Election Analysis: California and Colorado Voters Resist Temptation to Shift More of Property Tax Burden to Businesses

November 4, 2020

In Tuesday’s election, voters in two states—California and Colorado—were tasked with deciding whether to amend their states’ constitution to change how the property tax burden is distributed. In many ways, the ballot measures were mirror images of each other, but the outcomes were similar.

California Proposition 15 sought to shift more of the property tax burden onto commercial property taxpayers by excluding most commercial properties from the protections of Proposition 13, while Colorado Amendment B sought to prevent residential taxpayers from receiving additional disproportionate property tax relief under the “Gallagher Amendment” moving forward.

With 85 percent of precincts reporting, Colorado Amendment B has been adopted by a 58-42 percent margin. And with 99 percent of precincts at least partially reporting (and an estimated 92 percent of the total vote count in), California Proposition 15 appears to have been defeated by a 48-52 percent margin, though it may take some time for an official call.

In both cases, the “good governance” measure appears to have prevailed, with a majority of voters in both states resisting the temptation to shift more of the property tax burden from residential taxpayers and onto businesses. In both states, voters seem to have acknowledged that they can’t endlessly shift the property tax burden to businesses; if they want increased funding for local services, residents must be willing to pick up their share of the bill.

It’s important to note that Colorado Amendment B does not fix the non-neutralities in Colorado’s property tax system, but it does prevent them from continuing to worsen and gives state policymakers the opportunity to make improvements in the future. Nonresidential properties will continue to be taxed at a much higher assessment ratio than residential properties (29 percent and 7.15 percent, respectively). However, these assessment ratios will now be set in statute, not in the constitution, and the residential property assessment ratio will not automatically be readjusted downward every two years, since the constitution will no longer require residential properties be limited to 45 percent of the statewide property tax base.

When the Gallagher Amendment was adopted, it imposed a roughly 40 percent higher assessment ratio on commercial property than on residential property. Without Amendment B, that ratio would have been more than 300 percent higher next year. Voters concluded that the shift had gone too far, with detrimental economic effects.

In California, the apparent rejection of Proposition 15 means Proposition 13 will continue to apply to all classes of property, and the state will not shift to a split roll property tax system. While Proposition 13 is far from perfect, its protections will continue to extend to residential and commercial properties alike, avoiding a commercial property tax increase of as much as $12.5 billion a year and steering clear of a situation where, as in Colorado, the gulf between commercial and residential assessments would widen with each passing year. Under Proposition 15, that would have happened because assessment growth for residential property would still be limited, but commercial property would be reassessed regularly at market rates. The outcomes of both these measures give lawmakers the opportunity to continue working to improve their property tax systems to promote enhanced neutrality moving forward.

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The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

A property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services.