David R. Doerr, principal contributor
Ronald W. Roach, editor
The biggest legislative news last week was the appointment of members of the Senate Revenue and Taxation Committee. Other than that, not much happened. Sacramento Bee columnist Dan Walters wrote that last Tuesday "was a do-nothing day, the latest in a long succession of do-nothing days, do-nothing weeks, and do-nothing months. The Senate didn't even bother to meet."
On the Assembly side, Speaker Cruz Bustamante named vice chairs of the committees (Nao Takasugi is vice chair of the Assembly Revenue and Taxation Committee). However, as Caltaxletter went to press, full committee memberships had not yet been announced.
It was also learned that the Assembly Revenue and Taxation Committee was moving from the office suite on the Capitol's second floor that it had occupied since 1973. Reportedly, another Assembly member coveted the office. The committee offices are expected to be relocated on the sixth floor.
Senate President Pro Tem Bill Lockyer was temporarily acting governor for four days as both Governor Pete Wilson (in Asia) and Lieutenant Governor Gray Davis were outside the state. In this role, Mr. Lockyer managed to create a political "mini-tempest." He issued a series of proclamations. The purpose, his aides said, was to "frame issues" and maybe get some publicity.
One declared San Francisco and Alameda counties flood disaster areas, eligible for special benefits, although the counties suffered relatively less from the extensive Northern California floods.
Another raised the ire of Attorney General Dan Lungren. The proclamation criticized Mr. Lungren for an alleged slow pace in adopting guidelines for police to implement "Megan's law." This law relates to notices of sex molesters in a community. Mr. Lungren said Mr. Lockyer was wrong and guidelines were issued last September. Lockyer spokesperson Sandy Harrison said the September 12 document was just an advisory description.
Named to the Senate's tax panel were, in addition to Chair Dede Alpert, Senators Quentin Kopp, John Burton, Leroy Greene, Rob Hurtt, Betty Karnette, Pete Knight, Barbara Lee and Bruce McPherson. The partisan make up is five Democrats, three Republicans and one Independent. Northern California continues to dominate the panel (with five members) although most of the state's population is in the South.
The committee is planning to hear Senator Lockyer's Subchapter S conformity bill on February 5. SB 5, which permits corporations with 75 or less shareholders to qualify for Subchapter S status, will be amended to more fully conform to federal provisions. However, with respect to subsidiaries, they will be treated separately but will not disqualify the parent's eligibility. Also not included is a federal provision allowing taxpayers who made a mistake to retroactively elect Sub S status.
The Franchise Tax Board has estimated that, with the proposed amendment, the bill will reduce revenues by $18 million in the first year of operation, and $21 million in the second.
Members of the Senate Appropriations Committee, which hears most tax bills, are Senators Pat Johnston (chair), Dede Alpert, John Burton, Charles Calderon, Ralph Dills, Ross Johnson, Betty Karnette, David Kelley, Barbara Lee, Tim Leslie (vice chair), Bruce McPherson, Richard Mountjoy and John Vasconcellos.
Meanwhile, partisan jabbing over the governor's proposed budget (unveiled January 9) has begun. At last Wednesday's meeting of the Senate Budget and Fiscal Review Committee, there was this exchange as majority Senate Democrats expressed displeasure with the Republican governor for proposing elimination of the renters' tax credit:
Committee Chair Mike Thompson questioned Deputy Finance Director Diane Cummins during her briefing of the committee on Governor Pete Wilson's $64.6-billion spending plan. "Why eliminate the renters' tax credit?" he asked.
Ms. Cummins: "This is a lower priority than some of the other programs that are funded."
Mr. Thompson: "Wasn't (the renters' credit suspension) supposed to be tied to the upper tax bracket, both of which would go away at a time certain?" He noted that the 10 percent and 11 percent personal income tax brackets were automatically repealed on January 1, 1996, but the suspension of the renters' tax credit was continued as part of last year's budget actions. "Half has gone away and the other half has continued to haunt the renters."
Ms. Cummins: "I can't say what the past agreement was" because she was not a participant in those 1991-92 budget discussions.
Senator Steve Peace: "Someone looked at the voter turnout statistics." This was a reference to historical low turnouts of renters at the polls.
Senator Hilda Solis: Welfare recipients are mostly renters, and welfare reform is designed to encourage recipients to find work and reduce their dependence on the system. "The governor is trying to keep cash in the pockets of these individuals, right?"
Ms. Cummins: Most individuals would receive $60 a year if the renters' credit were reinstated.
Senator Solis: To welfare recipients, $60 is meaningful, and "I hope the governor would consider" dropping opposition to the renters' tax break.
Ms. Cummins: "There are many issues to consider ... and this is obviously part of the mix.
Cuts in welfare suggested by the governor also drew fire from Senate Democrats. Senator Peace repeatedly questioned the wisdom of cutting welfare for aged legal immigrants. "Where are they supposed to go?" he asked.
Los Angeles Mayor Richard Riordan last Tuesday urged the City Council's Budget and Finance Committee to act on a proposed 80 percent reduction in the city's multimedia tax rate, saying it would make Los Angeles the preferred address of the burgeoning industry.
