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Proposals could change the way commercial property is assessed

California' Proposition 13 was first implemented in 1978. One important aspect of this amendment to the state constitution is that it freezes the tax-assessed value of properties when property is purchased and limits assessment increases to two percent each year.

The merits of Proposition 13 have been debated ever since its passage. Some commentators feel that Proposition 13 has adversely damaged commercial real estate values and would like to see changes implemented. One commercial property broker, on the other hand, is opposed to any small changes because these changes may be a means for opponents to "divide and conquer."

There is currently in the works an Assembly bill that would address what some feel is a loophole for taxing of commercial property. So the theory goes, when property is sold to a number of legal entities without any entity owning more than 50 percent, the commercial property can following a sale escape reassessment.

There is also discussion of alternate legislation that would have commercial property assessed at market value while residential property would be continued to be assessed like it always had since the passage of Proposition 13. However, the San Diego County Taxpayer's Association claims that such a change would result in the San Diego area losing 2,240 jobs.

The outcome of addressing such complex issues at a legislative level may be out of our control. However, as attorneys we can assist clients concerning property taxation and assessment issues that will inevitably arise when it comes to any commercial real estate transaction.

Source: Times of San Diego, "Experts Debate Possible Reforms to Proposition 13," Chris Jennewein, May 28, 2014

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