It’s that scary time of year. No not the little goblins trick-or-treating at your front door. What is frightening is the property tax bill in your mail box.
Fortunately Proposition 13 has softened the blow by limiting annual increases to no more than two percent and by making the tax bill predictable. Still because it is a direct tax that must be paid in two large chunks even with Proposition 13 it is a tax with major impact — unlike sales and income taxes that in most cases drain the taxpayer’s wallet gradually and almost quietly. If there is a virtue to this annual slap in the face it is that it is a clear reminder of what government costs and that all taxpayers should be vigilant to make sure that their hard earned money is spent efficiently and wisely.
The Howard Jarvis Taxpayers Association also recommends that taxpayers examine their latest property tax bill carefully. Although not common mistakes do occur. Taxpayers should understand the various charges and make certain that they are not being dunned for more than they are legally obligated to pay. The best way to check a tax bill is to have your previous year’s bill handy for reference.
There are three categories of charges on the typical property tax bill. They are the General Tax Levy Voted Indebtedness and Direct Assessments.
General Tax Levy
The General Tax Levy is what most people think of when talking about property taxes. It is based on the assessed value of land improvements and fixtures. This charge usually makes up the largest part of the tax bill and it is the amount that is limited by Proposition 13.
Proposition 13 passed overwhelmingly by voters in 1978 established a statewide uniform tax rate of one percent of assessed value at the time of purchase and limited annual increases in assessed value to no more than two percent. From a practical standpoint this means that once the base year value of your property is established the General Tax Levy cannot be increased more than two percent each year. This allows all property owners to predict their property tax bills into the future and budget accordingly.
The best way to check to make sure that your current General Levy of Assessment is correct is to compare it with the previous year’s bill. The increase should be no more than two percent unless there have been improvements to the property — like adding a room to the house — or you received a temporary tax reduction in a previous year based on a decline in the property’s value.
Because of the current decline in property values in California brought on in part by the subprime crisis many recent homebuyers are entitled to reductions in their property tax bills to an amount even lower than their Prop 13 adjusted base. Although a temporary tax reduction can mean a future tax increase larger than two percent you can never be charged more than you would have paid had you not received the temporary reduction.
Voted Indebtedness is made up of those bonds and per parcel taxes approved by the voters.
Local general obligation bonds for libraries parks police and fire facilities and other capital improvements are repaid exclusively by property owners. Because a minority of the population is required to pay the entire amount the California Constitution of 1879 established the two-thirds vote for approval of these bonds. This assures a strong community consensus before obligating property owners to repay debt for 20 or 30 years.
Until the year 2000 local school bonds also required a two-thirds vote but the passage of Proposition 39 — backed by a small group of wealthy Silicon Valley businessmen — lowered the vote to 55 percent. Because the 55 percent requirement guarantees that most school bonds will pass regardless of merit many homeowners are seeing a significant increase in the Voted Indebtedness column on their tax bills.
Less common than bonds are per parcel taxes. These are taxes on property ownership not on property value. Under Proposition 13 they require a two-thirds vote and are also listed either under Voted Indebtedness if they are being imposed to repay bonds or under "Other Levies" if they are for operational expenses of a local government entity.
Ironically under the system in place for over a century property taxes go into the general fund and are used for local services unrelated to property. For services to property such as sidewalks and sewers we pay extra. These charges are known as direct assessments.
Because of Proposition 218 — the Right to Vote on Taxes Act placed on the ballot by the Howard Jarvis Taxpayers Association in 1996 — property owners must be given a meaningful say in approving new assessments.
Before an assessment can be imposed or increased property owners must be informed in writing and be given the opportunity to cast a protest vote on the new assessment or assessment increase.
If you have a question about your property tax bill you should contact the office of your county assessor. It’s your money and you have a right to be certain that your bill is correct.
Jon Coupal is President of the Howard Jarvis Taxpayers Association — California’s largest taxpayer organization — which is dedicated to the protection of Proposition 13 and promoting taxpayers’ rights.