Property taxes on the rise

Dear Alex:

My property taxes last year increased by more than two percent over the year before.

I thought that property tax increases were limited to two percent per year by Proposition 13.

How is this possible?

Property taxes are based on the assessed value of property, so when we discuss property taxes, we are usually discussing the assessed value upon which taxes are calculated.

In 1978, California voters passed Proposition 13 that limited increases to annual assessment property values to two percent per year.

The value of property at the time of acquisition is called the “base year value.” This is the starting point for calculating property tax.

Each year under Prop. 13, the tax assessor applies an annual increase of two percent per year to your assessed value above the prior year. This gradually increasing amount is called the “trended base year value” and is what you are taxed on.

Property values in California typically grow faster than two percent per year, making Prop. 13 a savings for the taxpayer.

One instance in which your property taxes may have increased by more than two percent above the year prior is if there was a “reappraisal event.”

A reappraisal event causes your base year value to increase, and can be caused by the sale of a property, a total remodel, or other actions by the property owner.

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People sometimes disagree with their new base year value after reappraisal, so newly reappraised values can be contested.

Another reason you may have seen an increase in your property tax bill is that your property tax amounts may not have increased, and may have even decreased, during the recession.

While Proposition 13 provides for a limit to your tax increases, another law from 1978 called Proposition 8 can result in decreases.

This is a different law from the Proposition 8 that was in the news in 2008 concerning same-sex marriage.

The 1978-version of Proposition 8 provides for a reduction to your property taxes when the property’s fair market value is less than its trended base year value.

In years of decline, Prop. 8 protects the property owner. Prop. 8 says that if your property value drops beneath the trended base year value, you will only be taxed on the lower fair market value and not on the higher trended base year value.

During the recession, the fair market value of many properties in Napa County dropped below their trended base year value, which may have resulted in a property tax decrease during those years of low value.

Now that property values have bounced back, if the fair market value of your property has increased above the trended base year value, your taxes may again be assessed based upon your trended base year value.

This change from being taxed upon the previously lower fair market value, to the higher trended base year value, can be more than two percent year-over-year.

Just remember that the tax on your trended base year value is still less than being taxed upon fair market value.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on April 11th, 2017. You can read it on the Register's website here: "Property taxes on the rise"