David R. Doerr, principal contributor
Ronald W. Roach, editor
California county assessors have launched a major legislative attack on taxpayers and the State Board of Equalization (BOE) through introduction of AB 1027 (Caldera). Many of the provisions erode statutory rights of taxpayers, according to Cal-Tax President Larry McCarthy. The author of the measure is Assemblyman Louis Caldera, chair of the Assembly Revenue and Taxation Committee.
As introduced on February 27, the bill:
Parties that participated in the development of recent legislation prohibiting values of business intangibles from inclusion in assessed values believe this provision is designed to limit the scope of current law.
Taxpayers have won the first court test of Proposition 218, forcing the Los Angeles County fire district tax onto a special election ballot June 3. County supervisors last Tuesday voted unanimously to schedule the election, acting one day after Superior Court Judge Richard Kalustian summarily rejected a lawsuit designed to undercut the "Right to Vote on Taxes" initiative that voters approved last November.
In the suit (Consolidated Fire District of Los Angeles County v. Howard Jarvis Taxpayers' Association), the fire district argued that it had a contractual relationship with property owners and other governmental entities that could not be altered by a change in the state Constitution. The judge said district compliance with the initiative did not impair vested contractual rights.
County officials said taxes requiring voter approval provide $52 million, or 17 percent of the fire district's annual budget.
Supervisors also agreed to give voters in 11 cities and the county's unincorporated area the chance to vote June 3 on whether they want to pay $22 a year for library services. This was prompted by Proposition 218, which caused about $9 million in library assessments to be considered unconstitutional.
The county will spend at least $2.5 million on the special election, which might be tough for proponents with little else to cause voter interest. The county went to court instead of placing the issue before voters last Tuesday, when there were numerous municipal elections. Proponents apparently will try to sell it in June by highlighting the proposal to lower the firefighting fees from $54 to $40 a year.
Proposition 218 may not have the Draconian impact on local government finances that local officials said they feared during last year's general election campaign. In Los Angeles and San Francisco Bay Area local elections last Tuesday, nearly all of the taxes forced to votes by Proposition 218 were approved.
Cal-Tax President Larry McCarthy said the main point of Proposition 218, the "Right to Vote on Taxes" initiative adopted by voters statewide last November, is that voters should be consulted. "When local officials have made the case for a new tax, this election shows voters will respond. Proposition 218 will cause local officials to more fully develop spending plans when new taxes are necessary, and to have a dialogue with voters before a tax election. There will be more accountability in the long run."
In Los Angeles County, voters in 10 cities considered utility taxes, landscaping assessments and other levies that some of them had in place for several years. Seven of the measures succeeded. In the San Francisco Bay Area, all 16 tax measures on local ballots were approved with support ranging from 70 percent to 86 percent. In addition, all five local school bond measures in Bay Area districts were overwhelmingly approved.
Last Tuesday's regularly scheduled municipal balloting marked the first chance for local voters to exercise Proposition 218-provided power to approve new taxes or validate existing taxes that had been imposed without voter approval. Under the initiative and court revival in December 1995 of an earlier initiative, Proposition 62, all local general taxes require majority-voter approval. Special taxes still require two-thirds voter approval. Many other tax validation measures are expected to go before voters later this year.
Tax relief for victims of the January floods in Northern California is one step closer to reality with the passage of AB 1x (Cardoza) by the Senate Revenue and Taxation Committee last Wednesday. The bill allows flood victims a 100 percent loss carry forward for five years and 50 percent carry forward for the next 10 years. It also provides state funds to backfill property tax losses caused by downward reassessments of damaged property.
The bill has a $5.5 million fiscal impact on the state. Assemblywoman Helen Thomson, who presented the measure, said the cost of disaster relief bills is usually funded by the Fund for Economic Uncertainties, but she added legislative leadership is still discussing whether a bond or tax increase is needed for funding.
In other action, the committee approved SB 218 (Knight), extending the college exemption to the National Test Pilot School, an accredited school granting masters degrees in flight test technology.
The committee defeated SB 81 (McPherson), exempting certain fire districts from sales tax, and SB 100 (Lewis), allowing specified homeowners to deduct losses in the sales of a home.
