Homeowners in coastal California cities with higher home prices tend to have lower property tax rates than residents of lower-priced inland cities thanks to Proposition 13, a study by the online real estate site Trulia shows.
So homeowners in Southern California cities like Malibu, Beverly Hills and Laguna Beach pay some of California’s lowest property tax rates, while inland cities like Beaumont, Palmdale and Murrieta pay some of the state’s highest tax rates.
Why?
Under Prop. 13, property tax increases are capped, with assessments reset to actual market values only when homes are sold. As a result, the longer people own their homes, the more they benefit from the 1970s-era tax measure.
Owners closer to the beach tend to stay in their homes longer and their home values rise faster, while homeowners in Riverside and San Bernardino counties move more or are just entering the home market, the study said.
Orange County had the state’s 12th-lowest tax rate among 58 counties when taking into account the actual home values in that area. Los Angeles County had the 20th lowest.
Riverside County, on the other hand, had the state’s second-highest property tax rate, and San Bernardino County had the 15th highest.
“There is a geographic disparity in who benefits from Prop. 13,” the study said. “Residents in expensive coastal cities pay noticeably lower tax rates than residents in cheaper inland cities.”
Prop. 13 sets the tax rate at 1 percent and limits property tax hikes to 2 percent a year.
Trulia analyzed tax records, census data and home price data to determine how much residents in each California city and county pay in property taxes relative to the true market values of their homes.
Trulia then calculated the “effective” property tax rate each California city and county pays.
Beaumont had the state’s highest effective tax rate: 1.37 percent, when special tax district assessments and Mello-Roos taxes are included.
But the Bay Area city of Palo Alto — with a 2015 median home price of $2.2 million — had an effective tax rate of 0.42 percent, the lowest in the state even after including special tax district assessments.
How can the effective tax rate be under 1 percent?
Say someone buys a home for $100,000. The property tax bill would be $1,000 — 1 percent — the first year. Even if the home’s value goes up 10 percent to $110,000, Prop. 13 would limit the new valuation to $102,000 — 2 percent — and the tax bill to $1,020.
That’s an effective tax rate of 0.9 percent of the property’s new value.
Had Californians paid a 1 percent tax on their homes’ true value, instead of the Prop. 13 assessed values, local governments in the state would have received $12.5 billion more in revenue, the study found.
Other findings include:
• Most homeowners benefit from Prop. 13. More than 71 percent of Californians pay less than a 1 percent effective tax rate.
• More than 40 percent pay an effective tax rate of 0.5 percent or less, or half the Prop. 13 rate.
• Half of the top 10 California cities with the lowest effective tax rates are in Silicon Valley, with median home prices above $1 million: Palo Alto, Millbrae, Los Altos, Burlingame and Sunnyvale.
• Four of the top 10 cities with the lowest rates are in coastal Southern California: Malibu, Manhattan Beach, Laguna Beach and Beverly Hills.
• Five of the top 10 cities with the highest effective tax rates are in the Inland Empire: Beaumont, Indio, Murrieta, Palm Desert and Cathedral City.
