Newsletter - September 2022

What Is Your Tax Situation?

Most unfortunately, government doesn’t always look out for citizens.  Government can become a totally separate entity with its own goals that are not necessarily in line with the needs and goals of the people.  One factor that contributes to this fact is when a governing body is overwhelmingly made up of one political party and the other party is in a very small minority.

That is the situation that we are in currently in California and have been at times in the past. Government, as a separate entity, has its own objectives apart from the voters. 

In the 1970’s many homeowners lost their homes because they could not afford the taxes that increased every year. In 1966 for example, assessors determined the tax at the property’s highest and best use which was a standard used by assessors at the time.  For example, an

elderly couple in Newhall, Los Angeles county, lived in a very small house.  Since an apartment house had been built close by the assessor determined the assessment as if an apartment building was built there.  In 1966 dollars the couple’s tax bill was $1800 a year.   The couple’s total income was $1900.

Howard Jarvis worked for years and led the taxpayer’s revolt that resulted in passage of Proposition 13 in 1978.  Proposition 13 cut property taxes in half.  The maximum increase allowed by  Proposition 13 is 2%.  The taxes increase when a property is sold if the assessment has increased.  In fact, support for Proposition 13 was so strong that Governor Jerry Brown decided to support it.

Proposition 13 requires a two-thirds vote to impose new taxes, including parcel taxes and bond debt.  The reason for the 2/3 rule is that all voters vote on parcel taxes and bonds but only HOMEOWNERS  pay them. 

Of course, there were legal challenges to Proposition 13.  The California Supreme Court said that Proposition 13 was constitutional.  The court stated that the acquisition value system (taxes are set when you acquire the property) was reasonable and fairer than the system in place before Proposition 13.  

In the early 1990’s a challenge to Proposition 13 made it to the United States Supreme Court. The anti- Proposition 13 crowd were sure that this case would end Proposition 13.  Surprise!  There was only one dissenting vote against Proposition 13.   Judge Harry Blackmun, who wrote the majority opinion, found that Proposition 13 was constitutional.  He stated that the state had a legitimate interest in neighborhood preservation and stability and could set tax laws to discourage rapid turnover of property in homes and businesses to discourage displacement of mom and pop stores by newer chain operations.  He also wrote that a person acquiring property does not require the same protection as someone who owns property and could be subjected to jarring tax increases.

Challenges to Proposition 13 have continued.  Governments need money and one of the best places to get money is from taxpayers who have assets.  The last attack on Proposition 13 occurred in a little noticed provision of Proposition 19 that passed narrowly in November 2020.  The provision affecting intergenerational transfers became effective on February 16, 2021. 

Before passage of Proposition 19 parents could pass their home and up to $1 Million of assessed value of other property to their children and that property was excluded from reassessment.  The property tax bill would not change as a result of the transfer.  That was the law under Proposition 58 which was passed by more than 75% of voters in 1986.  In 1996, voters passed Proposition 193 to extend the same rules to transfers between grandparents and grandchildren if the children’s parents are deceased. 

Under Proposition 19 (which was a squeaker victory) only a principal residence is eligible for an exclusion from reassessment and only if the children move in within one year and the home becomes their principal residence permanently.  All other property will be reassessed to market value as of the date of transfer.  Children who cannot afford the new tax bill will be forced to sell the family property. 

Pros of Proposition 19

·         It helps people over 55 and the disabled who might want to   move to a different location or              home but are afraid of a higher  tax bill.

·         It will help wildfire victims who lost a home with low property   taxes and are forced to buy a             new home.

Cons of Proposition 19

·         Property taxes will go up for heirs if market value of home or  farm exceeds property value by            more than $1 Million.

·         Low income families who bought homes long ago may not be   able to pass these homes to                 children since property taxes will  increase and children may not be able to pay. This means               that  many younger Californians will leave the state since they  cannot afford to own a home.

The Legislative Analyst’s office states that about 60 to 80K CA properties are sold yearly. The state could raise tens of millions of dollars a year by eliminating this exemption.

The Howard Jarvis Taxpayers Association tried to get a constitutional amendment on the ballot this year to reinstate Proposition 58.  However, the Association did not get enough signatures.They have been flooded with calls this year and will try to get an amendment on the ballot for the 2024 election. 

For many families being able to inherit a property without added taxes is critical. 

It is critical that voters pay attention to what is going on legislatively.  Unfortunately, too many people are not paying attention so many laws are passed that have negative consequences.Pay Attention:  so many times these laws are aimed at getting the government more taxpayer money.  Good citizenship takes work.