A Franchise Tax Board order to withhold against exempt income is valid, the Second District Court of Appeal ruled February 26 (Hepner v. Franchise Tax Board).
At issue was income from a judgment won by Gershon Hepner for bad faith denial of disability insurance coverage. The FTB issued an order to withhold for taxes owed during 1986 through 1988. Mr. Hepner (and his ex-wife) contended that the entire judgment was exempt property because it represented an award for disability payments. Section 688.030 of the Code of Civil Procedure provides that whenever property is levied upon pursuant to a warrant or notice of levy issued by the state, the debtor is entitled to the same exemptions to which a judgment debtor is entitled.
In upholding the FTB's position, the court said legislative history establishes Section 688.030 was not intended to authorize an exemption when enforcement is by way of a "notice to withhold."
Los Angeles Mayor Richard Riordan is proposing a tax-free zone to encourage companies to locate in the city's most economically disadvantaged communities. The mayor unveiled the plan last Wednesday in a major Town Hall economic speech to business leaders. He said the city's economy is healthy and growing but needs tax incentives and educational improvements.
The tax plan calls for no city business taxes for five years for new companies choosing to locate within the zone, and a tax freeze on business growth experienced by companies already there.
Assessors to sue on ATM ruling? Assessors throughout the state are joining hands to challenge the State Board of Equalization's ruling that reclassifies automatic teller machines (ATMs) as personal property instead of taxable fixtures, according to a report in The Los Angeles Times. The newspaper on February 28 quoted Santa Clara County Assessor Larry Stone as saying the issue is "far from over." (For background on the BOE's ATM ruling, see Caltaxletter of February 10.)
Fresno A-to-Z tax refunds. BOE Member Dean Andal is advising taxpayers that the claim for refund period for the illegal Fresno "arts to zoo" tax ends on March 31. To qualify, taxpayers must have paid the tax on single or combined purchases of $5,000 or more. Claims must be mailed to the State Board of Equalization, Box 942759, Sacramento, CA 94279.
Lockyer: "fiscal conservative." Senate President Pro Tem Bill Lockyer, a Democrat who proudly displays liberal beliefs on social issues, told the Comstock Club of Sacramento business leaders on March 4 that he is a "fiscal conservative." He also said, "Taxpayers should get a dollar value in services for every dollar they pay in taxes."
Education finance. At a February 26 Little Hoover Commission hearing on funding for public schools, Paul Warren of the Legislative Analyst's Office prefaced his remarks by comparing education finance to a Russian novel. "It's very long and complicated, and everybody dies at the end." Marian Bergeson, the governor's top education adviser, chipped in that schools are financed in a "very convoluted way." State Schools Chief Delaine Eastin said schools are underfunded, but she added that "you can't just give them a pile of money." If this happens, she added, some schools will do well; others will not. What's really needed in schools? Parents who care, Ms. Eastin said. She mentioned an Asian-American youth who was valedictorian of his high school class. She asked if his parents helped him. Yes and no, was the response. He described his parents as illiterate. But he said they supported him by sitting with him at the dinner table -- sometimes until 2 a.m. -- while he did his homework.
Capital Gain on Home Sale. AB 454 (Morrissey) indexes for inflation the $125,000 one-time capital gain exclusion on sale of a principal residence. It also extends the exclusion to taxpayers of all ages, rather than just for those who have attained age 55.
Bridge Tolls-Seismic Retrofit. AB 465 (Miller) allocates $650 million in Proposition 192 bond funds and an additional $300 million in gas tax funds for seismic retrofit of the state's seven toll bridges. The balance needed for the work ($1.1 billion) would come from bridge tolls. The bill provides an option to use existing toll revenues or additional tolls to raise the additional funds. Tolls on the San Francisco Bay Area bridges and the San Diego-Coronado bridge are authorized to be increased by $1 per vehicle. The toll on the San Pedro-Terminal Island bridge in Los Angeles County could go up 50 cents per vehicle. Assemblyman Gary Miller states, "It is not fair or equitable for the Bay Area to expect Southern California and the Central Valley to pay over 75 percent of the cost of this program when the Bay Area only contributes 20 percent of the state gas tax revenue."
