David R. Doerr, principal contributor
Ronald W. Roach, editor
Responding to Republican attacks of "do nothingism," the Assembly under a gray and threatening Sacramento sky last Monday approved legislation 77-0 providing tax relief to flood victims (AB 1X, Cardoza). Democrats had hoped to delay consideration of the issue, but Republicans forced the issue by moving that the special session be convened to consider flood relief.
AB 1X provides for the same disaster relief for the disastrous January floods in Northern California as has been the custom for other disasters. Taxpayers are allowed to carry forward 100 percent of their losses, and the state backfills counties for proper tax losses due to downward reassessment of damaged property.
During debate on the measure, Democratic Assemblyman Dick Floyd raised the issue of a tax increase to pay the costs of the relief. Otherwise, he said, funding would come at the expense of other state programs.
Democrats retaliated against the Republicans for forcing the issue by denying them the usual procedural courtesies that have been routinely extended for years. Assemblyman Dennis Cardoza, Democratic author of the bill, refused to agree to the addition of co-authors to the measure. In the memory of Capitol observers, such a request has never been refused. Democrats also refused to allow Republican member Jan Goldsmith to ask the author a question on the bill after the author's closing comments. By custom, such questions are a routine part of legislative debate. Democrats also refused to allow a Republican-authored bill (AB 4X, Bowler) to be considered by the Assembly.
Republican leader Curt Pringle said denying a hearing on Republican bills was "not the right thing to do." He added, "Issues of disaster relief were not a partisan issue."
Democratic Assemblywoman Diane Martinez said Republicans embarrassed themselves by forcing the issue to an early vote.
Assembly Speaker Cruz Bustamante said he had planned to deal with the special session bills last Thursday, and anything done last Monday could have waited until then. "I hope it doesn't have to be done this way in the future," said Mr. Bustamante of the extremely partisan four-and-a-half hour session. He suggested seating Democrats and Republicans together at Assembly floor desks might keep future sessions from degenerating into partisan battles.
State Board of Equalization staff has begun drafting a new basic appraisal handbook for property tax assessment purposes (AH 501). The draft is scheduled to be presented to the BOE Property Tax Committee for final approval on June 24.
The staff received input from a business community task force coordinated by Cal-Tax on changes in the existing basic appraisal handbook that should be incorporated in the new handbook. After a meeting among BOE staff, assessors and the business community task force, there was general agreement on the changes that will be incorporated. As a result, there were no outstanding issues that needed to be submitted to the BOE Property Tax Committee for a decision, and the February 3 Property Tax Committee meeting has been canceled.
Individual entrepreneurs took advantage of California's manufacturing income tax credit, which passed in 1993, to make substantial new investments in the state in 1994. Data from the Franchise Tax Board show at least $680 million in new manufacturing investment by personal income taxpayers was made in 1994 (based on $41 million in tax credits claimed by 4,500 taxpayers for the year). Data for corporations filing under the bank and corporation tax is not yet available.
The research and development tax credit is also an important incentive for California business. On 1994 returns, taxpayers claimed $119 million in tax credits ($109.6 million corporate and $9.5 million personal).
Another important tax credit applies to the Los Angeles Revitalization Zone (LARZ). On 1994 returns, taxpayers claimed $83 million in total LARZ credits ($54.6 million by corporations and $28.2 million by individuals).
(Editor's Note: The following report is written for Caltaxletter by Kaye Caldwell, president of the Silicon Valley Software Industry Coalition. The coalition cosponsored the Internet Tax Policy Conference on January 23-24 in San Jose.)
This conference clarified the necessity to obtain federal legislation to resolve state use tax collection issues. What became clear to me as a result of this conference is that a congressional solution may be the only possible solution.
The U.S. Supreme Court, in the Quill case, has told Congress that they have the authority to resolve nexus issues. They have followed up by denying certiorari (a petition to consider lower court records) on conflicting nexus cases, a clear indication that they prefer not to deal further with this issue. Furthermore, they have overturned, on commerce clause grounds, a Missouri state law which attempted a solution, thus indicating once again that Congress must resolve this problem.
If the Supreme Court defers to Congress on this issue, and the states themselves cannot resolve it, then a congressional solution is the only possibility. Hopefully, state and local governments and business interests will be able to jointly suggest legislation which would be acceptable to both government and business interests. The conference has laid the groundwork for such a solution.
Ira Magaziner, senior advisor to President Clinton for policy development, said at the conference, "Trade across the Internet could dwarf all other global trade in five to 10 years, if we make the right decisions. But if we make the wrong decisions, it could take 30 to 40 years to fix the mistakes."
Mr. Magaziner, on behalf of the Clinton Administration, has released a draft white paper which serves as a framework for the administration's promotion of global electronic commerce. This paper is available on the Internet (http://www.iitf.nist.gov/eleccomm/glo_comm.htm).
Mr. Magaziner indicated that the administration would prefer that states develop their own solution to the use tax collection issues, rather than asking Congress to pre-empt the states. It is widely thought that the final paper will also address sub-national issues, including local taxation, as recommended in the Silicon Valley Software Industry Coalition's comments on the administration's draft white paper. The coalition's comments are available on the Internet (http://www.softwareIndustry.org/coalition/polpos.html#ecom).
