2020 Elections Property Tax Update

The 2020 elections have been nothing short of interesting to say the least. In this podcast we discuss what you need to know about recent property tax related legislation changes and how they will affect you as we move into 2021.

California Proposition 15 – Likely to be Rejected

Proposition 15 was an amendment to the original Proposition 13 which limited the increases in property tax assessments by 1-2% barring a change of ownership, new construction, or significant capital expenditures. Basically, California voters have chosen to continue “as is” with the limits on the increases in taxes.

Proposition 15 looks likely to be rejected 52% voting to reject with 84% reporting. In general, it is very tough to pass any measure that has an increase in taxes. It is highly likely that a significant percentage of the population has not done the proper research or are misinformed. The natural reaction for most is to reject increase in taxes. Therefore, any measure to increase taxes has to have a marketing effort that can overcome the natural reluctance. Since the measure was rejected by such a small margin, it is highly likely that efforts will continue in the near future to amend/repeal Proposition 13. Due to the effects of the COVID related recession, municipalities are facing shortfalls in their budgets in the next few years. That will create even more desire by local governments to increase their tax rates. So it is within reasonable expectation that something similar to Proposition 15 will appear on the next ballot.

If you are an owner or buyer of commercial real estate, there is now a material risk that state tax laws will change in the next few years. Owners should prepare for decreased operating cash flows/NOI’s and potentially resulting lower values. Buyers should be aware that although they may not have material increases in taxes their first few years of ownership, they could be affected later.

Nashville – Court Ruling

The mayor had increased the millage by approximately 34% due to budget shortfalls in the city. This caused some backlash, and there was a petition created for a special vote to approve or reject the mayor’s increase. However, a judge ruled that the petition was unlawful and the mayor was within his rights to increase millage like he did. The matter is not completed closed as there may be an appeal filed on the judge’s decision. Nonetheless, it appears to be an uphill battle and the increase rates are likely to remain for 2020.

Colorado – Gallagher Amendment Repeal

Original Gallagher amendment fixed the ratio of commercial versus residential property taxes to be collected statewide. This caused incongruencies and imbalances of taxes collected in residential versus commercial dominated areas/cities.

The repeal passed with a vote of 57%. This will allow the burden of taxes to reflect true markets despite their breakdown of commercial versus residential properties.

2021 and Beyond

Most 2020 property taxes were not affected by COVID since the assessment dates were as of January 1, 2020. For the next two years, there should be significant drop in assessments. This is similar to what occurred after the Great Recession when assessments dropped in in 2009 and 2010, the couple years following the recession.

This may be partially offset by increase in tax rates. As stated earlier, local municipalities are facing shortfalls and they will need to make up for it somehow.

Contact Info

To learn more about how upcoming changes in property tax laws can affect your investing strategies, please reach out to Tim Feagans directly at tim.feagans@retcgroup.com.

RETC Group was recently acquired by Ryan, a leading global tax services and software provider and the largest Firm in the world dedicated exclusively to business taxes. The combination of RETC and Ryan creates the largest property tax team in the United States with the most local expertise of any provider. RETC’s existing clients will continue to receive the excellent service they have been receiving and will now have access to Ryan’s value-added services and tax-saving strategies across more than 50 global tax disciplines.

Please follow Ryan on LinkedIn to receive updates on our next chapter, and visit ryan.com to learn about all of the comprehensive property tax services now available to you.

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