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Firms' Prop. 13 Savings Are Coveted

Businesses pay as little as a nickel a square foot in property tax. Some state lawmakers question the fairness and see a chance for new revenue.

June 30, 2003|Dan Morain | Times Staff Writer

SACRAMENTO -- It's no wonder Disneyland's owners call their amusement park the "happiest place on Earth." For much of its land, Disney pays only a nickel per square foot in property taxes.

In Hollywood, Capitol Records pays a dime per square foot in taxes on the land beneath its famous tower, which resembles a stack of records on a hi-fi. In downtown Los Angeles, owners of the Wells Fargo Center pay about $1.77 a square foot.

These longtime landowners are beneficiaries of Proposition 13, the landmark 1978 ballot initiative that slashed California property taxes. Other property holders aren't quite so lucky, tax records show.

Owners of the SunAmerica Center in Century City pay more than $5 a square foot for their land; the Beverly Wilshire Hotel's owners pay more than $6 a square foot. In San Francisco, the insurance giant that owns the Transamerica Pyramid pays almost $10 a square foot on that plot.

Such disparities, some lawmakers and tax experts say, show that some businesses do not pay their fair share, depriving government of billions of dollars in much-needed revenue.

Critics say the tax structure shelters older businesses; commercial properties change hands less often than homes, putting a larger burden on newer businesses.

In addition, the system gives publicly traded companies a break that other businesses and homeowners don't get. The result of all this is that homeowners bear an increasing share of the overall tax burden, they say.

Many legislators are casting covetous eyes toward commercial property as a source of tax revenue as they struggle to fill California's $38-billion budget hole.

"This is like the rhinoceros in the living room," said Assemblywoman Loni Hancock (D-Berkeley). "It is one of the major loopholes in our tax structure."

Business interests point to the high cost of land, electricity and insurance in California, and say relatively low property taxes are one of their few breaks. A jump in property taxes could force them out of the state or into bankruptcy, they say.

"Folks who don't want to reduce the cost of government are looking everywhere they can to increase costs on business," said Jack Stewart, president of the California Manufacturers and Technology Assn., one of the state's main business lobby groups. "We ought to be looking at ways to lower all the taxes, not raise them."

Proposition 13 won in a landslide 25 years ago when homeowners revolted against property taxes that were spiraling up so fast that people were being forced to sell their residences. Homeowners led the charge, but business benefited, too.

The law makes no distinction between residential property and commercial property. The state generally taxes property at 1% of its assessed value, and the tax can rise no more than 2% a year. Property is reassessed when it is sold, and its value -- and taxes -- generally increase with reappraisal.

Because homes change hands more often than businesses, they are reassessed more frequently. Homeowners' portion of the $25 billion a year raised by property taxes in California has grown to 38%, from 32% a decade ago, while business' share has fallen, according to a report issued earlier this month by the state Senate's Office of Research.

One of the most vocal proponents of higher commercial property taxes is Lenny Goldberg, a lobbyist whose organization, the California Tax Reform Assn., consists of unions that represent government employees. He and an associate, David Kersten, compiled tax records for offices, hotels and other properties across the state.

They found that Walt Disney Co. pays as little as 2 and 3 cents per square foot for some of the parcels that make up the original Disneyland, with the average being about a nickel. Under Proposition 13 rules, Disney's taxes on that land are based on the assessed value from the late 1970s, when Proposition 13 kicked in.

On more recently purchased land, the conglomerate pays up to 36 cents per square foot. If all Disney's Anaheim land were assessed at 36 cents, Goldberg and Kersten say, the company would pay $4 million more a year in property taxes.

In San Francisco, the Shorenstein Co., among the state's largest owners of commercial real estate, pays nearly $16 a square foot on the land under the 52-story Bank of America building on California Street.

Of course, an overall property tax bill includes more than land. Taxes are also paid on buildings and fixtures, which are reassessed -- and can increase in value -- as improvements are made.

Capitol Records, for example, pays roughly $11,000 for its land on Vine Street, but its overall property tax bill is about $147,000 a year. Shorenstein pays nearly $10 million a year on its California Street site. The Disneyland resort has a total annual property tax bill of $28 million, according to Orange County Treasurer-Tax Collector John M. W. Moorlach. Disney, the second-largest property taxpayer in Orange County, puts that figure at $34 million.

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