- Exemptions, Tax Incentives and Exclusions
- Tax Incentives
- Historical Properties
In 1972 the California Legislature passed a program sponsored by Senator Mills to provide a property tax incentive to promote historic preservation. Known as the Mills Act and beginning at Government Code section 50280, the law allows cities and counties to enter into contracts with owners of qualified historical buildings. The qualified historical property must be privately owned and not exempt from property taxes. The property must be listed in the National Register of Historic Places or located in a registered historic district or listed in any state, city, county, or city and county official register of historical or architecturally significant sites, places, or landmarks.
The contracts are for a minimum of ten years and renew automatically each year unless non-renewed by either party. During the term of the contract, the owner agrees to preserve the qualified historical property and, when necessary, to restore and rehabilitate it. Once a contract is recorded prior to January 1 of any year, the assessor values the property using a formula set forth in Revenue and Taxation Code sections 439 through 439.4. The “restricted” valuation applies to both the improvements and land of reasonable size related to historical improvement.
The restricted value is based on fair market rental. In the case of owner-occupied residential property, the rental is based on rents for like homes in the area. Any normal expenses for the property are then subtracted from the rent to arrive at a net rental income. The net income is then divided by a capitalization rate that is not derived from market rates. The higher the capitalization rate, the lower the value. The “restricted” capitalization rate is usually higher than the market rate. Thus, the restricted value of the qualified historical property under contract is usually lower than the true market value. The “restricted” value is then compared to the factored Proposition 13 base year value of the property and the owner receives the benefit of whichever value is lower.
Property owners who are interested in the program should contact the planning agency of the county or the municipality in which they are located to see if that entity has a Mills Act program in place and if their property qualifies for a contract. Should you have any questions please contact Napa County Assessor-Recorder-County Clerk John Tuteur at 707.253.4459 or by emailing John Tuteur. More articles can be found at Assessor's page.