California Voters started a Tax Revolt in 1978 with the passage of both Prop 13 and Prop 8. Now the glory has always gone to Prop 13 as that is the voter mandated constitutional amendment that directed the County Assessors to roll back assessed value and to limit the way property taxes could be assessed for the future.
Prop 13 is an incredible piece of legislation and has saved Californians billions nd billions of dollars, if not more, since it became law in 1978. However, without it's cousin Prop 13 would be a very evil law right now, considering the rapid decline in value experienced across the state over the past 3 years or so.
AN EXAMPLE
You purchased a Hemet - San Jacinto, CA home in 2005 for $500,000. The assessment is for the same amount - $500,000 - creating a 'base value', as far as all future assessments are concerned. Now, under Prop 13, 
the max tax is 1% for the State and anything above this has to be approved by the voters - you know, schools, police, bonds - this sort of thing. For sake of discussion, lets stick with the 1% tax rate. Therefore, it is easy to budget $5,000 a year to pay your property taxes.
With Prop 13, you know that the assessed value can only increase by nor more than 2% per year. So, in 2006, year 2, your assessed value will automatically increase to $510,000 and your tax bill will now be %5,100. In 2007 your home may actually be worth $750,000 by this point but your assessed value will only increase by 2% of the base value which is now $520,200 and your tax bill is only $5,202.
In 2008, we start to see some decline in value, in the overall marketplace, but you feel good because you still have some equity - you just are not sure how much, since a bank owned home, just like yours sold around the corner for $450,000. However, your taxes are now $5,306 based on the 2% increase in assessed value bringing your base to $530,604.
By 2009, you know you have no equity and know you are upside down on your mortgage since model matches have sold for $300,000 in your neighborhood - yet your property taxes and assessed value continue to rise. Your tax bill increases to $5,412 based on the new automatic Prop 13 value of $541,216 and by this year, your assessed value is up to $552,040 with a tax bill of $5,520 and the likelihood of your home being worth as little as $200,000 or less before the year is up are very real and very frightening.
PROP 8 TO THE RESCUE
Prop 8 is also a California voter mandated constitutional amendment that allows for a "temporary reduction in the assessed value" whenever the real estate suffers from a "decline in value", for any number of different reasons. A "decline in value" refers to when the current market value of your property is less than the amount assessed by county. The actual section of the Revenue and Taxation Code can be found at this link.
In a nutshell, Prop 8 allows property owners to file an application with their County Assessor to reduce the taxable (assessed) value of their real estate.
By filing the claim, using my example, a homeowner should be able tor have the assessed value reduced to $450,000 which would result in a refund (assuming the taxes have been paid) in the amount of $806. Assuming this value carried over to the next year (it always does not) then a reduction for 2009 should reduce the assessed value to the $300,000 and a $1,412 refund (again, assuming the taxes were paid prior to the adjustment).
ALL REAL ESTATE IS ELIGIBLE
The good news for California Real Estate Owners is that the law covers all kinds of real estate and is not limited to residential or owner occupied homes. Both Prop 8 and Prop 13 cover residential real estate as well as vacant land and all sorts of commercial real estate from strip malls to huge regional malls. From single occupant office buildings to mega office complexes and high-risers. The laws also cover industrial from a small tire shop to the biggest factories in the state. If it is privately held real estate that pays property taxes in the State of California, then the laws work for the ownership of that property.
January 1st is the key date in assessing the value. Changes to the Assessed Value are based on the Market Value of the real estate on January 1st of that year.
Each county has it's own process and it's own filing periods for submitting claims. What all counties have in common though is that if you do not feel as if you are getting a fair shake with the Assessor than you have the RIGHT to a hearing before the Assessors Appeals Board, who generally have the final word on the discussion.
THE SPIDER AND THE FLY
What bothers me the most about the whole process is that that County Assessors keep telling home and property owners that they (the County Assessor) will go ahead and lower the assessed value with out the need for the property owner to file a claim. To me, it sounds reminds me of the child's poem, ..."Step into my parlor, said the spider to the fly"
Not only are the County Assessors doing all they can to stop homeowners from filing their own claims, themselves - as they are entitled to, but they are discouraging private enterprise to offer expertise and assistance where it is so righteously needed. They have gone so far as to pass legislation that makes it near impossible for private companies to solicit their services to homeowners with the passage of AB 992 that severely handicaps the marketing efforts of all residential property tax consulting firms because of a few bad apples.
Can you imagine what would happen if the IRS made it impossible for H&R Block and other tax companies from advertising their tax services - just because there are some bad eggs in that industry? For me, this is just one more example of our Nanny Government going above and beyond the call of duty to protect us form ourselves.
In California both Prop 8 and Prop 13 are the law of the land. It should be noted that each county interrupts and implements this law in a number of different ways, so if you want to learn more be sure to check with your individual County Assessor's office. It should also be noted that I am neither an attorney or CPA and that if you need legal or tax advice please solicit it from a professional of your own choice.
To read more articles I have published about California Properyt Taxes and Prop 13, please follow this link.
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