Property taxes are typically described as a wealth tax – they are taxes levied on assets held rather than transactional taxes like income taxes (applied to wages as earned) or sales taxes (applied to goods when purchased). Property taxes are applied to the same property each year.
Back in 1978 Proposition 13 was passed in California to place a limit on property tax increases. Per Wikipedia, Section 1. (a) of Proposition 13: “The maximum amount of any ad valorem tax on real property shall not exceed one percent (1%) of the full cash value of such property. The one percent (1%) tax to be collected by the counties and apportioned according to law to the districts within the counties.”
Proposition 13 also placed some rules on how the value of a property is assessed or re-assessed. Again, per Wikipedia: “Proposition 13 declared property taxes were to be assessed their 1975 value and restricted annual increases of the tax to an inflation factor, not to exceed 2% per year. A reassessment of the property tax can only be made a) when the property ownership changes or b) there is construction done.”
I was curious about the impact of Prop 13 on property taxes in San Diego after seeing some listings on Redfin and Zillow that had astoundingly low property taxes. For example, the Banker’s Hill property shown below, currently for sale for $1,697,955, carries an annual property tax levy of $136.97. That effective tax rate of .008% is far below the 1% established under Proposition 13.
I decided to take a look at the property values and property taxes on my block in North Park. The houses are all pretty similar (outside of one empty lot that was purchased by a local church and razed for a small and scarcely used parking lot). Below are the property values (per Zillow Zestimate) and property taxes paid (per San Diego County Treasurer website). I’ve listed all the properties on both sides of the street but removed the addresses for privacy reasons.
Despite the homes on the block having pretty similar property values the amount of taxes paid and effective tax rate vary quite a bit. I found it interesting to see the differences in a very small area of town summarized together.