“Vacant commercial property represents a missed opportunity for community enrichment,” Menjivar said, according to a legislative analysis of the bill. “Other times they contribute to the neighborhood’s blight and can be areas of nuisance and public safety concerns. These underutilized spaces hold potential as storefronts for local entrepreneurs, innovative workspaces for growing businesses, or mixed-use projects combining housing with commercial amenities.”
The measure requires all owners of commercial property in the state to register with the California Department of Tax and Fee Administration (CDTFA) each year, providing detailed information about their properties, including giving a reason why if a property is vacant.
Anyone who doesn’t file would be required to pay a penalty, according to the bill.
Menjivar claims that without state oversight, the empty parcels can stay vacant for years and sometimes decades.
“In order to encourage development or penalize blighted vacant buildings, we need data to systematically track commercial vacancies, including their underlying causes like renovation delays, regulatory hurdles, or speculative holding patterns,” she said.
The senator says the state would be able to streamline permit approvals if clusters of vacancies were caused by slow permitting, or consider a vacancy tax to incentivize productive use.
The bill would also require that the state post on its public website detailed information about each commercial property, including the percentage of commercial properties that were vacant in a calendar year and the reason for the vacancy if the property was vacant for more than 182 days in a year. The state would have to post what percentage of commercial properties are located in a blighted area, among other information.
The city and county of San Francisco approved a similar tax with Measure M in November 2022, but the ordinance was ruled unconstitutional.
The measure imposed an annual tax of $2,500 to $5,000 per vacant unit, depending on the unit’s size. The tax was allowed to increase annually to a maximum of $20,000 if the same owner keeps the unit vacant for multiple consecutive years.
However, the San Francisco County Superior Court issued an order Nov. 26, 2024, in favor of taxpayers, finding that the tax violated the Takings Clause of the Fifth Amendment of the U.S. Constitution.
The court also found the tax violated property-owners’ constitutional right to privacy under the California Constitution by compelling owners to share their property via application of the tax.
The court also held that Measure M violated the California Ellis Act, which prohibits public entities from compelling residential property owners to rent or lease.
Other cities have instituted similar vacancy taxes in recent years.
Berkeley, east of San Francisco, imposes an empty homes tax on residential units that are vacant for more than 182 days per year. Empty residential units in duplexes, condos, single-family homes, and townhouses are charged $3,000 the first year and $6,000 for each subsequent year. All other empty residential properties pay $6,000 in the first year and $12,000 each year after that.
Oakland also charges an annual tax of $6,000 for residential, nonresidential, and undeveloped properties, and $3,000 a year for condos, duplexes, and townhomes. The tax applies to privately owned properties not occupied more than 50 days per year and has several exemptions.
Menjivar’s legislation faces tremendous opposition from commercial property owner associations, building owners and managers groups, taxpayer advocates, hotel and lodging associations, mortgage bankers and housing associations, retailers, and multiple chambers of commerce throughout the state.
“Vacancy is largely driven by market forces—not neglect—especially as sectors like retail, office, and industrial continue to recover from the pandemic,” the association wrote in an opposition statement. “This tax would penalize property owners during economic uncertainty and risk further destabilizing struggling markets. SB 789 would also undermine local property tax revenues, reducing property values and triggering reassessments under Prop. 8—resulting in permanent funding losses for schools, cities, and essential services.”
The bill also imposes costly administrative burdens, the association says.
