Several Democratic legislators introduced new tax increase proposals last week – including a major split roll property tax measure – after the Legislature returned from a one-week recess. Since the deadline for introducing new bills has passed, the proposals were amended into existing bills, replacing the previous language entirely. Just in the first four days of last week, lawmakers amended 551 bills, including many that were "gut and amends."
(Cal-Tax: Some of the proposals are outlined below. Additional tax threats are described in the New Wine section that begins on page 13.)
The most onerous anti-taxpayer proposals include:
· Massive, Unworkable Split Roll Property Tax. AB 2492 (Ammiano) would require reassessment of all property of a corporation when, cumulatively, 50 percent of corporate stock is transferred. For the 2011-12 fiscal year, the bill establishes a rebuttable presumption that all publicly traded companies have undergone a change of ownership, and that there is a change of ownership every three years. The bill has been keyed as a two-thirds vote measure.
· Franchise Tax Board Granted De Novo Appeal Rights. SB 1113 (Wolk) would allow the Franchise Tax Board to appeal to the superior court on a de novo basis for cases the FTB loses at the State Board of Equalization.
· Sunsets and Restrictions on Tax Incentives. SB 1272 (Wolk) requires tax credits enacted after this year to expire in five years. In addition, bills creating such credits would have to contain detailed performance indicators and criteria for measurement of success. (Cal-Tax: This bill's sunset provisions would reduce or eliminate the incentive effects of those credits. This does not help the state's jobs climate.)
· Retroactive Disallowance of Tax Credits. SB 1391 (Yee) requires businesses claiming tax credits to report the number of jobs and wages attributable to the credit. If a business has a reduction in the number of employees attributable to a credit added after January 1, 2011, the credit would be disallowed and recaptured retroactively. (Cal-Tax: In addition to the negative impact that this would have on the incentive effects of tax credits, there is another problem: measuring the number of jobs specifically attributable to a credit is not possible. Witness the problems that the Obama administration had when trying to quantify the number of jobs saved or created by federal stimulus payments. Also, we wonder whether the retroactive disallowance of a credit would create an understatement subject to the 20 percent "understatement penalty.")
· Soak the Rich. AB 1836 (Furutani) creates 10 percent and 11 percent personal income tax brackets, thus increasing volatility of the tax. The 10 percent rate would kick in at $250,000 of income and the 11 percent rate would start with $400,000 of income. The 1 percent "millionaire's tax" would be added to these new rates. The current top personal income tax rate is 9.55 percent (plus 1 percent for incomes of $1 million or more).
· Limits on Enterprise Zone Tax Credits. AB 2044 (Caballero) would limit the total amount of enterprise zone tax credits to $250 million and increase the enterprise zone wage credit from 150 percent of minimum wage to 250 percent of minimum wage. This is a majority-vote bill.
· Expansion of Sales and Use Tax Nexus. AB 2078 (Calderon) would attempt to extend sales and use tax nexus to out-of-state retailers that are part of a controlled group of corporations with at least one member that is a retailer doing business in California. The bill also requires out-of-state retailers to notify purchasers on their websites that the purchases are subject to sales tax. Additionally, the bill requires business that are not registered by the Board of Equalization and that sell more than $100,000 worth of merchandise subject to the use tax to report the names and addresses of the purchasers to the BOE.
· Conversion of Tax Benefits to Capped Incentives. AB 2171 (Calderon) limits tax incentives taking effect on or after January 1, 2011 – including the single sales factor election – to a capped amount to be established annually in a separate statute, based upon the availability of revenue in the state budget. If no such bill passes, the incentives would not be operational. Although this is clearly a tax increase, the legislation is keyed as a majority-vote bill. (Cal-Tax: This makes tax incentives unreliable, and thereby destroys a taxpayer's ability to engage in long-term fiscal planning.)
· Scarlet Letter Listing of Tax Incentive Beneficiaries. AB 2230 (Calderon) would require the FTB to post a list on its website of the 100 largest publicly traded corporations (based on gross receipts) filing tax returns, with information on tax incentives they have received. The list would commence with tax returns filed for taxable years beginning January 1, 2008. Each annual list would include the name of the corporation, the California corporation number, the address of the principal office, the aggregate amount of "tax expenditures" and the effective tax rate. (Cal-Tax: The intent clearly is to create a list that could be taken out of context and exploited by groups seeking higher taxes on employers. This certainly would not improve California's jobs climate.)
Assembly Republican
Leader Martin Garrick said the Democrats' proposals would increase taxes by $14
billion. He said: "Assembly Democrats are pushing for billions in tax
increases to maintain out-of-control state spending. Adding $14 billion in more
taxes on individual taxpayers, many who are small business owners and job
creators, would only make our tax structure and jobs crisis worse."
In other legislative
action:
Car Tax Increase Moves Forward. A bill to increase the car tax on vehicles
with a value of over $50,000 (AB 1839, Torrico) cleared the
Assembly Education Committee on April 7 by a 5-2 vote. The increase would be
0.25 percent. Several minor amendments were added in committee.
Funds from the tax
increase are earmarked for school safety and must be used to hire at least one
police officer per high school in each district getting grants from the bill.
The bill, which now
goes to the Assembly Revenue and Taxation Committee, appears to be a police
union jobs bill, as the only supporter listed in the committee's analysis is
the Peace Officer Research Association of California (PORAC), the lobbying arm
of police unions. Listed opponents are Cal-Tax and the American Civil Liberties
Union. Cal-Tax opposes the bill because it is the legislative equivalent of
ballot-box budgeting.
Assembly Approves Major Increase in Initiative Filing
Fee. On April 5, the Assembly voted
48-29 in favor of legislation that would increase the fee for filing an
initiative from $200 to $2000 (AB 1832, Saldana). The increase
would be phased in, starting at $500 next year and reaching the $2,000 level in
2017.
The author contends
that a higher fee would reduce the number of frivolous initiatives that must be
reviewed by the attorney general, and would cover more of the state's costs for
processing initiatives. Opponents believe the Legislature should not make it
more difficult for citizens to use the initiative process.
The vote was largely
split down party lines, with Republicans and Assemblywoman Alyson Huber
opposed. The bill now goes to the Senate.
Cal-TaxReports, April 12, 2010
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