Recession spurs first time property tax reductions

November 30, 2009 11:44am

•  First statewide reduction since Prop 13

•  Usually there’s been an annual increase of 2 percent

Most California homeowners will see a slight decline in property tax bills, according to Board of Equalization (BOE) preliminary estimates of a negative inflation factor, or deflation, of 0.237 percent, it was announced today by BOE Member Bill Leonard.

The decline in taxes owed will be about $2.60 per $100,000 in assessed value.

"I encouraged BOE staff to find that the inflation index factor that goes up -- and sometimes down -- should result in tax decreases when it actually does go down,” says Mr. Leonard. “I am very pleased that the BOE has issued this ruling."

This is the first time such a broad scale reduction in property tax base year values has occurred. Since the passage of Proposition 13, the inflation factor has never before been negative, and in all but five years the annual adjustment has been capped at 2 percent.

The preliminary estimate is based on U.S. Bureau of Labor Statistics Consumer Price Index numbers released in mid-November. The official inflation factor, the California Consumer Price Index, is calculated by the California Department of Industrial Relations using the same price data. The official CCPI number will be released soon, following which the BOE will notify county assessors of the rate to apply to assessed property values. This official notification will come through a “Letter to Assessors” released in December.

BOE staff released an opinion in September of this year determining that if deflation occurred during October 2008 through October 2009, all Proposition 13 base year values must be adjusted downward to reflect the deflation.

Nearly all real estate in California is assessed under the terms of Proposition 13, the 1978 ballot initiative that generally requires real property to be taxed on the basis of its fair market value as of the most recent change in ownership. Under Proposition 13, once such a base year value is established, it must be adjusted in subsequent years by an inflation factor, but any increases resulting from these annual adjustments are capped at 2 percent per year.

The announced adjustment factor will be reflected in assessments made as of Jan. 1, 2010. The base year adjustments will be reflected on tax bills sent out in October 2010 and due by December 10, 2010 and April 10, 2011. Property taxes are collected by local county tax collectors and are used at the local level to fund local programs and services.

Even with this base year value reduction reflecting deflation, some property owners may not see a reduction in their properties’ assessed values, the BOE says. An example of where this would occur is if the assessed value has already been reduced due to recent market declines. Those property owners could actually see an increase in the annual assessed value and resulting tax bill. Proposition 13 requires the assessor to use this higher current market value for the 2010 assessment, provided this value does not exceed the property’s factored base year value.

While the savings for the 2010 year is minimal for most taxpayers -- about $2.60 for every $100,000 in assessed value -- had the 2 percent inflation adjustment occurred that has been typical since the passage of proposition 13, the corresponding increase to the homeowner would have been about $22 for every $100,000 in assessed value.

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