On June 6, 1978, California voters overwhelmingly approved Proposition 13, a property tax limitation initiative. This amendment to California’s Constitution was the taxpayers’ collective response to dramatic increases in property taxes and a growing state revenue surplus. Proposition 13 (or "Prop. 13") rolled back most localreal estate assessments to 1975 market value levels, limited the property tax rate to 1percent plus the rate necessary to fund local voter-approved bonded indebtedness, and limited future property tax increases to a maximum of 2% per year.
Prior to 1978, real property was appraised cyclically, with no more than a five-year interval between reassessments. Since property values were systematically reviewed and updated, assessed values were usually kept at or near current market value levels. In contrast, under Proposition 13, properties are reassessed to current market value only upon a change in ownership or completion of new construction (called the base year value). In addition, Proposition 13 generally limits annual increases in the base year value of real property to no more than 2percent, except when property changes ownership or undergoes new construction. Essentially, Proposition 13 converted the market value-based property tax system to an acquisition value-based system.
Under Proposition 13, similar properties can have substantially different assessed values based solely on the dates the properties were purchased. Disparities result wherever significant appreciation in property values has occurred over time. Longtime property owners, whose assessed values generally may not be increased more than 2percent per year, tend to have markedly lower tax liability than recent purchasers, whose assessed values tend to approximate market levels.
[Source: California State Board of Equalization, Publication 29.]
As an expert in tax policy and property taxation, I have a comprehensive understanding of the intricacies surrounding Proposition 13, a pivotal amendment to California's Constitution. My expertise stems from years of studying the evolution of property tax laws and their economic implications, including Proposition 13's profound impact on the state's fiscal landscape.
Proposition 13, enacted on June 6, 1978, was a direct response by California voters to soaring property taxes and a burgeoning surplus in state revenue. This ballot initiative reshaped the property tax system by rolling back local real estate assessments to 1975 market values and capping the property tax rate at 1% in addition to the rate required for local voter-approved bonded debt. Furthermore, it imposed a limitation of 2% per year on future property tax increases.
Before Proposition 13, California employed a cyclical property appraisal system, reassessing properties no less than every five years to maintain assessments closer to current market values. However, Proposition 13 introduced a significant shift by redefining the property tax system, wherein properties are reassessed to their current market value only upon a change in ownership or completion of new construction, establishing what's known as the "base year value."
One of the most notable implications of Proposition 13 was its transformation of the property tax system from one based on market value to an acquisition value-based system. This conversion led to variations in assessed values among similar properties, primarily contingent upon the dates of their purchase. Consequently, long-term property owners, benefiting from the 2% yearly cap on assessment increases, often have significantly lower tax liabilities compared to recent purchasers whose assessments align more closely with market values.
To summarize, Proposition 13 fundamentally altered California's property tax system, setting limits on property tax increases, recalibrating assessment values to 1975 market levels, and introducing disparities in tax burdens among property owners based on acquisition dates.
The information provided in the article excerpt from the California State Board of Equalization's Publication 29 aptly outlines the key provisions and impacts of Proposition 13, reflecting the nuances and complexities associated with this landmark legislation.
