President Lyndon B. Johnson once said:
“In 1790, the nation which had fought a revolution against taxation without representation discovered that some of its citizens weren’t much happier about taxation with representation.”
Taxes invade almost every aspect of our daily lives and property ownership is no exemption. Here are five types of real property taxes that every California taxpayer with representation (thank you, Founding Fathers!) should know about:
1. Property Tax
Although California state law governs property taxes, the taxes are collected by the county and distributed to the various taxing agencies on the local level, such as cities, special districts, and school districts.
The County Assessor determines who the taxpayer is—whether an individual or entity—and the value of the taxable property (land and the buildings on it) and gives that information to the county tax collector, the Auditor-Controller.
The Auditor-Controller then calculates the tax amount by multiplying the taxable value of the property by the applicable tax rate for the county. The tax collector then mails to tax bill and collects the amount due.
The state’s fiscal year begins on July 1. Tax is due in two installments—the first installment is due November 1 and the second on February 1.
The maximum tax rate that may be charged is equal to one percent of the property’s assessed value. The annual tax increase can be no more than two percent greater than the previous year’s tax bill.
A property can be reappraised if there is a change of ownership, new construction, a new construction is partially completed by January 1, or a decline in value. January 1 the Lien Date—the date for valuation and the date taxes attach to a property as a lien for the next fiscal year.
2. Parcel Tax
What happens if a taxing district needs more revenue to fund police and fire services, a new school building, or public revitalization project? The district may hold a parcel tax election for taxpayers to determine whether to impose an additional special tax on owners of parcels/units of real estate. Two-thirds voter approval is required for a parcel tax to be imposed.
Unlike standard property taxes, a parcel tax is not based on the value of property. Instead, it is calculated based on the characteristic of the parcel. For example, a parcel may be taxed based on square footage or by dwelling unit, or by imposing a flat rate on each parcel.
3. Documentary Transfer Tax
Counties may impose a documentary transfer tax at a rate of no more than 55 cents per $500 of the property’s value.
Either the buyer or seller can pay the tax, depending on their mutual agreement. This is a tax paid in connection with the transfer of title to real property.
4. Property Transfer Tax (for Charter Cities)
Like the county’s documentary transfer tax, cities may tack on an additional “city transfer tax” up to one half of that amount. In Los Angeles County, five cities have imposed an additional tax between $2.20 to $4.50 for every $1,000 of the value of the property transferred. Majority voter approval is necessary to impose or increase this tax.
5. Property-Related Fees
Another special tax imposed on a parcel or on a person are known as “property-related fees.” The California Supreme Court has limited these to fees that the property owner cannot avoid without selling the property—such as fees for water, sewer, refuse collection, stormwater, and ground water treatment. Voter approval is also necessary to impose this tax.
This was a brief introduction to five types of real property taxes. Please note that these descriptions not meant to be exhaustive and there are a variety of situations that may impact the amount of tax due—for example, some transfers of property are exempt from the documentary transfer tax. Real property taxes can be tricky, but real property owners can find great resources for tax information available online, at the public library, and through tax-preparation and accounting services.
By Valerie Li, esq.