In California the Revenue and Taxation Code provides the laws regarding the imposition of real and personal property taxes. It is the local county assessors’ office and tax collector that are responsible for assessing and collecting the tax. Generally assessments are determined as of the “lien date” which is January 1. Property tax is an ad valorem tax which means it is a tax based upon market value. Revenue and Taxation Code requires the assessor to annually enroll the lesser of a property's Prop13 factored base year value or its market value as of January 1st.
In June 1978, California voters approved Prop13. It limited the property tax rate to 1 percent plus the rate necessary to fund local voter-approved bonded indebtedness. It also stated that property assessments cannot increase more than 2% annually. In November 1978, California voters passed Prop8, which amended Prop13 to allow temporary reductions in assessments where real property suffers a decline in value.
A decline in value occurs when the current market value of real property is less than its adjusted base year value as of the lien date, January 1. A property's base year value is when the property last changed ownership or underwent new construction. The base year value adjusts annually by the lower of the percentage change in the consumer price index (CPI), or 2 percent. The adjusted base year value is also known as the factored base year value.
The market value of real property may decline from one lien date to the next lien date; however, the property will not benefit from a lower assessment unless its market value falls below the current factored base year value. If you acquired your property during an up real estate market and subsequently the real estate market declines your property will benefit from a Prop8 appeal. The decline in value is typically temporary and may be the result of changes in the real estate market, the neighborhood, or the property itself.
Once a property's assessment has been reduced under Prop8, the assessor will review the assessment annually to determine whether it should remain in decline-in-value status. The assessed value of a property in decline-in-value status may increase each lien date by more than the standard two percent maximum allowed for properties assessed under Prop13; however, a property's assessed value can never increase above its existing factored base year value.
Every property owner has the right to a hearing for a property reassessment with the Assessment Appeals Board. The Board hearings are like mini-trials, the taxpayer or their representative must be thoroughly prepared to present and defend all relevant property and market information in order to substantiate the new opinion of value. The taxpayer or their representative needs to be familiar with the State and Local Assessment Appeal Board rules. In order to obtain a reassessment the burden of proof is on the taxpayer.