If you're doing business in California, there are a few important things you need to know about property taxes. California assesses property tax on both personal and real property. You may even need to file an annual property tax return.
What Property is Taxable?
Unless the California Constitution or federal law states otherwise, all property is taxable in California. This includes both real property and personal property.
Real property includes land, buildings, fixtures, structures, improvements, fences, and fruit and nut trees not naturally growing on the land, which are not otherwise exempt from taxation. Additionally, real property includes mines, minerals, quarries in the land, and all standing timber.
Personal property is any property that is not real property. Tangible personal property, unless specifically identified as nontaxable, is taxable in California. Tangible means the personal property can be seen, weighed, measured, felt, or touched. Tangible personal property with a combined cost totaling $100,000 or more is taxable.
Goods held in inventory for sale in the normal course of business are exempt from taxation. This includes goods held for sale themselves and those used as a part in another good.
How is Property Assessed?
Proposition 13, a property tax limitation initiative passed in 1978, is the basis for commercial, industrial, and residential real property assessments in California. It rolled back real estate values at the time to 1975 market values. Since then, annual increases are limited to a maximum of 2 percent per year, if the real property does not change hands. When real property transfers between owners or undergoes new construction, the value can be reassessed to the current market value.
Proposition 13 has raised concerns multiple times over the years as the market value of real property in California has skyrocketed while assessed values are limited. There was a bill on the ballot in 2020, Proposition 15—also known as Split Roll—that did not pass as a California State Constitutional amendment. It would have allowed commercial and industrial properties to be reassessed at market value, while residential properties would remain the same under Proposition 13.
For personal property, your county will mail you a property tax bill that lists the assessor's valuation and your tax liability. Personal property is assessed at the original cost minus accumulated depreciation. Excise, sales and use taxes, freight, and installation charges are all included in the cost calculation.
Important Due Dates
All taxable personal and real property are assessed to the person or business claiming the property on January 1. Real property tax payments are due in two equal installments by November 1 of the current year and February 1 of the year following the tax assessment. The installments do not become delinquent and therefore incur a 10% penalty, until December 10 of the current year and April 10 of the following year. However, it is still a good idea to pay them by the due date.
Personal property tax payments are due in one annual installment on January 1 of the current year, and they become delinquent on August 31 of the current year.
If you have taxable property, you must file a personal property tax return annually. Property tax returns are due if you own a combined $100,000 of personal property. To be on the safe side, all businesses regardless of total property cost should file a personal property tax return. The annual property tax return is due on April 1. It is not considered late until May 7, but as with tax payment deadlines, it is best to pay by the actual due date.
What is the Appeals Process?
If you disagree with the value listed on your property tax bill, you can appeal the valuation. You must appeal to the County Assessment Appeals Board in writing by November 30 of the current year. The county board will set a series of hearings where you will need to present supporting documentation for your alternative valuation. If your appeals process continues beyond the first installment due date, you must pay the tax listed on the tax bill. If your appeal is successful, you will be given a refund for the additional tax paid.
If the county board denies your appeal, you can file an action in superior court. It will only hear an appeal if there was an arbitrary decision, abuse of discretion, lack of due process, or a failure to follow legal requirements. The superior court does not hear new evidence directly from you, but it will review the record of the county board hearing.