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How California’s Prop 8 can help commercial real estate owners with property taxes

Mar 15, 2021

March 2021 – Every property owner should be making a focused effort to pursue property tax relief in light of the ongoing negative impacts on property value caused by COVID-19. In California specifically, there are a number of available solutions to help ease the property tax burden many owners of commercial real estate and business personal property are faced with. One such approach is the “Decline in Value” Proposition 8 passed by California voters in 1978.

Whenever the current assessed value exceeds the current fair cash value or market value for a property in California, a Prop 8 appeal is warranted and highly recommended. The process is similar to a standard Prop 13 appeal that has deadlines in the fall, except that any reduction achieved through Prop 8 is temporary until the real estate market recovers and the base year is re-established, plus the interim maximum 2% inflation factor. The option of a Prop 8 appeal should compel every real estate owner to be realistic and review the assessment and valuation of their real estate annually. Any adjustments achieved through a successful Prop 8 appeal will lower the 2021/22 property tax burden on the subject property and establish property valuation as of the Jan. 1, 2021 lien date.

A typical Prop 8 appeal would begin by gathering and compiling all available comparable market sales data, ADRs, RevPars, Vacancy and Expense Ratios and Cap Rates. Then there would be a review of the subject’s actual revenue generating ability during calendar year 2020 reconciled with market data and the subject’s actual performance during that same timeframe. All of this information would determine the proper market/assessed value for the property.

Once deemed warranted, a formal appeal will be filed with the Assessment Appeals Board during the open filing period starting on July 2, 2021. Here is where the case will be discussed and a fair valuation will be negotiated with Assessors for a possible agreement. If an agreement isn’t reached, then a property valuation report would be presented in support of an opinion of value. Once a successful appeal is achieved, refund analysis, computation and tracking commence.

In summation, a Prop 8 appeal can be a highly valuable approach to recognizing some property tax relief on assets negatively affected during the pandemic. Enlisting the help of an experienced property tax consultant can increase this benefit, eliminate the hassle, and add expertise in the process of appealing.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.