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Comment by onlyrealcuzzo | Hacker News Reader

At least in California, especially in Los Angeles, it's really important to factor in that parking lots -- even on land worth $10M+ -- often pay property taxes as little as $100-$1000 a year (thanks to Prop 13).

You buy a parking lot, sit on it as the value of land increases (paying effectively 0% in taxes), then you eventually sell, paying only a capital gains tax (much lower than income).

I only bring up California, because I know it. I'm sure there's similar dodgy tax advantages in other states.

Point being -- taxing land the way we do (especially in California) seems to be problematic.

This is also the reason you see single family homes with front and back yards like 1000 meters away from sky scrapers in Los Angeles and San Jose. Those homes are paying property taxes of like $400 a year, and most of them are being rented out. It's not poor old ladies living in them that don't want to leave the neighborhood they lived their whole lives in, but gentrified under their feet into some urban monster. It's business people arbitraging tax laws.

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> This is also the reason you see single family homes with front and back yards like 1000 meters away from sky scrapers in Los Angeles and San Jose. Those homes are paying property taxes of like $400 a year, and most of them are being rented out. It's not poor old ladies living in them that don't want to leave the neighborhood they lived their whole lives in, but gentrified under their feet into some urban monster. It's business people arbitraging tax laws.

Well, more specifically, if you redevelop the land (say, by putting in apartment building in where there used to be a single-story house), the property tax gets recalculated. So the tax code heavily penalizes redeveloping any property.

So it's even worse. They're charging as much as possible for slum lord services.

No? Doing maintenance is fine. Doing upgrades isn't.

To be fair, they're making a tidy profit so they can afford to do some remodeling. They just can't tear it down and make a huge new house, which would trigger a reassessment.

Oregon has a similar issue as well. You’ve got houses that are really old yet worth half a mil plus and they’re paying basically nothing. Except here the tax isn’t recalculated on sale so newer homes are not “worth” as much at resell time.

Wait. Are you saying in Oregon, if you built a house in 1910 for $3k, and you sold it in 1940, 1970, 1990, 2007, and 2019 -- it's still being assessed at the 1910 value? That can be right, can it?!

That would mean I could buy an old house for $800k, and pay like $30 in property tax a year? I don't believe it.

It's a little more complicated than that. The maximum assessed value can only go up 3% a year. (There's sometimes other taxes that end up on top, assuming the 3% isn't reached). The only time it can be re-calculated is if you do a fairly large renovation - which lad led to contractors figuring out how to make sure renovations don't trigger it.

If you go to Zillow, find some older homes then look at the tax history you'll be amazed.

There's a partial repeal of Prop 13 on our 2020 ballot. [0]

It would make commercial properties no longer subject to Prop 13.

[0] https://ballotpedia.org/California_Tax_on_Commercial_and_Ind...

That's great! I'd image that could alleviate a ton of housing issues and government funding issues in California. Does anyone know the chances of it passing?

There's no polling on it yet. I suspect it will be close because there are a lot of very rich people who will lose a lot of money if this passes.

Property tax is basically a wealth tax. Most wealthy people don't want their wealth taxed. They'll pay millions to defeat this. I wouldn't be surprised if they made ads that straight up lie and tell people their property tax will go up and some BS about farms.

Though a lot of wealth is tied up in property, I see property taxes as more of a consumption tax. I see it as you are consuming the right to exclude others from that property for a year.

A fully paid house and a 97% mortgaged house pay the same property tax in most locales.

(I also think that tenants rather than landlords are paying “going rate” property taxes, even though landlords are the ones writing the check based on actual rates.)

Zero. So many cases of "poor grandma would lose her house" cases are going to be paraded around, and most of the big money in real estate prefers the status quo too.

Yeah they’ll straight up lie I suspect. This won’t even affect any single family homes.

Yeah, but they'll convince people it's just a matter of time til they overturn the benefits for houses of $10M, and then $5, and then before you know it, even you and poor old Grandma will have to pay! You have to take a stand now!

The split roll initiative likely exempts many parking lots from reassessment at least until June 2025 since they can count as “small business” (fewer than 50 employees) (https://oag.ca.gov/system/files/initiatives/pdfs/19-0008%20%...)

Possibly yes. One catch might be that they are contractors so if the parking company has 50 overal it might not count. They’ll have to split up or something. Or litigate for a while. But either way it’ll sort itself out in a few years.

That's so stupid. I've never met a real estate concern that had ANY employees. The fact that a building is owned by 1 guy who outsources everything does not make it a "small business".

How do you define small business such that it excludes a one-person renting a house/apartment operation?

Why should it? What’s special about that case?

