Understanding Property Tax
Annual Property Tax Rate
Property Taxes and the City Budget
Property Tax is an ad valorem tax (meaning a tax levied as a percentage of value) imposed on real property and tangible personal property. The tax rate is applied to the net assessed property value as determined by the County Assessor. In California, there are three broad categories of property (real, personal and utility) and three corresponding tax rolls (secured, unsecured and utility or state-assessed).
- Real Property includes the possession of, claim to, ownership of or right to the possession of land. It also includes improvements such as buildings, structures, fences and fixtures that are permanently attached to the land.
- Personal Property includes any tangible, moveable property that is not designated as real property. Examples of personal property include aircraft, boats, factory equipment, computers and other office equipment, and improvements on the real estate of others.
- Utility Property includes various types of property owned by utilities, such as power generating plants, power lines, cable, railroads, etc., except for property held for investment purposes only. Utility property is divided into non-unitary property (railroads) and unitary property (all other types).
There are two components to the annual property tax rate. The first is the one percent countywide maximum rate set by Proposition 13 in 1978. The second is voter-approved overrides (i.e. for bonded indebtedness). The total FY 2010-2011 property tax rate is 1.1640%. The graph below indicates the allocation of the property tax rate.
Distribution of this year’s property tax rate of 1.1640%
In addition to the ad valorem property tax, additional special assessments and fixed charges may be billed on the property tax statement. These add-ons are generally unit or parcel-based. Examples include the Rent Board Fee, the School Facilities Safety Special Tax (a parcel tax), the Apartment License Fee, refuse and water liens, etc.
Property tax revenue makes up 22% of the City’s $7.454 billion budget for the 2010-2011 fiscal year. The remaining resources come from state and federal subventions, other taxes and revenues, and charges for services. These revenues are allocated to City services as shown below:
Before the passage of Proposition 13 in 1978, each local government entity with powers of taxation (counties, cities, school and special districts, etc.) could levy a property tax on the property located within its jurisdiction. Within certain restrictions, each entity determined its tax rate independently.
Proposition 13 changed property taxation in two major ways. First, it set the maximum countywide tax rate at one percent, where the statewide average had previously been 2.67 percent. Second, it limited growth in the assessed value of property to the lesser of inflation or two percent per year, unless ownership of the property changed. Assessed values from the fiscal year 1975-76 serve as the base for real property assessments. When property is purchased, newly constructed, or changes ownership, the year of such action becomes the new base year. Proposition 13 applies only to the secured tax roll. The assessed value of the unsecured and utility tax rolls may increase at higher rates.
On July 1, 1983, California State law was changed to require the reassessment of property as of the first day of the month following an ownership change or the completion of new construction. In most cases, this reassessment results in one or possibly two supplemental tax bills being sent to the property owner in addition to the annual property tax bill. Revenue generated by supplemental bills fluctuates with sales volume and value, as well as related changes in construction. Not all changes in ownership of property result in reassessment. Interspousal transfers, the transfer, sale, or inheritance of property between parents and their children, and the addition of joint tenants do not result in the reappraisal of property values.