Parcel tax

A parcel tax is a type of real property tax used primarily in California for the funding of K-12 public education.[1] Parcel taxes are also used to fund other ongoing local government services and programs in California. It is not uncommon for homeowners in California, especially in the Bay Area in northern California, to have many parcel taxes appearing on the annual property tax bill. The total amount of all parcel taxes levied on some parcels, especially on modest single-family homes with low assessed values, can sometimes be so high as to even exceed the property tax owed under the basic 1% tax rate limit under Proposition 13.

Origination

Parcel taxes originated in response to California's Proposition 13, a state initiative constitutional amendment approved by California voters in June 1978. Proposition 13 limited the property tax rate based on the assessed value of real estate to 1% per year. However, a parcel tax is a flat tax on each parcel of real property, and does not vary according to the assessed value of the property. As a result, a parcel tax does not violate the ad valorem property tax rate limits of Proposition 13.[2]

Mello-Roos Taxes

Mello-Roos taxes are a species of parcel tax levied under the Mello-Roos Community Facilities Act of 1982.[3] Mello-Roos taxes are levied to pay for various local government services and infrastructure. The use of Mello-Roos taxes has been controversial in some local governments in California, especially for homeowners who have to pay such taxes.

Two-Thirds Voter Approval Required

Simple majority vote parcel taxes were found unconstitutional under the uniformity of property taxation provision of the California Constitution.[4] To the extent parcel taxes are legally authorized, Proposition 218 (1996) (the "Right to Vote on Taxes Act") requires every parcel tax be levied as a special tax subject to two-thirds voter approval.[5]

Statutory Limitations – Uniformity Requirement

The legal authority to levy a parcel tax comes from California state statutes which typically include additional restrictions and limitations on the ability of a local government to levy a parcel tax. The requirement that many parcel taxes apply uniformly to all taxpayers or all real property within a local government is a direct result of statutory restrictions imposed by the California Legislature and not as a result of any requirements under the California Constitution. There has been significant political opposition to easing the statutory uniformity requirement for parcel taxes, especially from the business community which would incur a significant increased property tax burden if the uniformity requirement were eased by the California Legislature.

Significant Fairness Issues

Due to the statutory uniformity requirement for most local government parcel taxes, significant tax fairness issues arise. Parcel taxes are distributed regressively because they require owners of smaller or lower valued property to pay the same total amount as owners of larger or higher valued property, including big mansions or massive commercial office buildings.[6] Many homeowners believe this to be very unfair. When the Alameda Unified School District attempted to mitigate this by imposing a parcel tax that would require very large commercial properties to pay a larger amount than residential home owners, a California appeals court declared the tax invalid.[7][8] In response the California State Senate passed a bill by Governance and Finance Chair Lois Wolk to allow school district voters to levy a higher parcel tax on commercial property,[9][10] but the bill then failed in Assembly committee.[11]

Single-Family Residential Parcels Bear Disproportionate Burden

Since in most California communities the vast majority of taxable parcels are single-family residential, the statutory uniformity requirement results in most of the tax burden falling on single-family residential property owners. For example, in Santa Clara County about 88% of the parcels are single-family residential parcels (including condominiums).[12] It is for this reason the local business community is often supportive of parcel taxes because the tax burden on commercial parcels, especially large commercial parcels, is very low. Business interest groups such as the Bay Area Council, the Silicon Valley Leadership Group, and the Los Angeles Area Chamber of Commerce frequently support such parcel taxes that disproportionately burden single-family residential parcels.

Singling Out Property Owners

Fairness issues associated with parcel taxes also arise concerning the appropriateness of singling out property owners to bear the full financial burden for some public services and programs, especially those services and programs that provide general benefits to the community at large or benefits to nonresidents of a community.

Tax Burden Versus Benefits

Parcel taxes also don’t legally require any relationship between the tax amount paid and the benefits received or the ability to pay. As a result, it is up to local voters in a parcel tax election to carefully weigh and evaluate the merits of a parcel tax proposal. In some instances, other types of taxes may be more equitable. In other instances, other financing mechanisms may be more appropriate to finance all or part of the public services or improvements under consideration. For example, special assessments on real property are appropriately used to finance public services and improvements that specially benefit property above and beyond benefits received by the community at large. This is particularly appropriate where a small number of parcels, such as large commercial (business) parcels, receive special benefits not shared by the rest of the community.

