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A Real Estate Investor’s Perspective on Pending California Tax Legislation

January 20, 2016

A proposed Constitutional Amendment being considered by the California Senate this 2016 session will potentially affect thousands of taxpayers in our state, either directly or indirectly.

Senate Constitutional Amendment 5 (SCA 5)

Senate Constitutional Amendment 5 (SCA 5) is known as the Property Tax Fairness amendment and is sponsored by Democrats Loni Hancock from Berkeley and Holly Mitchell from Los Angeles. If approved, SCA 5 will re-assess the amount of property taxes on all commercial and industrial properties within California with a goal of reaching fair market value by 2018. This proposed tax increase may have many small businesses feeling the squeeze and needing to raise additional capital quickly.

Although SCA 5 would not affect single-family homes, farms, and apartments, some are concerned that this legislation would open the door to amendments that would expand the additional taxation to these properties as well in the near future.

Effects of the Amendment

However, the bill sponsors say the changes are needed to level the playing field between the tax burden for businesses and commercial property owners and homeowners and renters. They also point to a provision in their proposed law exempting the first $500,000 in equipment and fixtures from business personal property taxes beginning in 2019 as a tax decrease for small businesses.

Whether you believe this change is overdue or not, the passage of this legislation will likely result in an increased demand for additional funds as businesses realign their financial priorities to meet new property tax obligations. This would potentially create demand for more private money loans, trust deed backed private loans, and real estate loans – and an opportunity for investors.

Working with Val-Chris Investments, Inc.

Val-Chris Investments, Inc. has been serving investors, borrowers, and brokers since 1975 and we stand ready to assist business owners with their financing needs.  We provide commercial, industrial and residential loans, and work directly with borrowers or through their designated agents.  Our long history in this business and our extensive network of investors and lenders means that every borrower receives personal attention on their loan file so we can tailor the loan product to meet the unique needs of the borrower and their property.  We are well-positioned to serve business owners with various loan products that might provide some financial flexibility if SCA 5 becomes law.

Throughout our 27 years in the investment business, we have seen legislative and regulatory changes prompt a need for financial adjustments on the part of small and large California companies.  We are ready to assist you as our success has been built on long-term relationships secured by the credible advice and information we provide to our clients based on our years of experience.  We’re keeping a close eye on SCA 5 so that we will be able to gauge its impact and to provide the assistance our clients need if the proposed legislation becomes law. Until then, we hope you will contact us if you have questions about the proposed legislation and how it might affect current or future investments.