I don’t know; I think it is a small business. Ask @jumpingmice.

Revenue

Most landlords are taking in (far) less than a $30MM in gross receipts per year though, right?

(That’s the SBA cutoff for “small business” in property renting; NAIC business codes 5311x0.)

https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%...

All residential property is already exempt from the split roll initiative (unfortunately), so residential landlords don’t need to claim the small business exemption. As for nonresidential property, if the split roll initiative passes, every single commercial landowner will want to classify themselves as a small business to get the exemption from reappraisal (unfortunately), so I imagine that this will be fairly contentious. As the initiative is written, a small business must (1) occupy the property, (3)(A) employ <50 employees, (B) be managed independently, and (C) own some real estate in California (but not necessarily the property in question?!)

> and (C) own some real estate in California (but not necessarily the property in question?!)

I think that's a protection against the business owning a Trust that owns the land. It's to force the business to own the land directly.

Exactly. Taxing property encourages speculation and under-development.

Showing an alternative, Pennsylvania has several towns and cities with a split-rate tax, which means that there's a higher tax on the assessed land value than on the assessed value of the property. Taking this to an extreme, you can tax only the land value, not the property, providing a very strong incentive to make the best use of desirable land. A split rate tax just lets you turn the dial between typical property taxes and a land tax.

Many arguments in favor of the land value tax are based in concepts of economic rent and fairness. While I'm sympathetic to these arguments, I think the best argument is that it seems to work, both in theory and practice. Places that implement a split rate or land value tax tend to have fewer empty lots, parking lots, single-family homes in the middle of downtown, etc.

And not just that, but typical property taxes provide a disincentive to even improve your own property, since you'll pay more tax. They encourage blight.

It's not just California, it's everywhere. Tax policy isn't the only thing stopping us from avoiding sprawl by "thickening up" valuable areas of towns and cities, but it's a big one. Parking minimums are another, and of course zoning is yet another. All of them are important in terms of making our cities walkable, amenable to public transit, and sustainable environmentally.

*edit -- I should clarify that Prop-13 makes this effect worse in California than many places, though.

Under Proposition 13, you are not taxed on the land value or the property value. Instead, you're taxed on the land+property value at the time you bought the property.

If you make a "substantial change" to the property, the tax is reassessed. That's what generates the "empty lots, parking lots, single-family homes in the middle of downtown, etc." -- if you replace your empty lot with a useful building, your property taxes immediately spike.

Extending Prop 13 to cover property redevelopment would do as much to solve the undeveloped-land problem as repealing Prop 13 would. (Obviously, those two policies would differ in other ways.)

I think it's a mistake to focus too heavily on "should we tax land value" vs "should we tax property value". You're correct that taxing property value disincentivizes development, and that is bad. But we're talking here about cases like someone's small personal residence in the middle of downtown San Jose with $4,000,000 of land value and $200,000 of property value. (Numbers completely invented.) If they were taxed on assessed value, land+property, which is the default in most places, that immense land value would quickly make it prohibitive not to redevelop. The tiny property value is a rounding error.

Oh, yeah. Prop 13 is like an order of magnitude worse than just taxing property + land vs a higher rate on land.

> And not just that, but typical property taxes provide a disincentive to even improve your own property, since you'll pay more tax. They encourage blight.

A good old wealth tax on everything would fix that.

Not really. If a wealth tax is implemented, you'll be amazed at how soon everyone moves their wealth outside of the US. You'd be very hard pressed to tax wealth outside the US.

Distributing the tax across property, a progressive capital gains tax, a progressive corporate tax, and a small wealth tax is a much better option than a flat and high wealth tax.

>Not really. If a wealth tax is implemented, you'll be amazed at how soon everyone moves their wealth outside of the US. You'd be very hard pressed to tax wealth outside the US.

Taxing income outside the USA already happens. Taxing wealth would also happen.

There has been a huge push in the last decade to tighten up "anti-money laundering" (but usually anti-tax) laws. The cliche of the swiss bank account offering secrecy for Americans no longer exists - the Swiss now report holdings directly to the US and similar locales do likewise.

Most OECD countries have dropped wealth taxes. They don’t work. In 1990, 12 OECD countries had wealth taxes, now, only 4. A wealth tax has a lot of unintended consequences and while it sounds good as a populist sound bite, reality isn’t so simplistic.

Do you have a history of this - was it just that the ownership was moved offshore? Did they "not work" or was it just lobbied against?

I see that list of 4 (Switzerland, Spain, France, and Norway), yet I know that the Netherlands is in OECD and also has a wealth tax: https://en.m.wikipedia.org/wiki/Taxation_in_the_Netherlands#...

