or indirect beneficial ownership interest(s) in other commercial and/or industrial real property located in the State, which such real property in the aggregate (including the subject property) has a fair market value in excess of three million dollars ($3,000,000).”

Thus, for example, if a limited liability company with a sole owner owns a restaurant pad with a fair market value of $2,000,000, and the owner does not directly or indirectly own any other commercial or industrial property in California, the property would not be subject to reassessment.

However, if a limited liability company owns a restaurant pad with a fair market value of $2,000,000 and there are more than one “direct or indirect beneficial owners” (i.e., members), the exemption would not be available, if any of the members, directly or indirectly, owns any other industrial or commercial property in California with a fair market value in excess of $1,000,000.

To be eligible for the exclusion, the property owner must make a claim and certify annually to the county assessor, under penalty of perjury, the owner satisfies the conditions of the exclusion.  The owner’s certification is subject to audit by the county or the State, with the Board of Equalization having authority to conduct audits on behalf of the State.

The foregoing provision would allow the Legislature to enact broad statutes requiring an owner claiming the exclusion to disclose financial information on the ownership entity, as well as all direct or indirect beneficial owners of the ownership entity.  Additionally, the county or State would have the right to audit both the ownership entity and any direct or indirect owners of the ownership entity.

Appeal Procedures

Proposition 15 also prescribes the Legislature is to implement by statute the terms governing the hearing appeals process, “notwithstanding existing statutes.” The terms are:

~ The appeal process is not to include the automatic acceptance of the applicant’s opinions of values within a given timeframe. [Currently, California Revenue & Taxation Code Section 1604 provides, if an assessment appeal board fails to make a determination on an application for a reduction in an assessment of property within two years of the filing of an application, the applicant’s opinion of value is to be the value upon which the taxes are levied.]

~ The property owner has the burden of proof that the “property was not properly valued.”

~ The property owner is required “to provide evidence relevant to any appeal in the initial application before the local assessment appeals board.”

~ If the decision of the assessment appeals board is subject to judicial review, it is to be subject “only to de novo judicial review on issues of law, while issues of fact, including valuation, shall be reviewed under the substantial evidence standard.” [The substantial evidence standard means that the court is to give deference to the assessment appeals board decision, which is to be overturned only if the court determines the decision to have obvious error or was not supported by substantial evidence.]


Proposition 15, if approved by voters, will result in an approximate $12 billion dollar annual increase in taxes – the largest in California history. The Proposition 15 preamble asserts it will incentivize owners to develop “idle, vacant and under-utilized commercial and industrial property and create a powerful new incentive to build new housing.” The proponents also claim Proposition 15 will encourage business to invest in improving their properties and “will have a net positive benefit on jobs and the California economy.”

Who knew how much a $12 billion dollar annual tax increase would purportedly benefit California property and business owners and consumers?  Based upon the proponents’ claimed exceptional results, how long will it be before the proponents want to confer additional benefits on the people of California by eviscerating Proposition 13 completely and eliminating its application to residential properties as well?


William B. Brinckloe, Jr. is a Martindale-Hubbell AV-Rated lawyer in Irvine, California who practices in the areas of commercial real estate and business transactions. If you require the services of an experienced commercial real estate and business transactional lawyer in California, please email Bill at Contact@TransActionLaw or call him at (949) 475-6993.

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