Page 1

LAO 7 0 Y E A R S O F S E RV I C E

March 12, 2012

California’s Property Tax L E G I S L A T I V E

A N A L Y S T ’ S

Presented to: Assembly Revenue and Taxation Committee Hon. Henry T. Perea, Chair

O F F I C E


March 12, 2012

LAO

Overview of the Property Tax

7 0 Y E A R S O F S E RV I C E

   

Annual 1 Percent Tax. The property tax is levied on the assessed value of real property (land and buildings) as well as personal property (boats, aircraft, equipment, and machinery). With voter approval, local governments may levy additional property taxes to repay locally issued debt for infrastructure. Real Property Is Assessed at Acquisition Value. Most properties are reassessed to market value when (1) a change-inownership occurs or (2) new construction takes place. Only the improved portion of the property is reassessed to market value following new construction. Assessed Value Increases by Up to 2 Percent Annually. Assessed value increases each year by the lower of inflation or 2 percent. Inflation has averaged 4.1 percent each year since 1978. Personal Property Is Assessed at Market Value. Personal property (primarily equipment, machinery, boats, and aircraft) is assessed each year at market value, adjusted for depreciation. Many Properties Are Exempt. Most real property owned by schools, religious organizations, charities, hospitals, and governments is exempt from the property tax. Proposition 8 (1978) Provides Temporary Tax Relief. When market values fall below assessed values, assessors adjust property values downward. The property’s assessed value then changes each year according to its market value. When a property’s market value becomes greater than its acquisition value (adjusted by the Proposition 13 inflation factor), the property is governed again by Proposition 13. Property Tax Payments Are Deductible From Other Taxes

LEGISLATIVE ANALYST’S OFFICE

1


March 12, 2012

LAO

Property Tax Revenue

7 0 Y E A R S O F S E RV I C E

California’s Three Major Taxes Raise Similar Amounts 2009-10 Revenue (In Billions) $55 50 Other Districts

45 40 35

Cities

Local

30 Counties

25 20 15

General Fund K-14 Education

10 5 Corporation Tax

Sales and Use Tax

Personal Income Tax

Property Tax

The Property Tax Raises Significant Revenue for Local Governments. Property taxes are collected at the county level and distributed to local governments—cities, counties, schools, special districts, and until recently, redevelopment agencies. Tax revenue generated from property within a county does not leave that county. County property taxes allocated to schools generally offset state General Fund spending for K-14 programs.

LEGISLATIVE ANALYST’S OFFICE

2


March 12, 2012

LAO

Revenue Stability

7 0 Y E A R S O F S E RV I C E

Property Tax Revenue Is Less Volatile Than Personal Income Tax Revenue Annual Percent Change 30%

20

10

0

-10 Personal Income Tax Revenue Property Tax Revenue -20

-30 1980

ďƒž

1985

1990

1995

2000

2005

Acquisition Value Taxation Contributes to Revenue Stability. Property tax revenues fluctuate less from year to year than other major revenue sources. Because only a fraction of properties change ownership each year, only a small number of properties are reset to market value each year. The assessed value of other properties increase by up to 2 percent. During real estate slumps (and booms), these two provisions tend to dampen the shortterm impact of changes in the real estate market.

LEGISLATIVE ANALYST’S OFFICE

3


March 12, 2012

LAO

The Property Tax and the Recent Recession

7 0 Y E A R S O F S E RV I C E

Percent Change in Tax Revenues 2007-08 to 2008-09 Property Tax

Sales and Use Tax

Corporation Tax

Personal Income Tax -25%

-20

-15

-10

-5

0

5

10

15

20

25

Despite Recession, Property Tax Revenues Remained Stable. Property tax revenues increased throughout the recession while other major revenue sources declined significantly.

LEGISLATIVE ANALYST’S OFFICE

4


March 12, 2012

LAO

Assessed Value of Various Property Types

7 0 Y E A R S O F S E RV I C E

(2010-11)

Property Type Single-Family Homes Multi-Family and Other Residential Commercial/Industrial Agricultural and Other Non-Residential Total

 

Assessed Value (In Billions) $2,209 770 891 272 $4,141

Percent of Total 53% 19 22 7

The Total Assessed Value of “Business Property” Depends on How We Define Non-Owner-Occupied Residential Property Not All Single-Family Homes Are Owner-Occupied. Approximately 24 percent of single-family homes in California are rental properties or non-primary residences (second homes).

LEGISLATIVE ANALYST’S OFFICE

5


March 12, 2012

LAO

Change-in-Ownership

7 0 Y E A R S O F S E RV I C E

Components of Change in Assessed Value Los Angeles County (In Billions) $100 80 All Other Factors 60

Change-In-Ownership

40 20 0

-20 -40

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Total Assessed Valuation Changes Each Year Based on a Number of Factors, Including: 

Change-in-ownership

New construction

Proposition 13 inflation adjustments

Proposition 8 decline-in-value adjustments

LEGISLATIVE ANALYST’S OFFICE

6


March 12, 2012

LAO

Change-in-Ownership

(Continued)

7 0 Y E A R S O F S E RV I C E

 

Change-In-Ownership Appears to Represent the Bulk of Year-to-Year Growth in Countywide Assessed Valuation Evidence From Los Angeles and Santa Clara Counties. Between 1999 and 2011, change-in-ownership, on average, accounted for somewhat more than one-half of the change in countywide assessed valuation each year.

LEGISLATIVE ANALYST’S OFFICE

7

Profile for David Song

California's Property Tax 2012  

California's Property Tax - Legislative Analyst's Office

California's Property Tax 2012  

California's Property Tax - Legislative Analyst's Office

Advertisement