The impact of Proposition 15 on the California ballot is clear to Howard Haimsohn. “It’s a tax increase aimed right at small businesses,” the owner of Home Furnishings Association member Lawrance Furniture in San Diego said.
If approved by voters in November, the measure would change how commercial and industrial property is taxed. Now, property tax is based on purchase price plus the rate of inflation or 2 percent each year, whichever is less. Prop 15 would instead tax property on its current market value, adjusted every three years.
What’s the difference? The new calculation would generate as much as $11 billion a year in additional state revenue.
‘The impact on small business is huge’
“This would be the largest tax increase in California history,” Rachel Michelin, president and CEO of the California Retailers Association, told the HFA. “The impact on small business is huge. If you do business in California, it will affect you.”
Prop 15 proponents dispute that, contending the measure targets big businesses, exempting those whose property is valued at less than $3 million. But $3 million is an aggregate, meaning that a business with three properties worth $1 million each would meet the threshold. Property values in California rival or exceed the highest in the country. “We live in a state where real-estate prices can skyrocket,” Haimsohn said.
Lawrance Furniture is a small business, with just 24 employees. Yet, Haimsohn has calculated that his additional taxes under Prop 15 would equal the pay and benefits of one employee or half of what he spends on medical coverage for his entire staff.
Higher taxes force prices higher
And that’s just the direct cost. His suppliers could pay a lot more and pass on their costs.
“Anybody who does business with a facility in California would have to raise prices,” Haimsohn said. “In all likelihood, my expenses would go up.”
Even small businesses that rent or lease their space would be impacted, as many must include property taxes in their monthly payments. To Haimsohn, who’s seen many neighboring businesses go under during the Covid crisis and others teetering, that’s the most alarming prospect of all.
“It’s not just my business,” he said. “It’s my community, from every little restaurant where I get takeout to every little boutique where I shop, since I try to shop local.”
California’s economy has been deeply hurt by the virus and restrictions on business activity, Michelin said. “How do we recover from this together? This tax will be detrimental to that recovery,” she said.
Coalition forms to defeat Prop 15 tax increase
A broad business coalition calling itself No on Prop 15 opposes the ballot initiative. It includes the California Retailers Association, the California Chamber of Commerce, the California Black Chamber of Commerce, the California Hispanic Chambers of Commerce, the California Asian Pacific Chamber of Commerce, the National Federation of Independent Business-California and dozens more.
Businesses can use that site to download window flyers, sample social media posts, letters to the editor and other materials. It’s important for furniture retailers to join the campaign against Prop 15. They should educate their employees, customers and communities about the impact.
Suggested messages should include these points:
- Proposition 15 represents the largest tax increase in California history.
- Businesses of all sizes will pay as much as $11 billion a year in additional taxes.
- Even small businesses can own property valued at the tax threshold of $3 million or more. That does not mean they have enough revenue to support a large tax increase.
- Even retail businesses that rent or lease their stores will pay if the property owners pass on the cost of higher taxes.
- Retail stores have suppliers that will pass on the cost of higher taxes in the form of higher prices.
- Businesses may have to pass their higher costs to customers, lay off employees or reduce employee benefits.
- On top of the coronavirus recession and devastating ongoing wildfires, this tax increase could force more stores, restaurants, salons, gyms and other businesses to close their doors. This will hollow out our communities and make an economic recovery less likely.
This tax increase would affect everyone
Some voters may think, because the measure doesn’t apply to residential property, that it doesn’t affect them. But it will. It will make doing business more expensive for their employers, the stores where they shop, the restaurants where they eat or pick up food, their hairdressers, their fitness centers, their children’s daycare facilities – almost every entity that makes up their communities.
Prop 15 is the wrong idea at the worst possible time for California furniture stores and all other businesses. HFA members should take part in the No on Prop 15 campaign.
Not a member of the HFA? Let us know you’re interested and add your voice to ours.