Proposition 13- Real Property
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Proposition 13- Real Property
Proposition 13, adopted byÂ California voters in 1978,Â changed the definition of Taxable Value for all real property in the State.
Proposition 13 rolled back mostÂ real property, or real estate, assessments to 1975 market value levels, limited the property tax rate to 1 percent plus the rateÂ necessary to fund local voter-approved bonded indebtedness, and limited future property tax increases.
Taxable Value of real property is now defined as the :
- Factored Base Year Value (FBYV), or
- Market value on lien date (January 1st), whichever is lower
Certain types of special-use properties including historical properties, government-owned land, cemeteries and agricultural preserves are valued under different guidelines.
Proposition 13 establishes a base year value for real estate and limits increases in the taxable value. Base year value is determined as follows:
- The base year value of property acquired before March 1, 1975 is the 1975 assessed value
- The base year value of property acquired on or after March 1, 1975 is usually the market value when the property was transferred
Proposition 13 generally limits annual increases in the base year value of real property to no more than 2 percent,Â EXCEPT when property changes ownership or undergoes new construction.
How Factored Base Year Value (FBYV) Is Calculated
The FBYV of properties that have not changed ownership since the prior lien date, (prior January 1), is calculated using the following formula:
New Factored Base Year Value = Factored base year value from prior year + Value of new construction + Consumer Price Index (CPI) increase (no more than 2% per year)
Increases In Taxable Value – The 2% CPI Issue
Your taxable value can increase more than 2% in one year if your property experienced any of the following:
- A Change In Ownership
- New Construction
- Temporary reduction(s) in taxable value in prior tax year(s)
Disparities in Assessed Value
Under Proposition 13, similar properties can have substantially different assessed values based solely on theÂ dates the properties were purchased. Disparities result wherever significant appreciation in property values hasÂ occurred over time. Longtime property owners, whose assessed values generally may not be increased more thanÂ 2 percent per year, tend to have markedly lower tax liability than recent purchasers, whose assessed values tend toÂ approximate market levels.
Property Not Covered by Proposition 13
Proposition 13 does not affect the assessment of all property. Properties not affected by Proposition 13 fall into twoÂ general categories:
â€¢ Personal property
â€¢ Utilities, railroads, and other properties assessed by the BOE
On June 6, 1978, California voters overwhelmingly approved Proposition 13, a property tax limitation initiative.Â Â ThisÂ amendment to Californiaâ€™s Constitution was the taxpayersâ€™ collective response to dramatic increases in propertyÂ taxes and a growing state revenue surplus of nearly $5 billion.
After Proposition 13, county property tax revenues dropped from $10.3 billion in 1977-78 to $5.04 billion in 1978-79. As a result, many local governments were in fiscal crisis. Keeping local governments in operation the firstÂ two years following Proposition 13 required legislative â€œbailoutsâ€ to offset property tax revenue losses. A first-yearÂ stopgap measure costing $4.17 billion in state surplus funds was necessary to directly aid local governments. AÂ second-year bailout, a long-term fiscal relief plan, cost the state $4.85 billion.
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 nearÂ current market value levels. In contrast, under Proposition 13, properties are reassessed to current market valueÂ only upon a change in ownership or completion of new construction (called the base year value). Essentially, Proposition 13 convertedÂ the market value-based property tax system to an acquisition value-based system.
Due to Court Challenges to Proposition 13,Â immediately after Proposition 13 passed, its constitutionality was challenged. The California Supreme Court upheldÂ the constitutionality of Proposition 13 in Amador Valley Joint Union High School District v. State Board of EqualizationÂ on September 22, 1978. The decision rendered in this case remained the highest judicial ruling on Proposition 13Â until 1992, when the United States Supreme Court ruled, in Nordlinger v. Hahn, that Proposition 13 did not violateÂ the equal protection clause of the United States Constitution. This ruling effectively ended speculation aboutÂ whether the judicial system would ever overturn or modify Proposition 13.