There are several new tax-related propositions that Californians should be aware of that will be on the ballot this November:

  • Proposition 15 (property tax related) is related to periodic reassessment of commercial property to market value and has a significant impact to property holders over $3 million.
  • Proposition 19 (property tax related) proposes a modification to the reassessment exclusion historically allowed for parents to children (and grandchildren) and vice versa.
  • Proposition 22 is the controversial treatment of app-based drivers as contractors as opposed to the current mandate to treat them as employees under AB 5.

See below for highlights of these tax-related propositions.

Proposition 15 - Tax on Commercial and Industrial Properties

  • Increases funding for K-12 public schools, community colleges and local governments by requiring that commercial and industrial real property be taxed based on current market value, instead of purchase price, with reassessment at least every three years.
  • Exempts from taxation changes: residential properties; agricultural land; and owners of commercial and industrial properties with combined value of $3 million or less. The “split roll” term demonstrates the assessment at market value for certain property, while other properties remain under previous rules.
  • Exempts small businesses (i.e., fewer than 50 employees, independently owned, owns real property in California) from personal property tax; for other businesses, provides $500,000 exemption.
  • Any additional educational funding will supplement existing school funding guarantees.
GHJ Observations: Proposition 15 is another effort for property tax reform in California, specifically for commercial and industrial property. The historical Proposition 13 rules allowed for a limited increase (max two percent of base value) in property tax for these properties unless a change in ownership were to occur. Longstanding commercial property owners, such as entertainment studios, have a significant amount to lose if this bill passes. These property owners will have their property in California reassessed to market value initially and on a periodic basis. Notably, the value threshold applies in aggregate to direct and indirect owners and applies a combined property value of all commercial and industrial property. There is a risk for direct and indirect owners of property to cause a property to be reassessed by virtue of owning (directly or indirectly) other similar commercial property in the state because the combined market value is over $3 million for all properties. Businesses with property under the threshold will not be impacted from this provision specifically, but the economic concern is that costs will increase via the businesses that will owe substantially more in property tax.

Proposition 19 - Property Tax Transfers and Exemption Changes

  • Limits tax benefits for certain transfers of real property between family members.
    • Restricts transfer benefit to principal residence only (no vacation home or business property)
    • Previously uncapped exemption benefit now capped at $1 million of property value
  • Expands tax benefits for transfers of family farms.
  • Permits homeowners who are 55, severely disabled or whose homes were destroyed by wildfire or disaster to transfer their primary residence’s property tax base value to a replacement residence of any value, anywhere in the state.
  • Allocates most resulting state revenues and savings (if any) to fire protection services and reimbursing local governments for taxation-related changes.
GHJ Observations: Proposition 19 changes reassessment exclusions afforded from parents to children and grandchildren and vice versa. With the new restrictions, California residents considering selling property to family members should consider whether transferring before the exclusions are eliminated or reduced due to this proposal make sense. Also, taxpayers that may benefit from this proposal are homeowners 55 or older that may transfer the base value for property tax of their home if they move and purchase another home in California. This is helpful if your base value and corresponding property tax is low, but you are looking to buy a new home and would like to do so without a significant increase in property tax.

Proposition 22 - App-Based Drivers as Contractors and Labor Policies

  • Classifies drivers for app-based transportation (rideshare) and delivery companies as “independent contractors,” not “employees,” unless company does one or more of the following:
    • Sets drivers’ hours
    • Requires acceptance of specific ride and delivery requests
    • Restricts working for other companies
  • Independent contractors are not covered by various state employment laws — including minimum wage, overtime, unemployment insurance and workers’ compensation.
  • Instead, independent-contractor drivers would be entitled to other compensation — including minimum earnings, healthcare subsidies and vehicle insurance.
  • Restricts certain local regulation of app-based drivers.
  • Criminalizes impersonation of drivers

Note: Recently enacted AB 2257 and AB 323 expanded current exemptions to AB 5 to include music and entertainment industry professionals, media and content creators (i.e., journalists, photographers, etc.), and easing of requirements to qualify for the business-to-business exemption. The recent bills do not address app-based drivers or delivery workers. Proposition 22 directly addresses this workforce.

GHJ Observations: Proposition 22, if passed, this proposal will impact app-based platforms and their desire to do business in California. Uber and Lyft claim that their labor costs will go up over 30 percent in California if their drivers are required to be employees. Both driving services threatened to withdraw from the state rather than being forced to comply with AB 5. Proposition 22 allows app-based drivers to remain independent contractors with the understanding that state employment laws will generally not apply, and workers will not have corresponding protection for unemployment benefits, worker’s compensation and minimum wages.

Please reach out to your tax advisor if you have immediate questions regarding how these propositions may impact you or your business.

Ellington Frances halfbody

Frances Ellington Gutierrez

Frances Ellington Gutierrez, DBA, CPA, is the State and Local Tax Practice Leader at GHJ with a focus on multistate income and franchise tax, indirect tax and credits and incentives. Frances assists her clients on state and local tax issues related to tax audit controversy, nexus and reporting…Learn More