Candidate for governor Tom Steyer has decided to pitch his campaign tent on the “third rail” of California politics, an attack on Proposition 13.
However, he’s mangling the facts about the tax-limiting initiative by asserting that it allows corporations, and President Donald Trump, to sell fractions of ownership and thereby evade reassessment of long-held property.
Steyer stated in an online video posted on February 21, “Proposition 13 was passed to protect California homeowners but they snuck in office buildings and strip malls. Here’s how this scam works. The building would be reassessed and revalued every time someone bought more than 50%. So they make sure that no one ever owns more than 50%.”
There’s a lot to unpack here, but in a nutshell, Steyer has mangled the basic facts about Prop. 13.
Proposition 13 caps increases in the taxable value of property at 2% per year until there is a change of ownership. But there is no definition of “change of ownership” in the measure, now a part of the California constitution.
That statutory definition was crafted by an Assembly committee task force after Prop. 13 passed in 1978. One difficulty was how to determine a change of ownership when property was owned by legal entities such as corporations, LLCs or partnerships.
The legislature eventually decided that as long as the same legal entity owned the property, it would not be reassessed unless there was a “change in control,” which was defined as one person or entity acquiring more than 50% ownership of a corporation or other legal entity in a single transaction.
Not long after that, Kaiser Steel was acquired by a group of seven separate purchasers, each buying less than 50%. Although there was a change of ownership of 100% of the entity, under the law, no change of ownership had occurred. Something similar happened when 12 members of the Gallo family acquired Louis M. Martini Winery, and again when three entities controlled by Dell CEO Michael Dell and his wife purchased an LLC that owned the Fairmont Miramar Hotel in Santa Monica. That deal was challenged, and eventually a California Court of Appeal held that there had been no change of ownership, as the law defined it.
But this definition is not in Proposition 13. It’s in the Revenue and Taxation Code. No special election is necessary, the legislature can pass a new law right now. In fact, this legislation has been proposed multiple times, most recently in 2020 as Senate Bill 1319 by Orange County Republican Senator Patricia Bates. In every case, the “Dell fix” bills were allowed to die in the Democratic-majority legislature.
Why?
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The no-one-over-50% “scam” is simply a state law that Democrats have refused to rewrite. They prefer to feign outrage at cleverly structured ownership changes and then pivot to the argument that all commercial property should be taxed at market value every year, a massive tax increase on businesses.
That won’t keep jobs in California, and it sure won’t make the state more affordable.
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