Did they dropped them because they "don't work" or because the wealthy lobbied against them?

> And not just that, but typical property taxes provide a disincentive to even improve your own property, since you'll pay more tax. They encourage blight.

A land value tax still does this, albeit indirectly. If you improve your property, the area gets marginally more desirable and land value rises.

The solution for this in UK is to remove capital gains tax for the main home of owner-occupiers, and a transaction tax (stamp duty) paid by the purchaser.

You're correct, but it's a completely different incentive. If you hold out and everyone around you improves their property, your taxes go up almost as much anyway! It punishes speculation and rewards productive use.

So a virtuous feedback cycle is created, where everyone is incentivized to improve and develop their property to the point where they're best taking advantage of the land it sits on -- or to sell it to someone who will.

I'm familiar with stamp duty -- it has a lot of problems, mainly around the fact that it discourages people from moving. It seems significantly worse than a land tax, to me.

I have a friend in parking in LA. People tend to think these parking lot operators are dimwitted but they're extremely intelligent, shrewd businessmen. Its a cutthroat industry with deep mafia ties.

You can effectively use control of parking lots to squeeze all the margins out of local businesses such as restaurants.

Frank McCourt was a really really hated owner of Dodgers for a few years until 2012. When Frank McCourt sold Dodgers to Magic Johnson led group in 2012, he held onto 50% of the Dodger Stadium parking lot.

Yup, a guy sold Dodgers for a few billion bucks, but he still knew to hold onto the parkint log.

https://bleacherreport.com/articles/1120695-dodgers-sale-det...

> parking lots -- even on land worth $10M+ -- often pay property taxes as little as $100-$1000 a year (thanks to Prop 13).

Commercial property is also exempt under Prop 13?! What a screwed up system. I kind of understand if it applies to primary residences. I think it's ridiculous it also applies to commercial property as well.

It's insane. And, yes, it does. Same narrative to justify it.

We can't increase taxes on poor old grandpa's deli. He'll never be able to compete with all the other delis that also have to pay rising taxes. Think of poor grandpa!

Meanwhile, you've got landlords owning those shitty 6-unit dingbat apartments they built in the 70s for $100k, paying taxes of $1k per year, charging rents or $3k/month for each unit. All the while, they're collecting another $1k or so in land value increases per month, that will be taxed at a lower capital gains rate -- of which the state will see almost nothing. AND it's the whole reason no one ever sells those buildings to be redeveloped. They make so much money, since they pay no taxes, that there's no better investment in the world. Why would anyone ever sell one? Even at $10M, you'd still be crazy to sell it. It'll be worth $11M next year, and you get all that tax-free profit.

Totally legally, and totally cool.

I agree with what you say completely, but this:

> that will be taxed at a lower capital gains rate -- of which the state will see almost nothing

...is not quite correct; California does not have a special reduced cap gains tax rate like the Feds.

But this does not make the whole setup any less ridiculous.

I don't get property taxes. Why make people pay taxes on land they already paid a bunch of money for?

To pay for schools and things like that.

There are many reasons, especially for taxes on the value of land:

* The value of land is largely created by public services such as schools, infrastructure, parks and public transport. Therefore, it makes sense to recover this value through taxation.

* Almost all taxes reduce or distort what is taxed. The supply of land, on the other hand, is fixed and cannot be reduced. This way, public services such as schools can be paid for without distorting the economy.

* Property cannot be hidden or moved to tax havens.

* Land taxes prevent vacancies and thus speculation. The reduction of vacancies also helps against urban sprawl.

One might as well ask "Why make people pay taxes on income they worked to make?".

There's no some god-given justification for taxes.

We have them because:

a) somebody can enforce their payment

b) societies need a money pool to do public things

c) societies need to encourage/discourage some things

A country could opt not to have taxes, and not maintain an army for example, and live it to the goodwill of the citizens to build infrastructure. That couldn't would be stomped by one that did have taxes and used them to build a good army. So that doesn't work out that good...

Now, assuming a society decide it needs taxes, what taxes to have is more a question of "how much money are needed" and "how to present it nicely" and "what to encourage/discourage".

Regarding "how much money is needed", the justification for property tax is simple: if income tax money aren't enough, governments might add not just property tax, but even a breathing tax. On the plus side, property is difficult to hide (as money would be e.g. in the Kayman islands).

Regarding "what to discourage", the justification for property tax is, not to hog down property and prevent its use.

You also want to get some of the value the community/government creates in an area and pushes property values (not just market value, but also use-value, like having a school nearby) up back.

