California Considers Vacancy Tax on Empty Commercial Properties

The Proposal: Targeting Long-Term Commercial Vacancies

According to GlobeSt, California could become the first state to implement a statewide vacancy tax on commercial real estate. The proposed legislation, Senate Bill 789, aims to push property owners to fill long-empty buildings, address visible blight, and unlock funds to support housing affordability.

Introduced by State Senator Caroline Menjiver, the bill would require owners of commercial properties sitting empty for more than 182 days in a year—regardless of whether the days are consecutive—to pay a $5 PSF annual tax on the unused space.

Exemptions and Compliance

Certain properties would be exempt, including:

• Residential portions of mixed-use developments.
• Properties under active renovation with valid permits.
• Sites involved in legal proceedings or environmental reviews.
• Buildings impacted by natural disasters and deemed uninhabitable.

Owners subject to the tax would need to register with the California Department of Tax and Fee Administration (CDTFA) and file annual reports. Fraudulent reporting could result in civil penalties up to 75% of the tax liability.

Revenue Use and Policy Timeline

Funds collected under SB 789 would be directed to the California Dream for All Fund, a program aimed at helping first-time homebuyers in the state. If passed by a two-thirds majority in both chambers and signed by the governor, the tax would take effect on July 1, 2028, with the first reporting cycle due in 2029. The CDTFA would begin evaluating the tax’s economic impact in 2033.

Legal Uncertainty Ahead

SB 789 faces legal headwinds, particularly in light of a recent court decision overturning San Francisco’s Empty Homes Act, a residential vacancy tax approved by voters in 2022.

In that case, a Superior Court judge ruled the tax unconstitutional, citing the Takings Clause of the US Constitution and California’s Ellis Act. The ruling, which is under appeal, could influence how courts view statewide attempts like SB 789.

If the appellate court upholds the San Francisco ruling, it may set a legal precedent that challenges the viability of commercial vacancy taxes across California.

Why It Matters

Amid high office and retail vacancies across California’s urban centers, SB 789 is part of a broader effort by lawmakers to rethink underutilized real estate and repurpose it for public benefit. However, whether the bill survives legal scrutiny may determine the future of vacancy taxation policy across the state—and possibly the nation.