Prop 15, also commonly known as the split roll tax, is officially coming to the California ballot in November, and it is the latest initiative causing a frenzy in the commercial real estate industry. Prop 15 would roll back certain elements of Prop 13, California's landmark property tax provision that limits property tax increases for all real estate assets, both residential and commercial. Prop 15 would open tax increases for commercial assets, including office, industrial and retail, and these assets would be taxed at market value. The ballot measure has the potential to dramatically increase taxes for commercial owners, according to a new report from Marcus & Millichap.

In fact, the report says that the initiative is the largest proposed tax increase in California history. Proceeds from the new tax structure could range from $8 billion to $12 billion with funds distributed to local communities, according to the Marcus & Millichap report. Properties with long-term ownership face the greatest potential increase in taxes. For example, properties that have had the same ownership for 20 years could potential face double the tax obligation.

Currently, Prop 13 limits property taxes to 1% of the assessed value with a limit of 2% tax increases, regardless of the increase in appreciation. In addition, a property cannot be reassessed until it changes ownership. These benefits have helped to curb potentially soaring tax rates even as property values have increased across the state. Prop 15, however, would remove those benefits for commercial property owners. If Prop 15 passes, commercial properties would be reassessed every three years at the current market value. The measure does have a handful of exemptions built in. Along with residential properties, multifamily buildings will also be exempt from the measure. In addition, property owners with less than $3 million in total real estate holdings in California will be exempt from the new tax law.