That's actually a very good question. There are still places in the US you can buy unincorporated land. The taxes on those properties are none to so low it is nonexistent. To live on it ends up costing you more though. There is no electricity, no roads, no schools, no police, no fire protection, no water and no water treatment. Mail you'll need to pick up at the post office in the closest town. They don't deliver if they have no roads to drive on.

This setup works for a very small percentage of the population. If you want an access road to your property you'll need to purchase the right of way from neighbors. And you'll have to live with the fact that the land you bought might not ever sell. As a primary property it's going to be extremely hard to get financing for any improvements so most of these properties are relegated to a cabin in the woods, vacation home.

> It's not poor old ladies living in them that don't want to leave the neighborhood they lived their whole lives in, but gentrified under their feet into some urban monster. It's business people arbitraging tax laws.

And sometimes it's both: the poor old ladies who want to hang onto it for their descendants to inherit, ostensibly because it was the "family home" but more rationally/coldly because it could turn a tidy profit for said descendants.

For parking lots it's a catch-22 of the car centric city design, they're required for businesses to function but you can't charge them the true value of the land because making enough money to cover those property taxes would make parking prohibitively expensive. The real solution is proper public transit of course but that's hard and expensive so we get bandaids instead.

Proper public transit wouldn't look as hard or expensive if the true value of the land was taxed on parking.

It's a phase change problem, on this side we're stable (ish) and on the other side we're stable but the transition period would take years and a lot of spending so we stay in the current state. Doing it slowly and safely requires patience from voters and a willingness to suffer the painful transition period where people in the city are paying more taxes without the problem being solved. Patience is a big issue with getting long term projects done in the US, there's always political hay to be made attacking any project with long term pay offs because of the delay between new laws/taxes/construction starting and it ending. Plus it's way more appealing to scrap and change the project to "put their stamp on it" so it's Mayor Bob's revitalization project not Mayor Alice's.

Thanks for this knowledge. Where can I find more info regarding Prop 13 and the parking lot property taxes? Thank you!

There is nothing much to know except that Prop 13 also applies to commercial property, not just the American homeowner with a mortgage and truck. I'm not quite sure why, but asking the people who voted in the 70s to give themselves a massive tax cut is probably not going to yield anything useful (ask your parents some time!).

https://en.wikipedia.org/wiki/1978_California_Proposition_13

I feel like the intuition behind prop 13 is similar to rent control but for land owners. Basically it freezes the price owners have to pay in taxes, so if the price of land goes up dramatically, people who have owned the land for longer pay far less in taxes.

For example, person A bought a house in SF 25 years ago for 300k. Person B buys an identical house today for 1.5M, therefore paying 5x as much in taxes every year even though both houses are worth the same value. This stifles development because any time land changes hands, the taxes dramatically increase. Even though you could make more money turning a parking lot into housing, people often don't because the taxes would increase to a point where it wouldn't be worth it.

The simplified end result for prop 13 (and rent control) is that young people are basically subsidizing old people through their taxes (and rents), keeping prices artificially high. It is incredibly hard to repeal these laws because most of the voters are unfairly benefiting from them or don't comprehend that rent control hurts them.

It sounds like most of the people here want prop 13 repealed but from your suggestion that would just make every pay the high tax so the "people often don't because the taxes would increase to a point where it wouldn't be worth it." would be true for everyone always right?

At least in SV, the older people are much, much more active in local politics, probably because they're not busy with a job/kids. When I was on a sabbatical/funemployed, I used to go to city council meetings pretty frequently, especially for meetings discussing one of these anti-development laws that are currently on the books, and it would be like 3-6 of us on the pro-development side, typically skewing on the younger side (though there were some exceptional older homeowners who would argue for our side), and then 50+ retirees on the anti-development side.

In the example I'm thinking of, it was a meeting about a law that was due to expire that limited new development to 5 stories, and effectively limited average height to 3-4 stories due to floor area ratios, and simultaneously put strict limits on the number of housing units you could build per acre. Mind you, this expiration would affect just the dense downtown core around the train station, not the vast majority of the city, which is zoned single family. They still hated the idea, it'd cause too much traffic. One lady gave an impassioned speech about how the drive to their second home in Tahoe, which used to take 4 hours now took 6-8 on Friday due to traffic. This came right after a speech from someone who was about to lose their primary residence due to rent spiking. I don't know how she was able bring herself to follow that, but she certainly tried.

The basic idea is that people are being disproportionally taxed, usually in favor of the rich (i.e. people who have owned property in high CoL places for a long time). By raising the taxes on these people to "fair" levels, a bunch of good things happen.

First, a lot of property is opened up to the market because people are now willing to sell it, which should lower housing/land prices in general and enable more development. Second, the state gets a lot more tax money to use for education and whatever else.

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