January 23, 2022

Volume XII, Number 23

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January 21, 2022

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January 20, 2022

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The Results Are In – California State and Local Tax Ballot Measures

On November 3, 2020, California voters decided a number of state and local tax-related ballot measures.[1]  The most significant tax increase, the property tax “split roll” initiative, and some other local tax increases were defeated.  However, overall voters were willing to approve a number of meaningful tax increases—especially San Francisco voters.  Following is an overview of statewide and notable local tax measures and referrals decided by the voters.

Statewide Measures

  • Voters rejected Proposition 15, which would have created a “split roll” property tax system and required most commercial and industrial properties be assessed at market value beginning with the lien date for the 2022-23 fiscal year. More details on the failed measure can be found in our earlier blog post Splitting The Roll – Commercial And Industrial Property Owners May Face Significant California Property Tax Increases Starting As Early As The 2022-2023 Fiscal Year.

  • Voters approved Proposition 19, which will allow eligible homeowners (persons over 55 years old, with severe disabilities, and victims of natural disasters and hazardous waste contamination) to transfer the transfer the assessed value of their home to a different home of equal or lesser value without significant property tax increase. The measure will also severely limit the parent-child and grandparent-grandchild property tax reassessment exclusion by (i) eliminating the $1 million exclusion for property other than a principal residence, and (ii) limiting the principal residence exclusion to $1 million in assessed value, and requiring that the property become the principal residence of the transferee in order to be eligible for the limited exclusion.

  • Voters approved Proposition 22, which overturns the applicability of AB 5 to app-based drivers and allows such drivers to continue to be treated as independent contractors for purposes of California labor and tax laws. The proposition also adopts certain labor and wage policies specific to app-based drivers, including minimum payments for engaged time, health care subsidies, and occupational accident, disability, and accidental death insurance coverage.

San Francisco Measures

San Francisco voters approved all local tax measures on the ballot, including the following:

  • Proposition F, a comprehensive overhaul of the City’s business license tax. The measure eliminates the payroll expenses tax, increases registration fees for most businesses, increases tax rates, and imposes a gross receipts tax on commercial leases.  Provisions relating to the commercial rent tax and certain rate increases become effective only if the City loses pending lawsuits regarding the validity of  similar provisions previously adopted.  The estimated annual revenue increase for the measure is $97 million.

  • Proposition I, which increases the real estate documentary transfer tax to 5.5% for transactions of $10 million to $25 million and to 6% for transactions of $25 million or more, each a 100% increase compared to current rates. The higher rate will apply to transactions that take place on or after January 1, 2021.

  • Proposition L, which imposes an additional gross receipts tax ranging from 0.1% to 0.6% for businesses in which the highest-paid managerial employee earns more than 100 times the median compensation of all employees. The Proposition also increases the payroll expense tax for such companies, though that increase is moot given the passage of Proposition F.

  • Measure RR, which authorizes an additional sales tax of 0.125% for 30 years, effective July 1, 2021, with proceeds to fund the CalTrain rail service. As a result, the total sales and use tax rate in San Francisco will be 8.625%.

  • Proposition J, which replaces a parcel tax approved in June 2018 (Measure G) with a $288 parcel tax, beginning July 1, 2021 and continuing through the 2037-37 fiscal year.

Documentary Transfer Tax Measures

  • As noted above, San Francisco voters approved Proposition I, which increases the real estate documentary transfer tax to 5.5% for transactions of $10 million to $25 million and to 6% for transactions of $25 million or more, each a 100% increase compared to current rates.

  • Albany voters approved Measure CC, which increases the City’s documentary transfer tax from $11.50 per $1,000 to $15.00 per $1,000, a 30% increase.

  • Piedmont voters rejected Measure TT, which would have increased the City’s documentary transfer tax from $13.00 per $1,000 to $17.50 per $1,000, a 35% increase.

  • San Leandro voters approved Measure VV, which increases the City’s documentary transfer tax from $6.00 per $1,000 to $11.00 per $1,000, an 83% increase.

  • Culver City voters approved Measure RE, which increases the real estate documentary transfer tax rates to 1.5% for transactions of $1.5 million to less than $3 million, to 3% for transactions from $3 million to less than $10 million, and to 4% for transactions of $10 million or more, in all cases other than transactions involving affordable housing projects.

  • Santa Monica voters approved Measure SM, which increases the City’s documentary transfer tax on transactions in excess of $5 million from $3.00 per $1,000 to $6.00 per $1,000, a 100% increase.

Other Local Measures and Referrals of Note

  • Long Beach voters approved Measure US, which doubles the City’s business license tax on general oil production, increasing the maximum rate from 15 cents per barrel to 30 cents per barrel.

  • Union City voters approved Measure WW, which adopts a 5% utility user’s tax on gas, electricity, video, and telecommunications, including digital streaming services.

  • Richmond voters approved Measure U, which converts the City’s business license tax from a flat tax to a tax based on gross receipts, with rates ranging from 0.06% to 5% depending on the type and size of the business.

  • Lynwood voters rejected Measure LH, which would have imposed a 3% City tax on gross receipts of for-profit hospitals.

  • Berkeley voters approved Measure GG, which imposes a rideshare tax on trips originating in the City of $0.50 per trip for private trips and $0.25 per trip for pooled trips.

In addition to the measures noted above, California voters also approved or extended over 20 cannabis taxes, over 20 parcel taxes, over 50 sales tax increases, and over 15 transient occupancy taxes.

FOOTNOTES

[1] Results have not yet been certified, and ballots postmarked by November 3 will be counted as long as received by November 20.  However, the results for each of the propositions and measures discussed in this article have been “called” by state and local sources.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 318
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About this Author

Hepworth, Associate, Sheppard Mullin
Associate

Justin Hepworth is an associate in the Tax and Estate Planning Practice Group in the firm's Orange County office.

Justin's practice focuses on tax transactional and controversy matters. He assists clients with multistate income, franchise, sales, and transfer tax issues. He advises on audit defense, voluntary disclosure agreements, unclaimed property planning, and other controversy and compliance matters. He has extensive experience handling nexus issues, sales tax exemption issues, state research and development credits, unitary business...

714-424-8293
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