How Are Property Taxes Calculated in California?

If you live in California, you have probably heard about Proposition 13. It comes up for discussion every budget and election cycle because it has so greatly affected the ability of the state and local governments to collect and disperse property tax. In a nutshell, Proposition 13 created a set of rules that took the job of setting property tax rules away from legislators and placed it squarely on the shoulders of the voters.

Rates and Rate Calculation

Property taxes in California, like all states, are calculated by multiplying a tax rate by the assessed value of each property to determine how much tax each property owner is obligated to pay. Nationally, both tax rates and assessed value have a tendency to go up more often than down, resulting in an annual increase in property tax. In California, part of the rate is frozen and increases in assessed value are limited.

History

In the 1970's, California property values soared. Even when tax rates remained the same, property tax bills grew exponentially because the assessed values of homes rose so steeply in a short period of time. Tax payers, especially seniors on fixed incomes, found themselves with homes worth more but with tax bills so high they couldn't afford to remain in their homes. They joined conservative legislators in supporting a voter initiative that would freeze a basic tax rate and limit increases in assessed value to prevent steep annual increases in property tax bills. The initiative -- Proposition 13 -- passed with overwhelming voter support in 1978.

Assessed Value

In most states the market value of a property is assessed on a regular basis. In California, the assessed value is the purchase price of the property plus not more than a 2 percent annual increase. This provides property owners with a level of certainty as to how much their assessed value will rise each year and allows them to budget for future tax payments.

Components of the Tax Rate

California property tax rate comprises three parts. First is a base tax rate that is frozen by Proposition 13 at 1 percent of the assessed value of the property. The second is repayment of voter-approved bonds, most of which must be approved by a vote of two-thirds of the electorate. The third is assessments arising from special districts, such as school and fire districts, which must be approved by voters.