Mr. Riordan, speaking on Tuesday to employees at Disney On-Line in North Hollywood, advocates the establishment of a new multimedia tax classification. The proposed tax reduction, from $5.91 to $1.18 per thousand dollars in gross receipts, will put Los Angeles in the middle of the pack in comparison to cities in the region, he said.
"The city's archaic tax code was last revised before the multimedia industry was even born," the mayor said. "The competition for these companies is intense, and the city must take action now to solidify Los Angeles' position as the multimedia capital."
Further, Mr. Riordan said, "Reducing this industry's tax bite by 80 percent will send a very clear message that the city is serious about retaining, expanding and relocating multimedia companies to Los Angeles."
The mayor noted that a comprehensive review of the city's business tax code is under way, but "there are times when you cannot wait for the wheels of government to turn, and this is one of those times."
The City Council first approved the multimedia tax rate concept in December 1995. The proposal, after review of several city departments, is scheduled for reconsideration by the Budget and Finance Committee in the next two weeks.
The AFL-CIO has sued the state Employment Development Department (EDD) to force change in the method of qualifying claimants for unemployment insurance benefits. If successful, the suit will result in increased benefit costs for employers and increased administrative costs for the department.
California uses a base period system to establish benefit eligibility for unemployment insurance claimants which looks at the first four of the last five completed calendar quarters. This methodology reflects a public policy decision that benefits should be paid only when the claimant has an established attachment to the labor force, and recognizes that wage information is reported quarterly and it takes time for employers to submit information and for the EDD to process the data.
The AFL-CIO is asking the U.S. District Court in San Francisco to force EDD to use a "moveable base period" which would calculate benefit eligibility based on the immediately preceding 52 weeks. Their suit follows on a similar class action suit filed against the Illinois Department of Employment Security (the Pennington case) brought by the Legal Assistance Foundation of Chicago. This case, currently on appeal, challenged the first-four-of-the-last-five-quarters system.
Legislation introduced in Congress (HR 125, Crane) would clarify federal law allowing states to adopt their own base period. Legislation introduced in California by Senator Patrick Johnston (SB 152) would change California's system to capture the most recent wages if a claimant was found ineligible under the current first-four-of-last-five-quarters system. Mr. Johnston's bill seeks action similar to that sought by the AFL-CIO suit, which was filed on January 15, and contends the EDD denied or delayed benefits to more than 121,000 residents for several months after they lost their jobs.
The Employment Development Department has announced a drop in the unemployment tax rate paid by employers. The average rate is reduced from 3.83 percent of taxable wages in 1996 to 3.53 percent in 1997.
This represents a return to the lower "E" contribution schedule from the "F" schedule that was in effect in 1996, according to Hansen T. Bays, chief of the department's Fiscal Programs Division.
For taxpayers, the "F" schedule rates ranged from 1.3 percent of taxable wages to 5.4 percent, depending on their experience rating. The "E" schedule contributions range from 1.1 percent to 5.4 percent.
Growth in the unemployment insurance fund end-year balance from $2.81 billion in 1996 to $3.13 billion at the end of 1997 made the drop in the rate possible. If everything goes as planned, the rate for 1998 will drop even further, with employers contributing according to the "D" schedule, with an average tax rate of 3.23 percent.
The City of Los Angeles has shortened the time period for making claims for refunds of overpaid city taxes, such as business license taxes or utility user taxes, from three years to one year from the date of payment. The change is effective February 6. Taxpayers may wish to file protective claims by February 5.
Critics of the move note that the city still allows itself three years to file to collect underpayments.
Passed in 1995, a law effective this year advanced the property tax lien date for locally assessed property from March 1 to January 1.
Legislation changing the date, SB 327, was approved and signed by Governor Pete Wilson to eliminate the need for special accounting and auditing steps that businesses and county assessors use to comply with the arbitrary date of March 1. According to then-Senator Tom Campbell, author of the bill, taxpayers and assessors were preparing information that is time-consuming and has no other use.
Efforts of the State Board of Equalization to help the Florida Department of Revenue (see Caltaxletter of December 9) in an appeal of a nexus case (Share International) to the U.S. Supreme Court were not persuasive. The high court sided with the position of BOE Member Dean Andal and denied a petition for certiorari earlier this month ... Now the question could be posed: Will the BOE conform to the pro-taxpayer position in this Florida case? Why would the BOE spend taxpayer funds on a legal brief if the case would have no impact on California?
In Los Angeles, Mayor Richard Riordan released this January 17 statement in response to a federal court's decision upholding the city's method of setting landing fees at Los Angeles International Airport: "We have said repeatedly that the actions taken by the airport were correct and in the best interests of Angelenos and the future of their airport. Today, the federal court said we were right all along." He said LAX landing fees "were among the lowest in the nation, and even at today's rates, are lower than most major airports in the country."
