CAL-TAX ANNUAL MEETING:
Cal-Tax Members Gather for 83rd Annual Meeting

The California Taxpayers' Association, the oldest organization representing the Golden State's taxpayers, held its 83rd Annual Meeting on March 11 at the Sacramento Convention Center. Members from around the state – as well as members from other states who do business and pay taxes in California – gathered to plan for the year ahead and to hear from a variety of speakers, including the governor's director of finance, the state controller, a prominent gubernatorial candidate and the heads of the state's tax agencies.

Cal-Tax President Teresa Casazza (right) said the event provides an opportunity for taxpayers to come together to meet with the state's top tax officials, to discuss proposals to improve California's economy, and to band together to advocate against tax policies that would exacerbate the state's fiscal problems by creating disincentives for businesses to locate and expand in the Golden State.

Major topics of discussion included the state budget, legislative threats to taxpayers, goings-on at the tax agencies, and the recently enacted 20 percent "understatement penalty" that is being challenged in court by Cal-Tax as an unconstitutional tax.

Highlights from the Cal-Tax Annual Meeting:

FTB Leaders Discuss Refund Delays, 20 Percent "Understatement Penalty" Filing Issues and More. Many current tax issues were discussed by a panel comprised of Franchise Tax Board Executive Officer Selvi Stanislaus, FTB Chief Counsel Geoff Way and Carl Joseph, head of the Legal Division's Multistate Taxation Bureau:

· On the 20 percent exaction on taxpayers for understatements, Mr. Joseph said taxpayers must be specific regarding changes in returns if they want to file amended returns in light of the new imposition.

· Ms. Stanislaus (right) told about some of the many calls she received when the agency had to postpone issuing cash refunds due to the state's fiscal problems. She said some callers said they were contemplating suicide because they had not received a refund. One caller was desperate for his refund check to buy epilepsy medicine, as he was having trouble. Another caller said without the money to buy a present, his proposal of marriage might fall through. Ms. Stanislaus said the agency made arrangements to ensure that the caller with epilepsy was able to receive a refund and buy the needed medication.

· Mr. Way said results of the "12-18-24-month" protest process are mixed. It has been hard to meet the increased workload, tax shelter cases are taking longer, and some cases have been deferred due to federal action. He added that the FTB will attempt to communicate better with taxpayers to inform them about time lines, including protest period extensions to accommodate the FTB's workload issues.

· Discussing the newly enacted single sales factor, Mr. Joseph said the FTB will start looking at issues before the 2011 start date. He noted that the new tax bill expands nexus where sales only can trigger taxability in California, and said the Massachusetts Supreme Court has upheld this standard.

Finance Director Mike Genest Discusses Budget. Mike Genest, director of the Schwarzenegger administration's Department of Finance, told Cal-Tax members during a luncheon speech that the state's budget problem was so big this year that "we were in a position where bankruptcy was the appropriate option." However, he noted that the state is not able to declare bankruptcy, which is why a compromise budget plan was needed, especially after the state became unable to pay its bills.

"We were stiffing a lot of people," he said. "We were a deadbeat state in February."

If nothing had been done to address the problems with the current fiscal year's budget, the state general fund would have ended the year more than $16 billion in the red, he said. He outlined the budget that was agreed upon, and explained that the state's fiscal situation was so bad that "we listed everything we could think of (in terms of cuts and revenues), and we had to do it all."

The finance director said the "May Revise" will be delayed until early June this year, because "with $6 billion at stake in the election, it would be foolish" to produce a budget revision prior to that May 19 election. He said the budget enacted last month is based on revenue estimates from November, so there is a "high probability" that revenue estimates will be lower in the revised budget.

Controller John Chiang Discusses Near "Meltdown" of State Finances. State Controller John Chiang (left) began his presentation by asking if anybody in the audience knew the significance of the date July 12, 2007. He explained that day was the last day that California had a net positive cash flow. "We've been operating on borrowed funds since July 12, 2007, and that is not acceptable for the eighth-largest economy on this good earth," he said. The state continues to borrow, he noted.

The controller said it was known in September that the freshly signed budget was out of balance, and he said there should have been more action to correct the problems right away. By the time the problems were addressed this year, "total … nuclear meltdown of state finances" was imminent.

Mr. Chiang did not comment on the May 19 ballot measures directly, but said he supports some spending controls and mid-year budget review as general principles. He also praised Cal-Tax for supporting budget compromises that address the state's fiscal problems, even when the compromises contain provisions that the association doesn't particularly like. "I thought you exercised great leadership" in last year's budget process, he told the audience. He said the state needs more people who are near the political middle.

Gubernatorial Candidate Tom Campbell Outlines Plan to Stabilize Budget. Republican Tom Campbell (below) – a former state lawmaker, member of Congress and director of the California Department of Finance – outlined his plan for getting the state's finances in order:

· "Lag" spending for one year by using the previous year's revenue, rather than projected revenues, for the budget. This way, he said, there would be no disagreement over how much money is available to spend.

· If no budget is in place when it's due, carry over the previous year's budget.

· Require every initiative to include a means to pay for itself, either through a spending cut or a revenue increase.

· Restore the Gann limit.

He also called for ending the "entitlement mentality" in the state; focusing on tax reform to foster economic growth to improve the state's finances; sunsetting every regulation after five years; allowing the Legislature to review all proposed regulations (so elected officials would have 30 days to stop anti-business regulations); and enacting a "loser pays" legal system, except for low-income litigants.

Mr. Campbell said that if he is elected governor, the state will not add to its debt load. He said it would take 84 years to pay off the state's current debt at the current rate, and added, "It's immoral to spend our children's money."

He also came out in support of Proposition 1A as an improvement over the existing budget system, and he voiced strong opposition to a split roll property tax, noting that California's tax burden on businesses already is high. Removing the limit on property tax increases would "take away the one advantage that we have" over many other states that compete for job-creating businesses, he said.

Cal-TaxReports, March 16, 2009

© 2009 California Taxpayers' Association. All Rights Reserved.