California Apartment Association

A Proposition 13-related bill that would have closed a change-of-ownership loophole died in the Legislature last week.

Assembly Bill 2372 failed Thursday in the Senate Appropriations Committee.

“I’m disappointed that we came so close to finally closing one of the worst loopholes of Prop. 13,” the bill’s coauthor, Assemblyman Tom Ammiano, D-San Francisco, said in this Los Angeles Times article. “We finally had some business interests agreeing that the structure was unfair.”

Coauthored with Assemblyman Raul Bocanegra, D-Pacoima, the revised bill would have triggered reassessments following the sale of commercial property whenever 90 percent of the property is sold over any three-year period.

“I’m disappointed that we came so close to finally closing one of the worst loopholes of Prop. 13. We finally had some business interests agreeing that the structure was unfair.”

The California Apartment Association strongly opposed the first version of the bill, which would have defined “ownership interest” as corporate voting stock, partnership capital, and profits interests, limited liability company membership interest, and other ownership interests in legal entities.

At the insistence of CAA and other groups, the authors stripped this wording, making it more business-friendly and prompting CAA to change its position to neutral.

The focal point in the revamped AB 2372 was that the sale of commercial property would be based on how much of the property is sold — not how much of the property an individual acquires in a transaction.

Currently, changes in ownership occur only when one purchaser grabs more than 50 percent interest. This leaves room for orchestrating sales in ways that do not prompt a reassessment — or the higher taxes that go with it.

This type of maneuver made headlines after computer magnate Michael Dell secured a hotel in Santa Monica but kept his stake and others’ below 49 percent. Because Dell owned less than half of the hotel, no legal change in ownership occurred, and no reassessment followed, a scenario explained in this L.A. Times article.

In the grand scheme of Prop. 13, passed by voters in 1978, the changes under AB 2372 would have been minor, and if it had become law, Californians would have seen modest impacts on commercial property holders.

The proposition still set strict limits on property taxes, basing them on 1 percent of a property’s value at the time of sale and capping increases in assessed value at 2 percent annually. This shields the owner from taxes tied to huge spikes in market value.