June 6th, 1978, the ballot initiative Proposition 13, "People's Initiative to Limit Property Taxation" was passed.
Prior to Proposition 13, the property tax rate throughout California averaged a little less than 3% of market value, coupled with no cap on ad valorem charges. (Ad valorem refers to taxes based on the assessed value of property. )
Under Prop 13, property tax value was rolled back and frozen at the 1976 assessed value level. Property tax increases on any given property were limited to no more than 2% per year as long as the property was not sold. Once sold, the property was reassessed at 1% of the sale price, and the 2% yearly cap became applicable to future years. This allowed property owners to finally be able to estimate the amount of future property taxes, and determine the maximum amount taxes could increase as long as they owned the property.
Specific Features of Proposition 13
One Percent Rate Cap. Proposition 13 capped, with limited exceptions, ad valorem property tax rates at one percent of 100% full cash value at the time of acquisition.
Assessment Rollback. Proposition 13 rolled back property values for tax purposes to their 1976 level.
Responsibility for Allocating Property Tax Transferred to State Proposition 13 gave state lawmakers responsibility for allocating property tax revenues among local jurisdictions.
Reassessment Upon Change of Ownership. Proposition 13 replaced the practice of annually reassessing property at market value with a system based on cost at acquisition. Under Prop. 13, the property is assessed for tax purposes only when it changes ownership. As long as the property is not sold, future increases in assessed value are limited to an annual inflation factor of no more than 2%.
Vote Requirement for State Taxes. Proposition 13 requires any measure enacted for the purpose of increasing state revenues to be approved by a two thirds vote of each house of the legislature.
Voter Approval for Local “Special” Taxes. Proposition 13 requires taxes raised by local governments for a designated or special purpose to be approved by two-thirds of the voters.