After Missouri's use tax collection method was overturned, even the states must see the need for congressional intervention. Our hope is that state and local governments will work with business to develop a mutually acceptable recommendation for federal legislation.
On the California front, Dean Andal, a member of the State Board of Equalization, told the conference that he did not believe that the mere presence of a web site in California created nexus for an out of state company. Mr. Andal also pointed out that it is neither politically viable nor economically feasible for the state to collect use tax directly from the buyers.
Other conference sponsors were Deloitte and Touche, CommerceNet, ITAA, and Upside Magazine.
Wrapping up the November 5 general election, 49 percent of the 151 state and local bond and tax measures were approved by voters, according to a state commission. The report described special tax measures as the most unpopular with the electorate.
The California Debt and Investment Advisory Commission (CDIAC), formerly the California Debt Advisory Commission, compiled election returns in its January issue of Debt Line. Seventy-four measures were approved and 77 failed as the number of bond and tax measures last November was up substantially from the last general election, November 1994, when there were 93.
CDIAC, which is chaired by Treasurer Matt Fong, reported:
Three of five special tax measures for education were approved, but only three of nine measures for library services and facilities gained enough votes. Only one of the nine special tax measures for life support services passed. Three tax increases were approved for street maintenance, parks and open space, and maintenance of a brick wall. Defeated measures included taxes for public transit, a community center, mosquito abatement, youth and senior activities, and street construction.
Five sales tax measures were proposed as special taxes. Two of them, for a hospital and for library services, were approved.
Most successful -- with an 80 percent approval rate -- were business license taxes. The utility users' tax was least successful -- only 40 percent approval. Transient Occupancy Taxes passed 48 percent of the time (compared to an 84 percent approval rate in March 1996).
According to CDIAC, 11 measures represented ongoing assessments and one represented a general tax, allowing them to take advantage of Proposition 218's grandfathering provisions for previously voter-approved taxes and assessments. These dozen measures are included in the overall figures.
Thirteen of the 21 measures (or 62 percent) that were placed on the ballot to validate previously imposed but non-voter-approved taxes were approved. These measures, also included in the overall figures, were a direct result of the December 1995 state Supreme Court ruling (Santa Clara Local Transit Authority v. Guardino) that reinstated Proposition 62, an initiative passed in 1986 that requires majority voter approval of local general taxes. In the March 1996 statewide primary, 10 of 14 such measures were approved.
A reorganized Los Angeles Taxpayers' Association (LATAX) has elected board members for 1997 and embarked on a mission to improve the business climate.
At its meeting last Monday, the board created subcommittees to consider methods of simplifying the City of Los Angeles' tax structure, exemptions and incentives, and alternative systems. The goal is to make recommendations to the City Council in time for this year's budget deliberations. The new LATAX board also was awaiting release by the city of preliminary results of a business license tax equity study.
LATAX officers are scheduled to be elected at the next meeting, February 24. Meanwhile, Bob Cendejas of Texaco is acting chair. Acting treasurer is Tony Smith of Southern California Edison. Virginia Andrade of the Western States Petroleum Association is acting secretary.
For further information about LATAX, its reorganization and its meetings, contact Mr. Cendejas at (818) 505-2209.
The League of Cities has informed its members that it made a $50,000 cash contribution to the "No on Proposition 218" campaign. According to the league, the financial contribution "came from non-public funds the league segregates in a special fund." The league contends the account is not commingled with public funds received from its membership.
The league, in its January 24 Legislative Bulletin, states that the source of the contribution was promotion fees received in connection with a league program to finance business expansion, job-expansion and low-cost housing. The league did not specify the source of the promotion funds.
Proposition 218, the "Right to Vote on Taxes" initiative, was approved by a wide margin.
The Office of Administrative Law has approved changes to the Franchise Tax Board's record-keeping regulation (19141.6), and they will become effective Wednesday, February 5. The changes conform the regulation to a change in state law permitting taxpayers to appeal FTB staff actions taken under the controversial regulation.
Input is being sought by the Department of Finance and Franchise Tax Board on how to simplify the alternative minimum tax (AMT). A public meting to hear suggestions has been scheduled at 1:30 p.m., February 6 in Room 4203 of the State Capitol.
AB 2414 (Rainey) of 1996 requires the two agencies to report to the Legislature on changes needed to simplify the AMT. The report is due June 1.
The City of Sacramento's $250,000 program for citizenry input in the city's budget process has found that most of the 3,000 persons surveyed would be willing to cut $8 million to $8.5 million in city programs to close an expected $11-million gap. The rest could be made up from unspecified higher taxes or fees.
However, the City Council on January 21 decided to concentrate on cuts in city services and more efficient operations, noting that passage of Proposition 218 last November requires voter approval of tax hikes. "I think it would be a waste of time," said Councilman Steve Cohn, as a result of the voter-approval requirements.
City Manager Bill Edgar said there could be mergers of departments and contracting out or privatization of some services. "People are looking for reducing the cost of government," Mr. Edgar said. "It will require more innovation." Mr. Edgar, who has announced his intent to retire later this year, was granted a 5 percent pay raise in January.
