California homeowners are hearing more and more about parcel taxes. Either they recently suffered sticker shock when they opened their property tax bill to see a parcel tax that they weren’t expecting or they have followed the news from Sacramento where politicians talk about making parcel taxes easier to impose.
Since the parcel tax war in California is about to heat up in a big way, it is important for all California taxpayers to know what these pernicious levies are, why they are so dangerous and the perversion of the California Constitution that permits them in the first place.
Property taxes in California are governed by both Articles XIII and XIIIA of the California Constitution. The latter, Article XIIIA, is more affectionately known as Proposition 13.
Before Proposition 13’s enactment in 1978, property taxes were required to be imposed only as a percentage of value or, if you like Latin, on an ad valorem basis. Moreover, all property was required to be taxed at the same rate. Proposition 13 was intended to change neither of these features.
However, throughout the 1960s and ‘70s property taxes were rising dramatically, so Howard Jarvis thought that “value” should be defined in a way that would save homeowners from being taxed out of their homes. Thus, while property is still supposed to be taxed only as a percentage of value, Prop. 13 defines “value” as how much you paid for the property plus 2 percent per year. Prop. 13 also limited the tax rate to 1 percent.
Knowing that politicians and special interests would try to circumvent Proposition 13’s property tax limitations with a myriad of new and different taxes, Howard Jarvis also put a two-thirds voter approval requirement at the local level for any additional “special tax.” Thus, Section 4 of Prop. 13 provides that “cities, counties and special districts, by a two-thirds vote of the qualified electors of such district, may impose special taxes on such district, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within such city, county or special district.”
The clear language of Section 4 reveals the intent to place a restriction on local governments from imposing any and all local taxes to make up for the property tax limits of Prop. 13. Indeed, the California Supreme Court acknowledged that that was indeed the intent of Section 4.
This constitutional language also reveals something else, that additional property taxes would not be permitted under any circumstance — even with a two-thirds vote. After all, the primary purpose of Prop. 13 was to limit property taxes.
Although Prop. 13 survived a direct legal challenge shortly after its enactment, it didn’t take long for the courts and the legislature to start weakening its homeowner protections after it became law. For starters, the term “special tax” was defined narrowly as any tax intended for a specific purpose. Thus, all kinds of local taxes — including utility user taxes — which went into a local government’s general fund were deemed not subject to the two-thirds vote requirement.
But the biggest perversion of Prop. 13 had to do with parcel taxes. Courts held that, notwithstanding the existing law requiring that property taxes be imposed only as a percentage of value, and notwithstanding Section 4’s clear prohibition against other forms of property taxation, that the term “special tax” could include a brand new form of property levies called “parcel taxes” as long as they received a two-thirds vote.
To ascribe to Howard Jarvis and the millions of voters who voted for Prop. 13 the intent to create a whole new form of property tax that never existed before is laughable. Parcel taxes are usually flat rate taxes imposed on property irrespective of value. Therefore, the retired couple living on a fixed income in a modest bungalow pays the same amount as the owner of a multi-million dollar mansion in Beverly Hills. In short, parcel taxes represent the most regressive form of taxation imaginable — something Howard Jarvis would never countenance.
While politicians and the special interests seek to make the imposition of parcel taxes easier by lowering the vote threshold, we have a better idea: Let’s change the state constitution to reflect the original intent of Prop. 13 and ban parcel taxes altogether.
Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.