Paul L. Caron
Dean



Wednesday, October 21, 2020

Mark Zuckerberg Has Spent Over $10 Million To Overhaul California's Proposition 13 Tax Law

Vox, Mark Zuckerberg Is Spending Millions Like Never Before to Overhaul a Landmark Law:

[Mark] Zuckerberg has chosen to embark on a decidedly dicey political crusade: an attempt to touch the so-called third rail of California politics — the state’s 40-year-old landmark tax law — in the most expensive electoral play of the billionaire’s career.

Zuckerberg has been waging a costly and risky political battle for more than a year against California’s Proposition 13, the law that critics say has hamstrung the state’s economy by capping its property taxes, and thus underfunding two priorities of Zuckerberg and his wife, Priscilla Chan: schools and housing. While other tech leaders have conspicuously avoided weighing in until the very last minute, if at all, Zuckerberg stuck his neck out early and has now spent almost $11 million — including $4.5 million more just this month — on the cause, raising the stakes for Election Day.

Zuckerberg is backing what is called the “split roll” reform measure through his and his wife’s philanthropy, the Chan Zuckerberg Initiative. For the past year, he has been a key player behind the scenes and the only major Silicon Valley leader who has publicly endorsed it. And because he has been so alone in this effort, the vote on Prop 13 reform in some ways serves as a test of his and his ambitious philanthropy’s political muscle. ...

[W]hat Zuckerberg is attacking isn’t just a California tax law. It’s the nucleus of the modern, national anti-tax movement.

When Proposition 13 passed in California four decades ago, it capped both residential and commercial property taxes by assessing most property’s value based on how much it was worth as far back as 1976, with minimal established tax increases. Homeowners and businesses alike embraced the legislation, but critics say it has left California with far less money for schools, roads, and other social services for its 40 million residents. Studies say that California, which has the highest poverty rate in the country and is grappling with a housing crisis, needs as many as 3.5 million new homes by 2025 and $22 billion more in school funding.

This year’s Proposition 15 would reform Prop 13 so it only applies to residential and agricultural properties. Homeowners’ taxes would stay the same while many businesses’ property tax payments would go up. That’s why it’s called “split roll.”

The split-roll fight was expected to be explosive — but then the coronavirus pandemic overwhelmed California politics and took up voters’ attention. That might be why you haven’t heard as much as you might think you would about the chance to finally amend a landmark law that undergirds so much of life in California. The most recent polls have shown the split-roll effort with just over 50 percent support.

On the surface, the battle lines appear like a stereotypical business-versus-labor streetfight. Organized labor has long been the force behind split roll, which proponents say would raise $12 billion yearly for the state to spend on schools and housing programs favored by unions. And traditional corporate interests — particularly those from the real estate industry — are spending tens of millions to beat split roll, which makes sense, given that, for some of them, a property tax increase is an existential threat to their corporations. They also argue that a recession is the wrong time to raise taxes on small businesses.

But then you throw in Zuckerberg and the picture gets more complicated. And that’s the point.

“Having visible tech industry support is helpful in funding the measure — but it also sends a clear signal that this is not an attack on the business community,” said Scott Wiener, a California state senator who is close with many tech leaders and is backing the measure.

Wall Street Journal editorial, California’s Next Big Tax Gulp: A Ballot Measure Would Repeal the Business Half of Legendary Prop. 13.:

Sooner or later California’s public unions had to hit up the hoi polloi to pay for their pensions after soaking what’s left of the state’s millionaire class, and here they come.

On Nov. 3, Californians will vote on a “split roll” ballot initiative (Prop. 15) that seeks to enact the biggest tax hike in state history. In 1978 voters enshrined protections against runaway property taxes in the state Constitution (Prop 13). Prop. 15 would abolish those protections for businesses while maintaining limitations—at least for now—on homes.

Under current law, tax rates on residential and commercial property are capped at 1% of their assessed value—i.e., the purchase price—and can increase by no more than 2% annually. If the property values of homes or businesses rapidly inflate, owners won’t see their bills increase by more than 2% per year.

This is the only balm in California’s oppressive tax climate and acts as a modest restraint on the government spending ratchet. Unions know that attempting to repeal this entirely would spur a homeowner revolt, so they are targeting businesses.

Their split roll initiative would allow commercial property with a current market value of more than $3 million to be reassessed every year. If commercial property values rapidly increase, tax bills will too. Taxes on business property—including equipment—that hasn’t changed hands for decades would also balloon.

Los Angeles Times, Which Businesses Would Pay More Property Tax Under Proposition 15? It’s Complicated:

For more than four decades, privately owned land in California has been taxed under a one-size-fits-all system. Be it a duplex or a delicatessen, a ranch or a sprawling ranch-style home, the same limits apply to all property owners.

Proposition 15 would change that, splitting millions of acres of land and buildings into two categories: one for homeowners — whose tax limits would remain unchanged — and one for businesses, whose property tax payments would rise. The new revenues, totaling as much as $12.5 billion under one independent analysis, would be set aside for local governments and public schools.

Supporters argue the change would mostly affect large corporations, removing the low-tax protections provided by Proposition 13 in 1978 while shielding California’s entrepreneurs and farmers.

But the changes will take time and won’t come easy. While Proposition 15 may target expensive corporate properties, it also takes aim at Californians who own multiple business buildings, even those with relatively low property values. Critics remain unconvinced by the promise of protecting small businesses and have warned its protection for agricultural land includes a worrisome loophole.

Should Proposition 15 pass, its full implementation will take years. There will undoubtedly be tax appeals filed by angry business property owners. And the proposal will require interpretation by local and state government officials — and possibly the courts.

(Hat Tip: Ted Seto)

https://taxprof.typepad.com/taxprof_blog/2020/10/mark-zuckerberg-has-spent-over-10-million-to-californias-proposition-13-tax-law.html

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Comments

How can a 501c3 nonprofit (Chan Zuckerberg Initiative) be so heavily involved in elections? Maybe it falls under a different section of the tax code?

Posted by: Andy Patterson | Oct 21, 2020 5:40:42 AM

Interesting that Zuckerberg is doing this just as commercial real estate (offices, anyway) are becoming less relevant as work from home becomes more usual. Wait, didn't Facebook just announce that employees can work from home forever?

Posted by: Roberta Mann | Oct 21, 2020 10:13:27 AM

Andy, an outrageous loophole in the tax code allows foundations to donate to referendum campaigns, even as they're forbidden to contribute to election campaigns involving individuals. Leading miscreants include MIchael Bloomberg, Lauren Powell Jobs, and my favorite the "AIDS Healthcare Foundation" which for the second time has put up $20 million to place a pro rent control initiative onto the California ballot this year.

Posted by: PaulB | Oct 21, 2020 1:59:42 PM

I think this a ploy to get conservatives to agree to income tax hikes... just so that the Soroses of this world will lack political play money.

Posted by: Anon | Oct 21, 2020 3:51:59 PM