Inc016

As Originally Published in Inc. Magazine

Prop 13 Time Bomb Explodes, Start-ups Hit
Author:Hal Plotkin
Source: Inc magazine – October 01, 1996

Eighteen years after California passed Proposition 13, restricting taxes and inspiring similar measures across the nation, the law has reentered the headlines. At issue: the tax inequities created by the 1978 law, which froze property taxes at then-current levels and limited future increases to 2% a year, with property reassessed at market value only upon transfer of title.
Initially, the law enjoyed support from business groups concerned with runaway tax increases. But the law has left new entrepreneurs in the Golden State saddled with property-tax bills that are as much as 12 times higher than those of competitors who have been there longer. “We have identical Baskin-Robbins franchises in this county, right down to the square footage,” notes Santa Clara County assessor Larry Stone, “and one pays $1,200 a year and the other $8,000.” Some worry that the disparity will cause new and expanding businesses to locate elsewhere.

While 37 states have passed tax-reform measures since Proposition 13, only 2, Florida and Michigan, included the disparate-assessment practice. “All we want is to be treated equally,” says Stan Ovshinsky, who is trying to launch a California spin-off of his Michigan-based solar-battery manufacturer, Energy Conversion Devices. Rational as that sounds, a solution seems unlikely to emerge soon.

“What really worries me,” says Stone, “is what happens, maybe 10 or 15 years from now, when more than half of the voters are no longer in the protected class.” The result, Stone says, might well be a punitive and rapid escalation of business taxes.

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