Frequently Asked Questions
1. Which taxes will be eliminated or reduced if this initiative is approved by voters?
The following taxes will be eliminated: (1) Current property taxes on real estate and on personal property such as boats; (2) sales taxes except that current taxes on alcohol, tobacco and gasoline will not be effected; and (3) corporations taxes. The state personal income tax will be effectively abolished for most taxpayers because the first $150,000 of each individual’s annual income will be exempt from this tax. The maximum tax rate on personal income above $150,000 will be 8%.
2. How will revenue lost from these taxes that are eliminated or reduced be replaced?
The lost revenue will be replaced by a tax on the rental value of land in our state which California’s nonpartisan fiscal advisor estimates will raise between $130 billion to $160 billion annually.
3. I own a home. Who will determine how much tax I will pay under this new system?
Your county assessor who currently determines the value of your land parcel and improvements separately will be required to determine the rental value of your land. Assessors estimate the total rental value of your home by finding comparable homes that are being rented and making adjustments for differences between your home and the comparable homes. Assessors then multiply this total rental value by the fraction of the total value of the house that your land represents to determine the rental value of your land.
4. I own a home. Will I be able to challenge or appeal an assessment of my land parcel’s rental value if I disagree with my county assessor’s valuation?
Any assessment of the rental value of a parcel of land is subject to appeal. The legislature will provide for the number and qualifications of members of assessment appeals boards as will as the procedures to be followed by those boards.
5. Why is only the rental value of land taxed, and not the value of the buildings / improvements on the land? The land value reflects the benefits that have been provided by the community, the location advantage and the competitive market demand for the site. The improvements represent a value that the property owner has added to the land site.
6. What is the definition of “land” for purposes of this new tax system? Land includes the location of the site, including what is below and above the location, and all the rights to use or deal with the site
7. What is the definition of “improvements” for purposes of this new system? Improvements include all structures and physical appurtenances attached to the land. . California’s assessors have been separating land value from the value of improvements for over a century and will continue the job.
8. Why is the rental value of land assessed for purposes of taxation instead of the selling price of land? Rent is the basic measure of land value, i.e. buy / sell prices are based on current rental value as well as expected future rental value. Rents tend to be more stable than selling prices which can rapidly increase or decrease as interest rates and expectations of future economic prospects fluctuate. When commercial and retail property is considered, more property is regularly rented or leased than is bought and sold, so rental rates are widely known and readily ascertained.
9. Since rent is paid for both land and improvements when improved properties are rented, how is it practical to separate out the rental value of the land from the rental value of the improvements? Assessors and real estate agents can tell you what % of the total rental value is for the land portion. In well located urban settings 60% to 80% may be typical, in suburban settings 40% to 60% may be typical, in rural settings 20% to 40% may be typical, and in farming districts 5% to 20% may be typical. Multiply your home rental value by the % land value found in your neighborhood. Assessors have always estimated the value of land and building separately.
10. Why is the rental value of land assessed on a monthly basis instead of on an annual basis? People who have mortgages on their home or business typically pay their real estate tax monthly as a part of the payment to the lender that is held in an account for annual taxes. It is more efficient and less costly to pay monthly so that government agencies do not have to borrow to cover costs pending the receipt of the taxes.
11. I own a home. How do I estimate how much my taxes will be under this new system? The tax will be 75% of the rental value of your land only. You can estimate the total rental value of your home just as Assessors and real estate agents do by finding comparable homes that are being rented and making adjustments for differences your home has. Assessors and real estate agents can tell you what % of the total rental value is for the land portion. In well located urban settings 60% to 80% may be typical, in suburban settings 40%to 60% may be typical, in rural settings 20% may be 40% is typical, and in farming districts 5% to 20% may be typical. Multiply your home rental value by the % land found in your neighborhood, then 75% of the rental value of the land will be the tax you will pay. Compare that amount to the current state income tax, sales tax and local property taxes, which you will no longer pay.
12. I own a home. How will I pay my taxes under this new system? The County will provide notice of taxes. The payment of taxes due on the rental value of land shall be made to the Treasurer of the State of California. The Treasurer will return the taxes due to the various taxing agencies.
13. I rent my home or apartment. What taxes will I pay under this new system? You will not pay general sales taxes. You will not pay income taxes on the first $150,000 of income you earn annually. You will not pay property taxes; the landlord pays those taxes on the rental value of the land. You will only pay taxes on your income that exceeds $150,000 but at a reduced rate.
14. How does the nonrefundable tax credit work?
15. Can I carry an unused credit from payment of tax on the rental value of land to another year?
16. Will the legislature have the power to increase the tax rate on the rental value of land?
17. Will the legislature be able to impose new taxes that don’t exist now?
18. I own a home. Will I be able to defer any taxes on the rental value of my land parcel to pay in another year when I can better afford to pay?
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