California Proposition 15 Would Implement a “Split Roll” Property Tax System

California’s November ballot will include a proposition to change how the state taxes commercial and industrial property. Proposition 15, also known as the California Schools and Local Community Funding Act of 2020, would be the largest revision of California’s property tax system since Proposition 13 more than 40 years ago.

Proposition 15 would implement a “split roll” property tax system to reassess some business properties at their fair market value every three years instead of at their purchase price. Proposition 13 did not distinguish between residential and business property, and Proposition 15 would remove these tax limitations for commercial and industrial real property, including vacant land not zoned for residential use. The reassessment system would affect properties valued at more than $3 million. Residential property would be exempt from the changes.

Proposition 13 established base-year fair market values for all real property based on the 1975-1976 tax-year assessment, limited property taxes to 1 percent of a property’s market value, and limited annual property valuation increases to the lesser of the rate of inflation or 2 percent of its base year value. Property values under the current system are reassessed at market value when the property is “purchased, newly constructed, or a change in ownership has occurred” after the initial 1975 assessment. (Amendments added after Proposition 13 excluded from reassessment certain transfers of real property between parents and children and between grandparents and grandchildren.) Reassessment establishes a new base-year value for both the property’s land and improvements, and the property’s value for tax purposes is adjusted for inflation against the new base-year assessment. The current system often results in significant disparities in property values for tax purposes based on when the property was purchased.


Proposition 15 would exempt small businesses, which are defined as independently owned and operated businesses with fewer than 50 annual full-time equivalent employees that own real property in California. It also exempts businesses that own commercial and industrial properties in California that have an aggregate fair market value of $3 million or less. The proposition provides additional exemptions for land used for “commercial agricultural production” and for $500,000 in tangible personal property, which includes equipment and fixtures.

The new property reassessment system would be effective beginning January 1, 2022. The act would delay implementation to the 2025-2026 fiscal year, at the earliest, for properties that have small businesses occupying 50 percent or more of its square footage. The changes to tangible personal property would become effective on January 1, 2024.

Additional issues

Proposition 15 makes the California state legislature responsible for passing additional legislation to implement the new system. This includes classifying property zoned as commercial or industrial property but used as long-term residential property as residential property for tax assessment purposes; ensuring that mixed-use real property is subject to reassessment only in the portion of the property used for commercial and industrial purposes; and classifying limited commercial uses of residential property, such as home offices, home-based businesses, or short-term rentals, as residential property. The legislature may also provide an exclusion from reassessment for the commercial share of mixed-use property with 75 percent or more of its square footage or value for residential use.

Solar energy carve out

Notably, solar energy properties would continue to be exempt from Proposition 15. In what is largely viewed as a drafting error, Proposition 15 would end a long-held exclusion for the construction or addition of a solar energy system from the definition of “newly constructed” property. However, Governor Gavin Newsom recently signed into law SB 364, which provides a carve out from Proposition 15 for solar energy systems.


Proposition 15 would directly impact California taxpayers who own commercial and industrial real property with older base-year valuations. Taxpayers should consider the possible impacts of this new property reassessment system on property values as well as tenants that lease space in these properties. The increases in property tax will likely be passed through to these tenants, which in turn will likely be passed down to consumers through increases in the price for goods and services.

Update: Proposition 15, the statewide ballot initiative that would implement a “split roll” property tax system, has been defeated by a margin of 52 percent to 48 percent on the November 3. 2020 ballot

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