What Is Supplemental Property Tax?

Skyrocketing home values in California have led to numerous state law reforms that impact your property tax bill over the past few decades. Property owners in California typically pay an annual tax bill, often in two payments through an impound account established with their mortgage lender.

However, some property owners will also need to pay a supplemental property tax bill under specific circumstances, generally triggered by a reassessment of the property value due to a transfer of property to a new owner or the completion of new construction.

Since tax laws can change, you should verify all information with official sources, such as the California State Board of Equalization's page about the topic.

 

What Are Supplemental Taxes?

A supplemental tax is a separate property tax bill from your annual tax bill. These supplemental property tax bills are calculated based on the difference between the newly assessed value of your property and the prior assessed value.

Typically, supplemental real estate tax bills are triggered by one of two scenarios:

• A newly constructed property is completed.
• The property has a new owner.

Note that "new construction" also includes significant improvements, additions or alterations that add value to a property.

A supplemental tax bill could take weeks or months to arrive after your new property is completed or you take ownership of a property, since it depends on the workload of the county assessor’s office and the county tax collection office.

A county assessor must appraise your property and provide you with information about the valuation and the supplemental assessment amount. Often, the supplemental property tax bill will be issued within six months from the date your escrow closes, or your new home is complete. However, it's important to remember that this timeframe can vary considerably for each property owner.

 

What Is a Supplemental Property Tax in California?

You may not have heard of the California supplemental property tax, especially if you're a first-time homebuyer or haven't purchased a home in a few decades. The Supplemental Real Property Tax Law, signed into law in July 1983, was designed to provide additional funding for California’s public schools.

That law was one of several tax reforms introduced since the landmark Prop. 13, a 1978 California constitutional amendment designed to protect older homeowners from large property tax increases as housing values rose rapidly.

For example, the value of an average California home was just over four times the average household income during the 1960s. Today, the value of a California home is more than 11 times the cost of the average American income. Prop 13. sought to help the average Californian afford their property taxes despite this rapid growth in value.

In most states, property tax assessments are made every one to five years. New assessments are not typically made when a home is sold or gifted to a new owner.

California Property Tax rules allow an inflationary adjustment to the value of all homes annually. Assessed value can increase every year but is capped at 2% annually.

However, reappraisals of property in the state are made when a property changes hands to new owners. In addition, when a new home is built, the property is reassessed at completion. In addition to setting a property tax amount, these events trigger a supplemental tax bill under the Supplemental Real Property Tax Law.

How is the Supplemental Amount Determined?

The supplemental tax bill is determined through a formula that starts with a reassessment of your property by the county assessor. In short, this involves the county auditor-controller subtracting a property's prior assessed value from its newly assessed value. If there was a positive gain in value, the county-auditor calculates the supplemental tax bill.

The California Board of Equalization provides some useful supplemental property tax calculation examples here.

When you receive your supplemental property tax bill, you have 60 days to file an assessment appeal. In addition, if the home is your primary residence and you did not previously apply for a homeowner’s exemption, you may apply when you receive your supplemental tax bill. California provides a homeowner's exemption of $7,000 of the property value from property taxes.

Not every property is subject to supplemental property taxes.

California property that may be subject to supplemental assessments includes:

• Land
• Improvements on the land, such as a new or existing house, an addition or a swimming pool
• Fixtures such as garages.
• Taxable possessory interests, or situations when a private individual or company leases or uses government-owned land or buildings for their business or residence

 

Understanding a Supplemental Tax Bill

Your regular California property tax bills are sent to you and/or your mortgage company if you pay your property taxes through an impound account. A supplemental property tax bill will be sent directly to you by your local government.

The supplemental tax bill will include information such as:

• The property address
• Your name and other owners’ names as of the date of ownership change
• The date ownership changed
• The billing date for the supplemental property tax
• The Fiscal Year for the tax assessment
• The new assessed property value from the county assessor compared with the previous value from the tax roll
• A tax calculation box
• The net total amount of supplemental taxes due with attached mail stubs and due dates

 

Do Escrow Accounts Pay Supplemental Tax Bills?

Generally speaking, it is uncommon for funds from escrow accounts to cover supplemental property tax bills. If you're a first-time homebuyer, it's important to keep this in mind when calculating the cost of homeownership.

 

How Often Do You Pay Supplemental Property Tax in California?

A supplemental property tax bill is a one-time charge based on a reassessment of your property value and is often payable in two equal installments. These tax bills are tied to the fiscal year, which runs from July 1 to June 30. They are effective the first day of the month following the closing date or completion of new construction.

If the change in ownership or completion of new construction takes place between January 1 and May 31, this could impact two separate fiscal years. In that case, a second supplemental assessment may be required for the next fiscal year and two separate bills will be sent.

 

Paying a Supplemental Tax Bill

Supplemental property tax bills are mailed directly to property owners. Each bill will have a delinquency date, or a date after which payment is considered late and penalties accrue.

California supplemental property tax due dates are determined by their mailing date:

• If the bill is mailed between July 1 and October 30, the first installment is delinquent after December 10, and the second installment is delinquent after April 10.
• If the bill is mailed between November 1 and June 30, the first installment is delinquent after the last day of the month following the month the bill was mailed, and the second installment is delinquent after the last day of the fourth month following the month the first installment was delinquent.

If you don’t pay your supplemental property tax bill before the delinquency date, you will be charged a 10% penalty. If you’re late paying the second installment, a 10% fee and a $10 charge is added to the bill.

If you don’t pay either installment of your supplemental property tax bill by June 30, your property tax will be considered in tax default and you will be charged a 1.5% penalty per month, or 18% per year, until it is repaid.

What Are Negative Supplemental Assessments?

When your property value is reassessed due to new construction or new ownership, it’s possible that the assessed value could be lower than the previous value. In that case, or if you have senior citizen’s transfer of value exemption under Prop. 13, you will receive a negative supplemental assessment.

A negative supplemental assessment results in a refund for the overpaid portion of taxes during the supplemental period. This new, lower assessed value will then become the basis for your regular annual property tax bills for future fiscal years. You are still responsible for paying any regular tax bills that were issued based on the previous, higher value, but the refund adjusts your overall tax liability for the period covered by the supplemental assessment.

If you're uncertain about potential supplemental property taxes for your property, be sure to consult with a tax professional and your lender for the details that are specific to your situation.