After a pair of Los Angeles Times articles earlier this month revealed a Prop. 13 loophole allowing corporations to avoid paying reassessment taxes to the State, the Santa Monica City Council hopes to be at the forefront of closing that loophole to ensure commercial properties are fairly taxed and the City’s coffers are regularly replenished.
The council unanimously voted Tuesday night to support commercial property tax reform. The vote urged Sacramento legislators to make sure residential property owners are properly protected under Prop. 13 by requiring commercial properties to be reassessed regularly.
“There is a real inequity in the fact that businesses are able to retain in their assessment a very low rate over a very long period of time,” Council member Kevin McKeown said.
McKeown joined Council members Gleam Davis and Bob Holbrook in bringing the issue to the dais after it was revealed in the media the owner of the Fairmont Miramar hotel saved about $1 million per year by taking advantage of a tax loophole when he purchased the commercial property in 2006.
“That (tax) revenue is being lost,” said McKeown.
Davis and McKeown both stated by changing the law to require regular reassessments irrespective of who owns the commercial property would close the loophole.
If the loophole were indeed closed, the new revenue stream from commercial property tax assessments could benefit local schools and replenish resources lost when state and local redevelopment agencies were dissolved, the council said.
By closing the loophole, Council members argued, residential property owners would not have to carry as significant a tax burden.
For Council member Tony Vazquez, he hoped the loophole could be closed so Santa Monica would have access to more funds to replenish cuts made to affordable housing programs.
Under Prop. 13, a property is reassessed for tax purposes whenever it is sold and changes ownership. However, a loophole allows a purchaser of commercial real estate to avoid a tax reassessment so long as he or she is not a majority stakeholder in the acquisition.
Michael Dell, who purchased the Fairmont Miramar about seven years ago, was able to take advantage of this loophole by reportedly bringing in his wife and a pair of advisors into the deal. Though the group collectively would own the hotel, none would own more than 49 percent of the property, therefore allowing it to not be reassessed.
Individual property owners are not able to take advantage of such a loophole.
As the Fairmont Miramar became a “poster child” of the Prop. 13 loophole, Council members hoped the loophole could be closed. By closing the loophole, Council members argued, both the City and State would find a new revenue stream from businesses entities.
Mayor Pam O’Connor and Holbrook were not present for the vote.
The council’s vote and intention will be conveyed to state legislators.