The Assembly and
Senate both approved a long-awaited tax conformity bill April 8, sending SB 401 (Wolk)
to the governor's desk for his expected signature. The bill, supported by
Cal-Tax, conforms the state's tax laws with federal
changes made since the 2005 tax year.
A spokesman for
Governor Arnold Schwarzenegger said the governor will sign the bill.
The votes in both
houses (47-24 in the Assembly, 24-9 in the Senate) were largely split down
party lines, with Democrats in support and Republicans opposed, although
Republican Senators Roy Ashburn and Dave Cox voted for the bill. Independent
Assemblyman Juan Arambula also supported the bill.
Senator Lois Wolk, who chairs the Senate Revenue and Taxation Committee,
said her bill is especially important to Californians who have used short sales
to stay in their homes. Under current state law, these homeowners will owe
income taxes on the amount of debt forgiven in the short sale, but SB 401
provides that the forgiven debt will not be treated as income. Also excluded
from income are federal grants to support renewable energy projects.
In a letter to
lawmakers, the Franchise Tax Board reportedly pledged that if the bill is
signed, it will immediately advise taxpayers to exclude income from short sales
and renewable energy grants. The bill states that it is effective January 1,
2010, but Ms. Wolk indicated that the FTB's action will allow taxpayers to exclude mortgage debt
forgiveness for the 2009 tax year.
Republican
Assemblyman Chuck DeVore, vice chair of the Assembly Revenue and Taxation
Committee, said he supports the provisions helping homeowners, but opposes
other provisions that would result in tax increases to some taxpayers, and also
opposes the bill's exclusion of conformity regarding the tax treatment of
health savings accounts. He noted that Republicans have been pushing for tax
deductibility of health savings accounts for years, but Democrats have killed
their proposals, leaving California as one of only two states that do not
conform with federal deductibility of contributions to HSAs.
Assemblyman Anthony
Portantino noted that SB 401 no longer includes a penalty for erroneous
claims for refunds identical to one that prompted the opposition of taxpayer
groups and led to the governor's veto of a prior conformity bill. He said he
personally supports the penalty, but said it had to be removed to avoid another
veto. Assemblywoman Lori Saldana called the legislation "a really good
compromise bill."
Cal-TaxReports, April 12, 2010
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