If voters reject the largest property tax increase in state history on Nov. 3, renters and consumers will benefit, a trade group leader said.
Proposition 15 would raise taxes on commercial property owners, but renters with triple net leases would bear most of the burden, Rachel Michelin, president of the California Retailers Association (CRA), told the Northern California Record. With a triple net lease, rent is lower because the lessee agrees to pay the real estate taxes, insurance, and other property expenses.
“Seventy-five percent of small business owners pay rent in California,” Michelin said. “So under Prop 15, they’re going to pay the increased taxes. Because of how triple net leases are written, costs will be passed on to renters who will likely have to raise their prices, which then get passed on to consumers.”
The CRA’s concern is highlighted in a recent Tax Foundation analysis, which notes, “Proposition 15 is being offered as a measure to raise taxes on businesses but much of the cost will be picked up by consumers through higher prices on goods and services …. A tax increase of up to $12.5 billion is a significant additional burden on businesses already struggling due to the coronavirus pandemic—particularly small businesses with low cash flow. While the small business exemptions in Proposition 15 afford some protections from increased taxes, many small businesses rent space. Their rent is likely to go up as the tax increase is passed on through rental costs.”
Current poll projections for Proposition 15 indicate the outcome remains a toss-up.
A survey by the Public Policy Institute of California showed Proposition 15 backed by a slight majority of voters, about 51 percent, The New York Times reported.
Michelin said she disagreed with Gov. Gavin Newsom’s recent endorsement of the measure, particularly given a recent Mercury News report in which his own small business advocate calls Main Street businesses the backbone of the state’s economy, employing roughly 50 percent of its private workforce.
Lawmakers could better address school and community funding in the state’s budget, Michelin said.
“A tax increase is not the only way to fund these programs – it can go through the legislative process – the Legislature and the governor make the budget priorities, and they can allocate the funding for it,” Michelin said. “On three different occasions the CTA, SEIU and other Prop 15 proponents have opposed this legislation.”
“And after this ballot proposition, what happens next?” Michelin added. “They go after residential property taxes. Once you open Pandora's box, anything’s on the table.”
As it stands, a recent Yelp survey found that of the nearly 7,000 business closures in the San Francisco and San Jose metro areas between March and July, more than 50 percent are permanent, the East Bay Times reported.
“I think we know we are in a recession,” Michelin said. “But we are still in reactionary mode. Let’s get our hands around Covid and get through the pandemic, I mean right now you have an EDD [Employment Development Department] that can’t even process unemployment claims, and we don’t know how Covid will affect future revenue streams.”
California currently ranks 48th in the nation for business taxes, according to the Tax Foundation.
“Right now is not the time for a tax increase,” Michelin added. “We need to make sure that Californians can get back to work, and we need to make sure small businesses can too.”