Governor Pete Wilson was in a mood to brag about California's business climate in a keynote address to the Thailand-U.S. Business Council Luncheon last Monday in Bangkok. "This year, we took a significant step forward in unleashing the creative potential of business in California -- and, by extension, its potential for trade around the world. We did it by renewing our commitment to lower taxes and free-market economies." The governor, on a 21-day Asia trade mission that also was to take him to Hong Kong, Indonesia, the Philippines, Singapore, Taiwan and China, cited the 5 percent reduction in the corporate income tax, effective last January 1, that he said will save companies almost $300 million a year. He noted that he has proposed another 10 percent reduction over the next two years. He touted a 37.5 percent increase in the state's research and development tax credit and doubling of the tax credit for university-based research from 12 to 24 percent as the highest tax credit of its kind in the United States.
More BOE office news: In Ventura, the district office as of January 17 became part of the Taxpayer Service Center at 4820 McGrath Street. It is one of five centers developed as a joint project of the Franchise Tax Board, the Employment Development Department and the BOE. The first day of operation of the new location was January 21. There also is a new telephone number (805) 677-2700 ... the BOE also is promoting its new toll-free Customer Service Information Center at 1-800-400-7115, which is open from 8 a.m. to 5 p.m. Monday through Friday, excluding holidays. Callers can request forms and publications 24 hours a day through the center's automated FAX-back service system.
From the San Francisco Chronicle's Matier & Ross column on January 13: Benny Bufano's stainless-steel "Peace" Madonna statue, 38 feet tall, which stood at San Francisco International Airport for about 40 years, is still seeking a home. It was removed six months ago. There has been an increasingly bitter feud at City Hall over where to put it, dividing officials who are Bufano fans and those who believe there are too many (20) Bufano statues around town. Mayor Willie Brown calls the impasse "one of the craziest things I've ever seen." Taxpayers may think it is crazy to use $90,500 in public funds to move, store and prepare a site for a statue that appears to be going nowhere.
Fire Resistant Roofs. AB 77 (Morrow) establishes a tax credit (at an unspecified amount of cost) for the replacement of a shake roof by a fire resistant roof.
Vacant Substandard Property. AB 80 (Ducheny) prohibits deductions of expenses (depreciation, interest, taxes, etc.) on substandard vacant property.
Disaster Relief. AB 91 (Bowler), AB 94 (Cardoza), AB 1X (Cardoza), AB 4X (Bowler) and SB 1X (Leslie) all extend the usual disaster relief provisions (such as a 100 percent loss carryforward) to losses from the victims of the disastrous floods of January 1997 in Northern California.
Property Tax Shift. AB 95 (Sweeney) reverses the 1992 and 1993 shift of property taxes to schools by an unspecified amount.
State Budget. AB 107 (Ducheny) and AB 130 (Thompson) are bills which contain Governor Wilson's proposed 1997-98 state budget.
Fire Retardant Roofs. AB 109 (Kaloogian) establishes a deduction for the cost of a fire retardant roof that replaces a non-fire retardant roof.
Adoption Credit. AB 119 (Runner) establishes a tax credit of $1,000 for each child adopted in a year.
Bunker Fuel Sales Tax Exemption. AB 120 (Kuykendall) extends indefinitely the sales tax exemption for bunker fuel (which is due to expire at the end of this year). Bunker fuel is used to propel a watercraft beyond its first port of call outside California.
Grapevine Base-Year Values. AB 122 (Brown) allows replacement grapevines to obtain the base-year value (for property tax purposes) of the vines that they replace if the vines are removed due to "Pierce's Disease."
MIC -- Agricultural Property. AB 138 (Poochigian) extends the manufacturers' investment credit (and sales tax exemption) to specified agricultural property.
Public Borrowing. ACA 6 (Thompson) limits the amount that the state or any local entity can borrow (through general obligation bonds, revenue bonds, etc.) to 110 percent of the aggregate funds borrowed as of the effective date of the amendment.
School Bonds. ACA 7 (Escutia) changes the vote requirement for school bonds from two-thirds voter approval to majority voter approval. The bonds could also be used for furniture and equipment.
Capital Loss of a Residence. SB 100 (Lewis) allows a deduction for a capital loss (up to $250,000) on the sale of a principal residence, under specified conditions.
Sales Tax Allocation. SB 110 (Dills) establishes a bill or rights for cities and counties with respect to BOE allocation of local sales and use tax. The bill also provides that where an order for personal property is sent or given to a person having any connection with any local place of business of a retailer (or where the order is shipped from outside the state to the place of business of the retailer), the local tax is distributed where the local place of business is located.
Solar Energy Tax Credit. SB 116 (Peace) establishes a 25 percent tax credit (up to $1,000) for costs of an eligible solar energy system installed on premises in California.
Senior Citizen Tax Credit. SB 140 (McPherson) suspends indexing of the additional senior citizen tax credit (worth $67 for 1996). The revenue from this tax increase on seniors will be deposited in the California Seniors Special Fund.
Local Indebtedness. SB 147 (Ayala) requires voter approval for any indebtedness (such as a certificate of participation or lease-purchase agreement).
Federal Balanced Budget. SJR 4 (Haynes) requests Congress to approve an amendment to the U.S. Constitution to require a federal balanced budget. SJR 3 (Haynes) ratifies such an amendment.
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