.2504242126311.jpg)
State Senator Caroline Menjivar recently introduced Senate Bill 789 (SB-789) which proposes a vacancy tax on commercial real property that’s designed to assist first-time home buyers through the California Dream for All Program.
The legislature states that prolonged vacancies in commercial properties undermine local
economic vitality, reduce tax revenues, and contribute to neighborhood deterioration. As such, information is required to see how a tax on long-term vacant commercial buildings could be designed to create incentives for property activation, support equitable community development, and generate revenue for the California Dream for All Program.
The bill proposes the imposition of an annual vacancy tax per square foot on vacant properties within a calendar year. Here are the key details:
Definitions
The bill states that the term “active renovation” means “construction or repair pursuant to an
approved building permit, with work ongoing for at least 90 consecutive days.”
“Commercial real property” has the same meaning as defined in Civil Code § 2079.13(c). The provision states that this term means all real property in the state, except:
(1) Single-family residential real property
(2) Dwelling units made subject to Chapter 2 (commencing with § 1940) of Title 5;
(3) A mobile home, as defined in § 798.3;
(4) Vacant land: or
(5) A recreational vehicle, as defined in § 799.29.
“Person” includes, but isn’t limited to, an individual, group, limited liability company, trust, or
entity holding legal or equitable title to the property. This term doesn’t include any city, county, city and county, district, commission, the state or any department, agency, or political
subdivision thereof; any interstate body; or the U.S. and its agencies and instrumentalities.
“Vacant” means commercial real property that’s not subject to a valid lease agreement or
actively used for commercial purposes.
Requirements
Every person owning commercial real property in California must register with the California
Department of Tax and Fee Administration. They must file an information return annually. The information return is to include the following information:
(1) The address of each commercial real property owned by the person in the state
in the previous calendar year.
(2) The building or buildings on each commercial real property.
(3) Whether any buildings or portions of the buildings were vacant in the previous
calendar year.
(4) The number of days in the calendar year that such building was vacant.
(5) The reason for each vacancy.
(6) Whether any of the following conditions apply in each vacancy:
- (A) The person is engaged in active renovation, including obtaining valid building permits and ongoing construction.
- (B) There are legal or regulatory barriers, including litigation, environmental reviews, or permitting delays preventing occupancy.
- (C) The commercial real property has been impacted by a natural disaster, including properties deemed uninhabitable by state or local authorities.
The bill says that those required to file an information return should try to make sure that the
same property isn’t listed on multiple returns.
Penalties
Owners who intentionally misstate information or make fraudulent claims face civil penalties yet to be determined.
However, if the Department finds that an individual’s failure to file a timely return is because of “reasonable cause and circumstances beyond the person’s control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect,” that individual may be relieved of the penalty.
Reporting
The Department is to gather information from the returns filed pursuant to Section 11952 and
must post this on the Department’s website on or before July 1 st of each year. The data must be aggregated by ZIP Code and include the following:
1. The number of persons filing information returns in a calendar year;
2. The percentage of commercial properties included in information returns that were
vacant in a calendar year;
3. Aggregated reasons for vacancy, specifically for those where vacancy existed for more
than 182 days in a calendar year;
4. The percentage of commercial properties where the person indicated that one of the
conditions in Section 11952(b)(6) applied, and for each condition, the percentage of
persons indicating that condition applied out of persons indicating one of the conditions
applied; and
5. The percentage of commercial properties that are located in a blighted area, as defined
in Section 33030 of the Health and Safety Code.
At this time, the bill has been read second time in the Senate and amended. It was then re-
referred to Committee on Revenue and Taxation.
Bottom Line
The legislation is a change in the state’s handling of vacant commercial properties. The
imposition of a vacancy tax aims to revitalize local economies, decrease neighborhood
deterioration, and generate funding for housing affordability initiatives.
Property owners should be prepared to apply the new requirements if the bill is enacted, and
work with knowledgeable legal counsel like Eanet Law to ensure compliance and to consider
any potential financial ramifications