Here in California, there is a lot of talk about the number of regulations that make life harder for small businesses. As a small business owner, I don’t disagree with many of those claims.
Few acknowledge, however, the extent to which our state hinders small business by doling out massive giveaways to big corporations at the expense of small firms. One of those giveaways is the corporate loophole found in the well-intentioned Proposition 13. If we want California’s job creators to succeed, we must even the playing field for small employers and close Proposition 13’s big-business tax break.
Proposition 13 is a problem for small business owners like me. Although the law does a great job of protecting homeowners, a little-known provision in the proposition gives a small number of large corporations and land speculators – many from outside California – billions of dollars per year in tax giveaways. Unfortunately these breaks aren’t available to new businesses, which means Proposition 13 discourages small business entrepreneurship.
Thanks to Proposition 13, many corporations that own commercial real estate are paying property taxes based on valuations far below what those properties are worth. What’s more, corporations are exploiting technicalities to avoid increased property taxes even when their commercial properties change hands. The result is that established and wealthy corporations are able to pay much lower property tax rates than less-established businesses.
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Beyond that, the corporate commercial property loophole in Proposition 13 makes it extremely difficult for many new businesses to compete. I rent my office space, and I pay current 2017 rents on that space. If I bought an office building, I’d be paying property taxes based on what the building is actually worth today.
But many big corporations get to use Prop. 13 to treat their properties as if they’re worth what they cost 40 years ago – giving them an extreme advantage small businesses simply can’t share. That’s like saying all old grocery stores get to buy bananas at 1970s prices, but all new supermarkets need to buy them at 2017 prices. It’s arbitrary and unfair.
This problem is compounded with each passing year, and the disadvantage for small businesses will only grow unless we do something about it. Every year, many big corporations get to avoid any changes in assessments thanks to Proposition 13’s commercial loophole. When large corporations don’t pay their fare share of taxes, small firms are usually left to pick up the tab.
Proposition 13 was enacted to protect homeowners, and it needs to continue doing that. It should, however, be reformed to level the playing field for small firms because large corporations don’t need more tax loopholes, and small businesses have enough challenges without also picking up the tab for big businesses.
Adam Rochon is the owner of Sequoia Employee Benefits and Insurance Solutions in Exeter.