Fact check: Will California property tax initiative drive up food prices?
In ads funded by agricultural groups, farmers tell Californians a ballot measure aimed at raising taxes on large businesses will drive up food costs.
“It hikes taxes on farms that produce our food,” Laton dairy farmer Melvin Medeiros says in one ad. “That means higher food prices for consumers at the worst possible time.”
The measure, Proposition 15, would change how California taxes business properties. Right now, California taxes all property based on its purchased value, so people and businesses who bought their property long ago generally benefit from lower taxes than those that purchased property recently.
Proposition 15 would change that for businesses with more than $3 million in commercial or industrial property by taxing those properties on current market value. It’s estimated to result in billions of dollars in higher taxes on large businesses to fund schools and local governments.
The measure exempts agricultural land from the reassessment, but in their ads farmers argue many of the fixtures and improvements on their farms, ranging from barns to grape vines, would be subject to reassessment.
Debate over farm taxes
Both supporters and opponents agree that farmland is exempt. They also agree that buildings on farmland with a strictly commercial use — such as a tasting room at a vineyard used only to sell wine, not to manufacture it — would be subject to reassessment if they exceed $3 million in value.
But supporters say the farmers’ ads are wrong because the measure exempts “real property used for commercial agricultural production.”
That means structures on agricultural land used to produce food, like barns and other fixtures mentioned in the ad, would not be subject to reassessment, said Lenny Goldberg, one of the chief backers of the initiative who has worked to change California tax law for decades.
Many food processing plants are located on industrial land. In Modesto’s Beard Industrial District, for instance, E & J Gallo Winery, Del Monte, Nestle and Frito-Lay operate plants.
Food processing plants on land classified as industrial would face reassessment, but those on farmland would not, Goldberg said.
Opponents dispute that interpretation, and point to comments by California Assessors Association President Don Gaekle, who said farm fixtures including barns, irrigation systems, and grape vines would be subject to reassessment. County assessors, who make property value determinations, oppose Proposition 15 because they say it will be extremely difficult for their offices to implement and are campaigning aggressively to defeat it.
Among independent experts, there’s not broad consensus about which side is right.
The nonpartisan Legislative Analyst’s Office found property on farmland with a “commercial use” would likely be taxed at market value, but it’s not clear from the office’s analysis exactly what types of property would fall into that category.
Darien Shanske, a law professor at UC Davis, said he thinks fixtures like the ones in the farmers’ ads would likely not be subject to reassessment. Even structures that are categorized as commercial, like a tasting room, would need to be worth more than $3 million, which likely means only large farmers would be affected, he said.
What does it mean for food prices?
Dan Sumner, a professor of agricultural economics at UC Davis, couldn’t say exactly what structures would be subject to reassessment under the measure. But he said there would be some effect on farmers regardless.
That’s because taxes would rise for some parts of the food supply chain under the measure. Some of those costs will likely lead to lower profits for some farmers and higher costs on some products, depending on market forces.
Sumner used milk as an example. Producers of powdered milk must compete with other producers globally, so producers can’t afford to raise prices. If taxes on powdered milk manufacturing plants in California increase under Proposition 15, that cost will likely be borne by farmers, he said.
In contrast, producers of liquid milk compete in local markets because their product is perishable and difficult to transport. That means tax increases for manufacturers would likely result in small increases in milk prices for consumers, Sumner said, adding the same would likely be true for other types of perishable foods.
“Whether or not the tax applies directly to the farm business, it will apply indirectly,” he said.
This story was originally published October 18, 2020 at 5:00 AM with the headline "Fact check: Will California property tax initiative drive up food prices?."