K-12 School Parcel Taxes

Research has shown that California school districts able to pass parcel tax measures tend to be more prosperous and to have lower percentages of minority students than those where parcel tax measures failed, or were never proposed.[13] For example, in Oakland, California, where 68.5% of students qualify for free lunches, property owners pay a $195 parcel tax while in its enclave Piedmont, where 0.3% of students qualify for free lunches, owners pay at minimum a $1,200 parcel tax.[14] Over 80% of school districts with voter approved parcel taxes are in the relatively wealthy San Francisco Bay Area.[15]

The preceding also raises school funding disparity issues under the California Supreme Court Serrano decisions.[16] The Serrano cases did not specifically address the impact of K-12 education parcel taxes because such taxes did not exist at that time.

Parcel Tax Reduction or Repeal Using Proposition 218 (1996)

Proposition 218 (1996) (the "Right to Vote on Taxes Act") constitutionally reserves to local voters the right to use the initiative power to reduce or repeal any local tax, assessment, fee or charge, including provision for a significantly reduced petition signature requirement to qualify a measure on the ballot.[17] A local initiative under Proposition 218 (1996) can target for reduction or repeal local government parcel taxes, especially in situations where major tax fairness issues are present in a particular community.

A local initiative under Proposition 218 could also be pursued as a tie-in initiative that would tie the continued imposition of a parcel tax to satisfaction of specified conditions. For example, a local initiative could attach an annual matching contribution condition whereby a parcel tax would be reduced or repealed if the specified annual matching contribution condition is not satisfied. A matching contribution condition is intended to leverage additional financial support as well as to demonstrate a strong financial commitment to the purposes for which the parcel tax is imposed, especially from those interests who promoted the parcel tax. Matching contributions typically come from the private sector in the form of voluntary payments such as from the local business community. This approach is particularly appropriate in places like Los Angeles County and the Silicon Valley where the local business community tends to be big supporters of tax increases that disproportionately burden ordinary taxpayers but generally opposes tax increases on the business community for the same purposes.

References

  1. ↑ Sonstelie, Jon; Richardson, Peter (2001). School Finance and California's Master Plan for Education. San Francisco: Public Policy Institute of California. pp. 187–190. ISBN 9781582130347.
  2. ↑ Heckendorn v. City of San Marino (1986) 42 Cal.3d 481.
  3. ↑ Cal. Gov. Code, § 53311 et seq.
  4. ↑ Cal. Const., art. XIII § 1; City of Oakland v. Digre (1988) 205 Cal.App.3d 99.
  5. ↑ Cal. Const., art. XIII D, § 3, subd. (a), par. (2).
  6. ↑ "Raising Revenues Locally: Parcel Taxes in California School Districts 1983-2012" (PDF). EdSource Report. May 2013. Retrieved 28 October 2014.
  7. ↑ Borikas v. Alameda Unified School Dist., 214 Cal. App. 4th 135, 154 Cal. Rptr. 3d 186 (Ct. App. 2013).
  8. ↑ Egelko, Bob (June 12, 2013). "Alameda Parcel Tax Shot Down by High Court". San Francisco Chronicle. Retrieved 28 October 2014.
  9. ↑ SB-1021 http://www.leginfo.ca.gov/pub/13-14/bill/sen/sb_1001-1050/sb_1021_cfa_20140403_133301_sen_comm.html
  10. ↑ California State Senate Floor Session Item: SB-1021 School districts: parcel taxes. Wolk (May 5, 2014) http://calchannel.granicus.com/MediaPlayer.php?view_id=&clip_id=2094&meta_id=20175
  11. ↑ "Split Roll Bill Dies in Assembly Committee". California Chamber of Commerce. Retrieved 28 October 2014.
  12. ↑ Santa Clara County Assessor, 2015-16 Assessor’s Annual Report, p. 12.
  13. ↑ Rueben, Kim S.; Cerdán-Infantes, Pedro (2003), Fiscal Effects of Voter Approval Requirements on Local Governments, San Francisco: Public Policy Institute of California, pp. 42–45, ISBN 9781582130651
  14. ↑ "Local Revenues for Schools: Limits and Options in California" (PDF). EdSource Report. September 2009. Retrieved 28 October 2014.
  15. ↑ "At Issue: Parcel Taxes for Education in California" (PDF). Public Policy Institute of California. September 2013. Retrieved 28 October 2014.
  16. ↑ Serrano v. Priest (1971) 5 Cal.3d 584; Serrano v. Priest (1976) 18 Cal.3d 728.
  17. ↑ Cal. Const., art. XIII C, § 3.
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