What are supplemental taxes?

Supplemental taxes are billed about six to eight months after a property is sold and closed in Santa Clara County.  At the time the sale is finalized, the home buyer pays property taxes at closing, but they are paid at the former owner’s rate.  Because of Proposition 13, many long time residents in the San Jose area pay incredibly low property taxes.  Those taxes are reassessed upon change of ownership, but that reassessment won’t kick in for a few months.

For the sake of easy math, let’s use round numbers in an example.  Let’s say Joe and Jean buy a house for $1 million.  Their property tax will be approximately 1.25% of that value per year to begin, or approximately $12,500 per year.  They bought their home from a senior citizen who’s been in the house for 20 or 30 years, and that owner’s property tax rate is (for the sake of example) $1,250 per year.  Let’s say that the property closed December 1st, about a month before the very end of the tax semester. The sellers had already paid that tax, so the buyers paid them a credit for 1/6 of the tax bill (1/12 of $1250), appx $104.  But the tax assessor will later come back and say that the month of December should be charged at a much higher rate, that is, 1/12 of $12,500 or $1,041, and will then issue a supplemental bill for the difference.  Sometimes one tax bill, and other times two, will be impacted by the supplemental taxes.

It is a little crazy that in the center of technology and innovation we have such an antiquated property tax system, but that’s how it is.