Senate President Pro Tem Bill Lockyer refused to lead a charge but left the door open for potential taxes to finance more levees or other measures to protect against future flood disasters.
The Senate leader responded to a question at a news conference last Thursday.
"I'm not an advocate for any tax increase," Mr. Lockyer said, adding that if local officials and the business and agricultural communities see a major expenditure program as necessary to deal with the problem, then the Legislature would have to look at it. He reiterated that it is up to the community and local government officials "to provide the leadership."
There is a new assistant director of the Governor's Office of Planning and Research (OPR). Governor Pete Wilson has announced the appointment of Quan V. Luc, who since 1995 has served as an economic analyst at OPR. She is the author of a fiscal analysis of the "three strikes" initiative. Ms. Luc, 26, also has served as a media assistant at the Department of Health Services.
State Treasurer Matt Fong, according to columnist Dan Walters, "is an all-but-declared candidate" for the Republican U.S. Senate nomination in 1998. The incumbent is Democrat Barbara Boxer.
State Senator David Kelley is recuperating from thoracotomy surgery last Monday at Loma Linda University Medical Center, his office announced. The surgery was needed because of pneumonia-related complications. The operation was "very successful" and the senator expected to be released from the hospital this week, and be back in Sacramento soon thereafter.
A trial date of September 15, 1998 has been set for Orange County's $2 billion bankruptcy suit against Merrill Lynch & Company. That will be nearly four years after the county's $1.6 billion investment loss that triggered the largest municipal bankruptcy in the nation's history. U.S. District Judge Gary Taylor set the trial date on January 27, when he also arranged a schedule for the gathering of evidence.
Oops. The Franchise Tax Board, in its instructions and tax forms sent to nonresidents, forgot to mention that California (as a result of congressional action) has eliminated its source tax with respect to nonresident pension income. The new booklet's description of 1996 highlights also fails to mention the new state tax policy. Cal-Tax has been getting inquiries on the issue and is responding that pensions of nonresidents are not taxable by California.
The FTB issued a press release on January 8 that did not get to all nonresidents. It stated, "Good news for former California resident retirees. For the first time, they do not have to report their California pension income to California ... Retirees who elected to have California withhold their pension in 1996 should file with the FTB for a refund."
FTB spokeswoman Denise Quade said the booklet oversight was corrected with an update to the FTB's Internet version. The January 8 news release went to the wire services, and articles alerting retirees ran in state teacher and public employee retirement system publications, she said.
Farm Workers' Health Care Credit. AB 148 (Frusetta) establishes a tax credit of 25 percent of amounts spent by employers for preventive health care for farm workers.
Low Income Housing Credit. AB 168 (Torlakson) increases the maximum annual amount that can be allocated through the low income housing credit from $35 million to $45 million.
Tax Incentive for Use of Public Transit. AB 171 (Cunneen) reestablishes a tax credit for employers who provide employees with subsidized public transit passes. The credit is set at 40 percent of cost of the subsidy.
School Bonds. SB 195 (Hayden) authorizes, with voter approval, a $200 million bond issue for educational exploratoria.
Enterprise Zones. SB 200 (Kelley) authorizes an increase in the number of enterprise zones. The number of additional zones is unspecified. The new zones will have to meet specified criteria.
Smog Impact Fee. SB 201 (Kelley) exempts from the $300 smog impact fee charged out-of-state vehicles any vehicle that is sold through a dealer conducting a wholesale motor vehicle auction.
Unemployment Taxes. SB 202 (Solis) revises unemployment insurance tax provisions by: (1) increasing wages excluded to above $20,000, rather than $7,000; (2) revises contribution rates for employers by an unspecified amount; (3) reduces qualifying amounts of wages, and (4) requires additional $25 weekly payments for each dependent.
College Property Tax Exemption. SB 218 (Knight) makes eligible for the college property tax exemption an institution that confers on its graduates a degree based on a course of at least one year of flight test technology.
Tax Defaulted Property. SB 219 (Rosenthal) grants the Los Angeles County tax collector the authority to sell vacant residential property subject to a nuisance abatement lien six months or more after a tax default.
February 3: BOE CUSTOMER SERVICES COMMITTEE MEETING
Location: Room 122, 450 N Street, Sacramento at 11:00 a.m.
Subject: Taxpayers' Bill of Rights Reimbursement Claims Procedure.
February 3: BOE LEGISLATIVE COMMITTEE MEETING
Location: Room 122, 450 N Street, Sacramento at 1:30 p.m.
Subject: Pending Legislation.
February 3: BOE BUSINESS TAXES COMMITTEE MEETING
Location: Room 122, 450 N Street, Sacramento at 2:30 p.m.
Subject: Discussion of what constitutes drugs and medicines (under Sales Tax Regulation
1587).
February 4: STATE BOARD OF EQUALIZATION MEETING
Location: Room 121, 450 N Street, Sacramento at 9:30 a.m.
Subjects: (1) Business tax appeals, (2) State assessee presentations on factors affecting
value and, (3) regulatory hearing as follows:
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