California’s split-roll property tax proposal would end Proposition 13’s purchase-price assessment for commercial and industrial real estate and instead tax those properties on their current market value, while leaving homes and residential rentals under the existing rules. The idea reached voters as Proposition 15 in November 2020 and was defeated by roughly 52 percent to 48 percent. No comparable measure has returned to the ballot since.
The Prop 13 Baseline a Split Roll Would Break
Proposition 13, added to the state constitution in 1978, caps the base property tax rate at one percent of a property’s full cash value. That value is fixed at the time of purchase, and annual increases are limited to no more than two percent, regardless of how much the market moves.1California Legislative Information. California Constitution Article XIII A
A property is only reassessed when it changes ownership or when new construction takes place.2California State Board of Equalization. Change in Ownership – Frequently Asked Questions A commercial building bought decades ago can therefore carry an assessed value far below what it would sell for today. That gap between assessed value and market value on long-held commercial property is what split-roll proposals aim at.
What “Split Roll” Actually Means
A split roll creates two separate tracks for assessment. Residential property, including rental housing, stays under Proposition 13. Commercial and industrial property is reassessed to its current market value instead of its original purchase price.3Legislative Analyst’s Office. Proposition 15 Ballot Analysis The one-percent base rate does not change. Only the way the assessed value is set changes, and only for commercial real estate.
Under Proposition 15, the shift would have phased in starting in 2022, with a later start date for property used by qualifying small businesses. Agricultural property was excluded from the new reassessment rules altogether.3Legislative Analyst’s Office. Proposition 15 Ballot Analysis
Who Would Have Been Protected
Proposition 15 carried several carve-outs. Businesses with 50 or fewer employees would not have faced market-value reassessment until 2025. Commercial owners with $3 million or less in total California commercial real estate holdings would have been excluded from reassessment entirely, with that threshold adjusting for inflation every two years.3Legislative Analyst’s Office. Proposition 15 Ballot Analysis
The measure also touched the separate tax on business equipment and machinery. Qualifying small businesses would have owed nothing on tangible personal property. Larger businesses would have received a $500,000 exemption on the value of business equipment, so a company with less than that amount of equipment would owe no personal property tax on those items.3Legislative Analyst’s Office. Proposition 15 Ballot Analysis That relief was meant to partially offset the higher real property tax burden, especially for equipment-heavy sectors like manufacturing.
How Much Money Was at Stake
The Legislative Analyst’s Office estimated the measure would have raised between $6.5 billion and $11.5 billion a year in new property tax revenue.3Legislative Analyst’s Office. Proposition 15 Ballot Analysis The wide range reflected uncertainty over how quickly commercial parcels would be reassessed and how market conditions would affect valuations.
The split of that money was fixed. Sixty percent would have gone to cities, counties, and special districts for local services. The remaining 40 percent would have gone to K-12 schools and community colleges.3Legislative Analyst’s Office. Proposition 15 Ballot Analysis Proponents pointed to that allocation as the fix for chronic shortfalls in local government and public education dating back to the revenue drop that followed Proposition 13.
Where the Proposal Stands Today
Proposition 15 lost in November 2020, with roughly 52 percent of voters against and 48 percent in favor. Supporters called it a way to close a corporate tax loophole and fund essential services. Opponents said it would raise costs on businesses already strained by the pandemic and push those costs onto consumers.
The close margin left the concept alive as a policy idea. As of 2026, no comparable split-roll measure has returned to the California ballot, though the debate over commercial property tax reform continues in the legislature and among advocacy groups.
What a Split Roll Would Mean for Commercial Owners and Tenants
If a split-roll system were ever adopted, the sharpest increases would fall on owners of long-held commercial real estate. Properties bought decades ago at a fraction of today’s value would see the biggest jumps, because the gap between their Proposition 13 assessed value and fair market value is widest. Owners who bought recently at market prices would see little immediate change.
Higher taxes would move through the leasing market. Commercial leases commonly pass property tax increases through to tenants, so businesses renting space would face higher occupancy costs. Retail and restaurant tenants operating on thin margins are the most sensitive to that shift.
A market-value system also brings back the volatility that Proposition 13 was written to remove. Today, an owner knows the tax bill will grow by no more than two percent a year. Under a split roll, bills would follow real estate cycles up and down, which complicates long-term budgeting for owners with fixed rental income who cannot quickly reprice leases to match tax swings.
Federal Deduction on Higher Property Taxes
Commercial owners who pay higher state property taxes can generally deduct them as a business expense on their federal returns, which partially offsets the added cost. For businesses set up as pass-through entities such as partnerships or S corporations, the $10,000 state and local tax deduction cap that applies to individuals does not limit the deduction of property taxes paid on business property. Those taxes come off as ordinary business expenses on the business return.
If an owner later receives a refund of property taxes deducted in an earlier year, the refund generally has to be reported as income in the year received when the earlier deduction reduced federal tax. Under a market-value system where assessments can fall as well as rise, downward reassessments could produce refunds that become taxable income in a later year, and those adjustments need to be tracked.