When supporters of a November property tax ballot measure talk about soaking the state’s faceless corporate giants and its wealthiest landlords, they are not talking about people like John Kevranian.
The co-owner of Nuts for Candy and Toys in Burlingame, Kevranian and his wife have operated this mainstay of the city’s downtown strip for more than a quarter century. He rents the shop. And he’s exactly the type of voter that backers of Proposition 15 — which would raise property taxes on many commercial and industrial property owners — had hoped not to goad.
Kevranian feels plenty goaded.
If Proposition 15 passes in November, he said, he is convinced his landlord will simply pass the higher cost along to him — and then “I would close my doors.”
The “Yes on 15” team has marshaled a small army of high-caliber economists, including a Nobel laureate, to help make its case: politically sympathetic small business owners need not lose sleep over this year’s “split roll” initiative.
But many business owners and commercial real estate experts warn that the hotly contested ballot measure contains a glaring hole — and that many mom-and-pop shops across California are going to fall in.
On this question, the Yes and No camps are “talking past each other,” said Adam Sachs, a business transactions lawyer in the Bay Area. “In the long term, the tax hits landlords. But in the short term, it’s on tenants.”
In a statement, Yes on 15 spokesperson Alex Stack pointed to some of the other exemptions and benefits in the measure that are aimed to assuage small businesses’ concerns:
“Prop. 15 cuts taxes for small businesses, exempts those whose property is worth $3 million or less, and allows for an extended phase-in period. Prop. 15 provides the support, flexibility, and investment that small businesses need going forward.”
Ever since voters in 1978 passed Proposition 13, placing a cap on how much property taxes can increase year-over-year, politicians have been loath to mess with it.
But teachers unions and other Prop. 15 backers created a savvy workaround to minimize backlash: Propose to repeal those protections only for businesses over a certain size. If Prop. 15 passes, any commercial or industrial property owner with more than $3 million of California real estate would have to pay taxes based on the current market value of the property, rather than the original, likely much lower, purchase price. Smaller business owners would be exempt.
The idea: Homeowners are fans of Prop. 13, but voters here usually are more than willing to stick it to the 1 percent.
But that argument only works if voters really believe that just the fat cats will take a financial hit.
In a recent ad, the “No on 15” campaign — principally funded by large businesses, corporate landlords and low tax advocacy groups — warned that “small businesses that are already struggling will be hit with higher rents and tax bills.”
UC Berkeley economist Emmanuel Saez, an inequality researcher who designed Democratic Sen. Elizabeth Warren’s wealth tax plan, is a supporter of Prop. 15 and said that argument goes “beyond rational discussion about what the science says.”
But candy and toy store owner Kevranian, also president of his downtown business improvement district, said he and his peers are right to feel anxious. His lease obligates him to pay rent, along with an insurance premium, maintenance costs and the entirety of his share of the building’s property tax, he said.
These types of rental agreements, known as “triple net leases,” are relatively common, said Norma J. Williams, a commercial real estate lawyer in Los Angeles. And while there are variations on this form, “most (commercial) leases of whatever type have landlords passing through all or some portion of their taxes to tenants,” she said.