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Silicon Valley Neighbors, Facing Vastly Different Tax Rates

Commercial property valuations are inconsistent and sometimes strikingly low

IntuitSome of the most valuable commercial real estate in Silicon Valley is just off the Amphitheater Parkway exit of Highway 101 in Mountain View, including Google’s sprawling campus and a suburban business park that is home to Intuit, the software company known for QuickBooks and TurboTax.

But even though one 12.5-acre piece of Google’s property was assessed last year for $65.5 million, much of the neighboring land is still taxed on values virtually unchanged from what they were three decades ago, when a nearby golf course and Shoreline Amphitheater had yet to be built and the area still served as San Francisco’s garbage dump.

While that portion of Google’s land is taxed at a rate of approximately 35 cents per square foot, the land under Intuit’s corporate campus, which is just around the corner, has an estimated property tax burden of 3 cents per square foot. Meantime, tax rates on land under recently purchased neighboring single-family homes ranged from $1 to $1.25 per square foot, according to a Bay Citizen examination of assessments on 2010 home sales in Mountain View.

This is because in 1978 California voters passed Proposition 13, a ballot initiative that allows state and county government to increase the tax rate on commercial and residential properties based on the value of new buildings constructed, but forbids government to reassess a property’s underlying land to full market value without a change of ownership.

“You could not devise a more unfair property tax system if you tried,” said Larry Stone, the Santa Clara County assessor.

The result is that in a time of deep cuts to education, health care and other state services, valuations on commercial property are inconsistent and sometimes strikingly low.

For example, according to county records, the assessed value of one 13.7-acre tract underlying part of Google’s headquarters is $789,635, producing an estimated tax rate of 1.3 cents a square foot, far less than most neighboring properties.

In interviews, commercial real estate experts said that both Google and the property’s owner, Richard Peery, a septuagenarian Palo Alto real estate developer and billionaire, were saving hundreds of thousands of dollars. Commercial landowners often pass the cost of property tax on to their tenants.

“It’s a huge boon to both of them,” said Philip A. Mahoney, executive vice president of the firm Cornish & Carey Commercial Newmark Knight Frank.

Mahoney estimated the value of “just the dirt under the buildings” of the Google parcel at $41 million, meaning a savings of about $400,000 in unbilled property taxes every year.

The land, which Peery has owned for decades, has not been assessed at full market value since Proposition 13 passed 34 years ago, said David Ginsborg, a spokesman for Stone. The Peery family paid about $460,000 in property tax on the parcel last year, reflecting primarily the value of the buildings, which were assessed at $38 million.

County records show that Peery transferred ownership of the land to a family trust in 1978 and then entered into a 100-year ground lease with a company called Charleston Properties. Over the years, Charleston Properties has subleased the land to a series of technology companies, including Sun Microsystems and, most recently, Google.

This complicated legal arrangement will enable the property to avoid a fully valued property tax assessment until 2043, Ginsborg said, under the terms of state legislation that prohibits land values from being reassessed if a property is covered by a lease that runs at least 35 additional years.

By then, Peery, whose fortune is estimated by Forbes to be $1.9 billion, would be more than 100 years old. Multiple messages left at Peery’s firm, Peery-Arrillaga, went unanswered. A spokesman for Google declined to comment for this article.

“What you’re looking at is a total windfall to landowners without any benefit to anybody,” said Lenny Goldberg, executive director of the California Tax Reform Association, a nonprofit advocacy group that has been studying commercial property tax assessments in Silicon Valley.

Peery’s land is just one of many valuable Silicon Valley properties where land is assessed at a fraction of market value for tax purposes.

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