Earned Income Credit. AB 470 (Ducheny) establishes an earned income tax credit at 15 percent of the federal amount.
Private Car Tax. AB 478 (Takasugi) changes the computation of railroad private car tax assessments from the number of the cars in California to mileage.
Corporate Tax Rates: Governor Wilson's Proposed Reduction. AB 479 (Pringle) reduces the 8.84 percent bank-and-corporation tax rate to 8.4 percent for 1998 and 7.96 percent for 1999 and beyond.
Child Care Facility Tax Credit. AB 484 (Havice) extends indefinitely the current 30 percent tax credit for establishing a child care facility.
Limited Liability Company Tax Returns. AB 510 (Ashburn) permits the FTB to prescribe the manner to which liability company tax returns shall include information.
Bank Tax Rate. AB 511 (Caldera) transfers the revenue from the bank tax rate to the Financial Aid to Local Agencies (FALA) fund. Most of the money is distributed by formula to local government (based on payroll). The bill requires financial institutions to report payroll information to the FTB. AB 511 also provides that the bank in-lieu tax does not prevent financial institutions from paying non-discriminatory parcel taxes, imposed with approval of two-thirds of the voters.
Vehicle Registration Fee. SB 476 (Rosenthal) extends the authority of the South Coast Air Quality Management District to impose a $1 vehicle registration fee from August 1, 1999 to July 1, 2009.
Mobile Home Park Fee. SB 485 (Craven) extends various mobile home park fees until 2006.
Manufacturers' Tax Credit. SB 519 (Alpert) allows manufacturers of specified laboratory instruments, medical instruments, measuring and controlling devices and dental instruments that require federal approval a longer carry forward period for unused manufacturers' income tax credits.
Sales Tax Situs--Leased Motor Vehicles. SB 529 (Wright) clarifies current law establishing sales tax situs for leased motor vehicles at the lessor's place of business. The bill defines motor vehicles as passenger vehicles or light duty pick-up trucks.
Los Angeles County Sales Tax for Transportation. SB 531 (Polanco) diverts $60 million of Los Angeles County sales tax revenue required to be used for transportation to the county's general fund.
Firefighters' Checkoff. SB 532 (Solis) extends the income tax checkoff for contributions to the Firefighters' Memorial Fund from 1999 to 2001.
Change of Ownership: Parent-child Transfer Exemption. SB 542 (Alpert) extends the filing period for the change-of-ownership exemption for certain transfers between parents and children.
Cigarette Tax Increase. SB 552 (Watson) increases cigarette taxes by 20 cents per pack.
Another Cigarette Tax Increase. SB 553 (Watson) increases cigarette taxes by 10 cents per pack.
Precursor Chemicals Surtax. SB 560 (Hayden) imposes a 25 percent surtax on gross receipts from the sale of precursor chemicals at retail. "Precursor chemicals" are those required by the Health and Safety Code to be registered with the Department of Justice. Funds are to be used for methamphetamine reduction and rehabilitation of addicts.
Business Investment Incentive. SB 566 (Thompson) authorizes counties to establish a business investment incentive program. The incentive offered is a rebate for 15 years of an amount equal to the amount of property tax revenue generated by the new investment in excess of $150 million.
Capital Gains--Indexing of Basis. SB 569 (Lewis) provides for the adjustment of the basis of an asset (for computing the capital gain on sale) by the California consumer price index.
Firearm Dealers Sales Tax. SB 591 (Johnson) allows firearm dealers to deduct from their gross receipts upon which they pay sales tax the amount of specified fees paid the Department of Justice for processing of purchaser information.
Proposition 13 Base Year. SB 594 (Wright) allows owners of property damaged by the Northridge Earthquake to transfer their Proposition 13 base-year value to comparable property acquired within five years of the earthquake. Under current law, the property must be acquired within three years.
Tax Preparers--Notification of Checkoffs. SB 602 (Alpert) requires tax preparers to notify their clients in writing that they may make contributions to certain funds through income tax checkoffs.
