Save Taxes on Property Transfers


On June 6, 1978, the state of California voters approved a proposition known as proposition 13. This was created to stop the rapid rise in property taxes on California Real Property. The basic idea was to reduce property taxes, which at that time were averaging about 3% of market value, to 1% of market value. The idea was that only when property transfers to another person or entity would the property be reassessed for property taxes. With property transfers, the property taxes would then be raised to 1 % of the new reassessed amount. Although there are bonds and other assessments that can be added to the taxes, the new taxes would basically remain the same until the property transfers again. There are some other rules on cost of living type increases etc., but overall, this was the purpose for the Jarvis-Gann initiative.

Proposition 13 was named the “People’s Initiative to Limit Property Taxation”, and it was actually an amendment of the Constitution of California enacted during 1978, through the initiative process. It is interesting to note that it was even declared constitutional by the United States Supreme Court in the case of Nordlinger v. Hahn, 505 U.S. 1 (1992). Proposition 13 is now known as Article XIII A of the Constitution of the State of California.

What is most remembered about Proposition 13 is the first paragraph, which limited the tax rate for real estate, which reads as follows:


It turned out that Proposition 13 decreased property taxes by assessing property values at their 1975 value and restricted annual increases of assessed value of real property to an inflation factor, not to be more than 2% per year. It also does not allow reassessment of real property each year, as was allowed prior to the passing of the amendment to the constitution, unless there was either change in ownership, or the completion of new construction.

It turned out that upon passage of Proposition 13, property tax rates on homes, businesses and farms was reduced by about 57%.

It seems that there are several reasons given why Proposition 13 was enacted in the first place. There was a concern that seniors in Californians with fixed incomes should not lose their houses because of high property tax costs. It was stated by some that because of high inflation during the 1970s, reassessments of residential property increased property taxes so much, that some retired people could no longer afford to remain in homes which they may have purchased long before.

It seems that many Californians were also perturbed by the spending that the state of California’s government which had increased during 70s. It was a popular notion that Californians wanted a way to curtail continued