Summary of Initiative’s Provisions
(1) State personal income tax: The first $150,000 of each person’s annual income will be exempt. The maximum income tax rate will be reduced to 8% from the current top rate of 10.55%.
A dollar-for-dollar nonrefundable income tax credit is allowed for any taxes on the rental value of California land paid by the taxpayer.
Note: The top 1% of income recipients pay nearly 50% of the revenue collected by California’s personal income tax (PIT) and the top 5% pay about two-thirds of the total revenue collected. This initiative will effectively abolish PIT liability for approximately 95% of present taxpayers while reducing the tax rate for those affluent taxpayers still paying PIT. The tax credit for land taxes paid will assure that many taxpayers who earn over $150,000 annually will experience no increase in their total tax burden as a result of California’s new tax on the rental value of land.
(2) Sales tax (state and local): Abolished.
(3) Existing property taxes on real & personal property: Abolished
(4) Corporations tax: Abolished.
(5) VAT or business net receipts tax: Not authorized.
Note: Under the new provisions of the California constitution added by this initiative, the only taxes which may be levied or imposed are those specifically authorized by the new provisions. Those provisions make no allowance for a VAT or business net receipts tax, or for a general sales tax or a tax on corporations, so such taxes are not permitted.
(6) New Tax on rental value of land:
(a) Assessed solely on land. Improvements / buildings may not be taxed as long as their value can reasonably be distinguished from the value of the land itself.
(b) Land to be assessed at fair market rental value.
(c) Tax rate to be 75% of rental value.
(d) Payable monthly although may be paid in advance on a quarterly, semiannual or annual basis at a discount reflecting the time value of money. The Director of Finance is to set the discount rate to be used for this purpose.
(7) Alcohol, Tobacco & Motor Fuel Taxes: Not affected.
(8) Oil severance tax: California is the only major oil-producing state in the US without such a tax. Although the tax reform initiative does not establish such a tax, it does permit the legislature to levy such a tax so long as any payment of a severance tax on a natural resource is credited against land rent tax tax due on natural resource deposits or fields. Thus, levying of land taxes on the rental value of an oil field (without regard to improvements) will encourage production of oil to pay those taxes. However, when oil is actually severed or pumped from the earth, the severance tax will then apply to capture a portion of the resource rent while offsetting land rent tax liability on that same resource.
(9) Allocation of land rent tax revenues: Counties and all municipalities & districts within counties to be guaranteed the annual average of revenues received by such counties / cities / districts during the three year period immediately preceding the effective date of the reform from the present property tax and from any other tax, such as the sales tax, which is eliminated by the initiative. This is a minimum level of guaranteed revenue. Due to the markedly higher and steadily increasing revenues received by the state from the collection of 75% of land rent, California will have the ability to commensurately increase the amount of revenue provided to local government at all levels.
(10) Date of implementation: To allow the time needed for affected state and local offices and agencies to prepare for the change, the initiative establishes July 1, 2011 as the effective date for the reform to become effective if this initiative is approved by voters in November, 2010. If the initiative instead qualifies for the ballot in June, 2012, and is then approved, the reform will become effective on January 1, 2013.
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