Fuel Taxes. SB 612 (Costa) transfers certain duties of the Attorney General and Controller in administering the gas tax to the BOE. The bill also clarifies provisions of the diesel fuel tax.
Dog Breeders. SB 621 (Rosenthal) requires dog breeders to obtain a sales and use tax permit from the BOE.
Aircraft and Vessel Exemption. SB 634 (Knight) exempts non-commercial aircraft and vessels from property taxation.
Enterprise Zone. SB 635 (Knight) adds an additional enterprise zone
Tax Credit for Certified Trainee. SB 639 (Burton) establishes a 50 percent tax credit for wages paid a certified trainee.
Environmental Quality Expenses. SB 649 (Mountjoy) establishes a 10 percent tax credit for amounts paid for environmental quality expenses.
Art. SB 664 (Wright) prohibits a sales tax on artist services and on the transfer of possession of an art work, unless the artist transfers title to that work of art.
Alternative Minimum Tax. SB 706 (Rainey) repeals the corporate and individual alternative minimum taxes. As a substitute, it imposes preference taxes (similar to ones imposed prior to 1987) at graduated rates up to 5.5 percent for the personal income tax and at a 2.5 percent rate for the franchise tax.
Campaign Contributions. SB 717 (Karnette) reestablishes an income tax checkoff for contributions to the California Election Campaign Fund, which will be distributed to qualified political parties.
Voluntary Lead Abatement. SB 718 (Leslie) establishes a 50 percent tax credit (up to $2,000 per dwelling unit) for amounts spent for voluntary lead abatement activities.
Vehicle Registration Fee. SB 720 (Lockyer) increases vehicle registration fees by $1 for local law enforcement fingerprint identification programs.
Budget Spot Bills. SB 767, SB 768, SB 769 and SB 770 (all introduced by the Senate Budget and Fiscal Review Committee) are spot bills on the subject of taxation to be used for potential budget implementation purposes.
Use Tax. SB 781 (Brulte) provides that if a consumer does not get a receipt for a purchase, he or she must pay a use tax directly to the BOE.
Minimum Tax. SB 842 (Hayden) exempts from the $800 minimum for one year any corporation incorporated after January 1, 1997 and before January 1, 1998.
Property Tax Allocation. SB 854 (O'Connell) exempts single county transit districts from the property tax shift to schools.
Excess MIC Credits. SB 855 (McPherson) allows taxpayers eligible for the manufacturers' income credit, who meet certain job creation criteria, in lieu of claiming the credit, to file a claim for sales tax refund for the total amount of the credit, including the amount that is in excess of their franchise tax liability.
Medical Savings Accounts. SB 861 (Johnson) establishes a deduction for amounts placed in a medical savings account pursuant to federal law.
Enterprise Zones. SB 865 (Lee) is a spot bill relating to enterprise zones.
Property Tax Override. SB 867 (Lee) authorizes a city or a county to impose an ad valorem tax rate in excess of the rate currently allowed to pay for specified employee pension programs. The rate increase must be approved by two-thirds of voters.
Property Tax Allocation. SB 880 (Craven) freezes the amount of property tax shifted to schools, thus allowing all other jurisdictions to capture the growth increment on the shifted money. The Legislative Analyst estimates this will cost the state $1 billion in a few years. The bill also gradually reverses the shift by an unspecified amount.
Property Tax Allocation. SB 889 (Hayden) modifies the property tax shift by an unspecified amount.
Minimum Tax. SB 890 (O'Connell) exempts new corporations from the minimum tax until they earn income.
Proposition 218 Implementation. SB 919 (Rainey) clarifies provisions of Proposition 218 (Taxpayers' Right to Vote Act). It is understood that the bill will be amended to contain provisions where local government and taxpayers are in agreement.
March 10: ASSEMBLY REVENUE AND TAXATION COMMITTEE MEETING
Location: Room 126, State Capitol, at 1:30 p.m.
Subjects: (1) Adoption of committee rules and (2) hearing on SB 39 (Johannessen),
relating to the military museum checkoff.
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