California is known for its beaches, mountains and the high price of its more desirable real estate. Taxes on that real estate are the main source of state and local revenue. Property tax rates once exceeded 3% of market value. A taxpayer revolt in 1978, led by Howard Jarvis and Paul Gann, brought about a radical change in how property taxes are viewed in California and served as a catalyst for a highly vocal national tax reform movement.

Average Property Taxes in California

Tax rates in California counties vary according to the level of bond payments added to the state base rate of 1%. These are based on assessed property value, not market value. The average county tax rate is just under 1.25%, and the median is just over 1.11%.

According to the most recent tax data from SmartAsset, California has an average effective tax rate of 0.79%. The lowest effective tax rate among the state's 58 counties was in Trinity at 0.53%. Meanwhile, Kern County reported the highest effective tax rate of 1.06%. These figures do not include special assessments, which can vary between different cities and even neighborhoods within a city.

California Compared to Neighboring States and National Tax Rates

National and state-by-state comparisons are performed using the effective tax rates.

California's effective property tax rate, at 0.79%, is the 17th-lowest in the country, falling in the middle when compared to its neighbors. The effective tax rates in neighboring states are Arizona at 0.77%, Nevada at 0.77% and Oregon at 1.07%. The buyer of a newly reassessed California home may pay a higher tax rate than the buyer of a new home in Oregon. However, the buyer is not subject to the same level of tax increases based on rising market values. A full understanding of tax comparisons requires an explanation of how California property taxes are calculated.

Effective tax rates are established by dividing the total property taxes paid by the market value of all the real estate. Effective tax rates provide a picture of the overall property tax burden. Nationally, the average state property tax rate 1.21%.

Why California Property Taxes Are Different

During the high inflation period of the early to mid-1970s, home prices were rising even faster than the rate of inflation. Property taxes rates were based on market value and reset every year. Homeowners were receiving property tax bills that were rising faster than their incomes. People on Social Security and fixed incomes were in danger of losing their homes to tax liens. A petition drive placed a state constitutional amendment initiative on the ballot in 1978. Nobel Prize winning economist Milton Friedman and Ronald Regan appeared in advertisements supporting the initiative. The amendment, Proposition 13, passed with almost 66% of the vote.

Proposition 13 limited property tax levies to 1% of assessed value plus any amounts voters approved for bond payments and special assessments. Assessed values cannot increase more than 2% per annum, and all special assessments must receive voter approval of two-thirds. Properties are only reassessed upon a change in ownership or if substantial improvements are made to the properties.

California Property Tax Examples

The purchaser of a $1 million home in California would have a base assessment value of $1 million. If over the next year, the market value rose by $100,000, the assessed value would only increase by $20,000. The state base tax bill would increase from $10,000 to $10,200 instead of $11,000 if taxes were based solely on market value.

A disparity exists between new homebuyers and their established neighbors. A $1 million homebuyer has a much larger tax bill than his neighbor who bought his $1 million market value home 20 years ago for $250,000. The established homeowner’s initial assessed value of $250,000 has increased by 2% per annum and is now $371,500. The state base tax would be $3,715, while the new neighbor is paying $10,000. This disparity explains the difference between California’s tax rates and the effective tax rates used for comparison purposes. It is also the cause for debates over the fairness of California’s property tax system.

Other Taxes

Property taxes are not the only way to judge the cost of living in California. The restriction on property taxes has resulted in public officials increasing other taxes. The sales tax is now 7.25% at the state level and the average local sales tax rate hit 1.29%, according to Tax Foundation. California’s income tax rates are some of the most highly progressive in the country. The top rate of 13.3% is the highest in the country.

The Bottom Line

Although California has some of the most expensive homes, property tax rates are still among the lowest in the country. These figures vary from county to county. But beware, because how much you pay in property taxes depends on the purchase price. A homeowner in your neighborhood who has been there for 25 years may be paying less in taxes than you.  

Colorado Property Tax Guide

Related Articles
  1. Taxes

    The 7 Best States For Property Taxes, and Why

    Understand why some states have high property taxes while others have low property taxes. Learn about the states with the lowest property taxes.
  2. Taxes

    Taxes in California for Small Business: The Basics

    Understand the tax implications of running a small business in California, and learn which state taxes apply based on business type.
  3. Taxes

    5 State Tax Issues For When You Leave the Military

    When you're budgeting for post-military life, certain state tax issues need to be considered.
  4. Taxes

    Reducing Capital Gains Tax on Investment Property

    The 1031 exchange rules can help reduce or eliminate property gains taxes on investment property.
  5. Taxes

    How Much Tax Do You Really Pay?

    When you add direct and indirect taxes together, your real tax rate is much more than you expected.
  6. Taxes

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  7. Taxes

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
  8. Taxes

    The History of Taxes in the U.S.

    America's first citizens enjoyed few to no taxes. Then taxes were added, increased and occasionally repealed to give us our current tax regime.
  9. Taxes

    The Unseen Taxes That You Pay Every Day

    Taxes are embedded in the price of everything we buy to an extent that most people don't even realize.
  10. Taxes

    Taking Advantage of Property Tax Abatement Programs

    Increase your home's value without increasing your property taxes.
Trading Center