David R. Doerr, principal contributor
Ronald W. Roach, editor
Responding to a request from the Multistate Tax Commission (MTC) to oppose the federal Cox-Wyden "Internet Tax Freedom Act," the State Board of Equalization last Wednesday voted unanimously in support of the bill. The legislation would place a moratorium on any new state or local taxes on the Internet.
BOE Chair Ernest Dronenburg, who was with Congressman Christopher Cox and U.S. Senator Ron Wyden at a Washington, D.C., news conference where the bill was unveiled, made the motion to support the measure. He said California would not be taxing on-line activities in any event and, if other states tried to do so, it would be harmful to California businesses.
The motion was not only to support the bill but to instruct the BOE's Washington, D.C., representative to act accordingly. It also asks state Controller Kathleen Connell to inform California Franchise Tax Board Executive Officer Gerald Goldberg, who represents California on the MTC, to vote accordingly.
Dr. Connell had also submitted a proposal to the BOE urging support for the Cox-Wyden bill. Board Member Dean Andal also played a key role in getting board support for the bill.
Board Member Johan Klehs, another supporter, said California should have a united front in favor of the bill. He said the BOE Legislative Committee, which he chairs, will consider asking the Legislature to position in favor of the bill.
Other BOE action:
The action surprised observers as some county assessors had strongly disagreed with the 1996 mid-range computer depreciation table adopted by the board, and used a 1995 BOE table instead. Santa Clara County Assessor Lawrence E. Stone, in a February 1 letter to Caltaxletter, reiterated intent to use the 1995 table again for 1997.
However, in a March 14 letter to the BOE, Assessor Stone reported that an agreement on a compromise table had been reached between the Santa Clara Valley Manufacturing Group and the California Assessors' Association for 1997 and 1998 assessments.
He wrote, "The agreed-upon depreciation factors are precisely the same as the factors recommended by your staff for PC and mainframe computers, and vary only slightly from the mid-range table developed by your staff."
The adopted tables are as follows:
| Valuation Factor | |||
| Year Acquired | Personal Computers | Mid-Range | Mainframe |
| 1996 | 66% | 73% | 79% |
| 1995 | 39 | 47 | 54 |
| 1994 | 24 | 30 | 35 |
| 1993 | 15 | 19 | 22 |
| 1992 | 10 | 12 | 14 |
| 1991 | 6 | 8 | 9 |
| 1990 | 4 | 5 | 6 |
| 1989 | 2 | 3 | 4 |
| 1988 | 2 | 2 | 2 |
|
PC: Computers costing $25,000 or less. Mid-Range: Computers costing between $25,001 and $499,999. Mainframe: Computers costing $500,000 or more. | |||
Other BOE developments:
Three audits have been completed. The tax change from the audits was $100,000, and 340 audit hours were saved. Mr. Bystrom predicted 40 to 50 taxpayers might use the program in 1997. BOE Chair Ernie Dronenburg said this would save the state even more in tax compliance costs.
First threatening to drop the bill, then suggesting that he would challenge Governor Pete Wilson to veto it, Senate President Pro Tem Bill Lockyer settled for a state of legislative limbo for his SB 5, conforming California with federal Subchapter S corporation tax law. The issue between the governor and Senator Lockyer is a tax increase that the governor opposes and the Senate leader proposes.
Over Republican opposition, the Senate Appropriations Committee last Monday put the bill on the committee "suspense" file. Mr. Lockyer noted that it might languish there until summer.
He was angry that the governor's Department of Finance continued to oppose aspects of the bill designed to increase the Subchapter S corporation tax rate enough to make the total bill revenue neutral. The $20 million savings to taxpayers through conformity would be offset by establishing a floating rate of 1.6 percent to 1.7 percent (the current rate is 1.5 percent).
The bill expands Subchapter S "small business corporations" to the new federal standard that cannot exceed 75 shareholders. Also, S corporations are allowed to own corporate subsidiaries.
The governor has proposed the increase from 35 shareholders as a tax relief aspect of his 1997-98 state budget. He believes such a tax cut can be accommodated within projected revenues.
Among supporters of the bill at the hearing were Cal-Tax and the California Chamber of Commerce, as well as Tim Hayes of Deloitte & Touche LLP, who urged a fast-track for the bill and conformity of standards because there are companies ready to utilize the new federal law. Representing Cal-Tax, Vance Hansen supported the bill, but recommended adjusting the proposed tax rate increase downward. He also requested early enactment.
A contract with a private company does not disqualify property owned by a qualified nonprofit organization from receiving the property tax welfare exemption, the Fourth District Court of Appeal ruled on March 10 (Scripps Clinic and Research Foundation v. County of San Diego).
At issue was property owned by Scripps Clinic and Research Foundation, a nonprofit organization engaging in scientific research. With the decline of government funding, Scripps searched for other sources of stable, long-term basic research funding. Beginning in 1981, Scripps entered into agreements with Johnson and Johnson. By 1987, the company agreed to pay Scripps $4.5 million a year (and royalties) for the rights to market products developed from Scripps research.
When it learned of these agreements, San Diego County asked State Board of Equalization staff if the property still qualified for the welfare exemption. BOE staff said "no," arguing that Scripp's property was used to benefit Johnson and Johnson in the "more advantageous pursuit of its business." Scripps appealed to the BOE, which overruled its staff and found the property eligible. (See Caltaxletter of February 11, 1991 for coverage. It was reported that Scripps found a cure for a certain type of leukemia but could not market the drug because it had no exclusivity agreement with a company.)
Notwithstanding the BOE action, the assessor, under statutory authority, decided to deny the exemption, stating Section 214 (4) (a) of the Revenue and Taxation Code disqualifies property that benefits anyone in "the more advantageous pursuit of their business."
The court said to preclude the exemption the statute "requires something more than a mere benefit ... The Johnson agreements do not result in the use of Scripps's property for the benefit of Johnson through the more advantageous pursuit of Johnson's business, because they do not provide to Johnson consideration above fair market value."
The Senate Revenue and Taxation Committee last Wednesday narrowly passed SB 43 (Solis) to establish a state earned income credit patterned after federal law. A 5-3 party-line vote, with only Democrats in support, approved a credit equal to 15 percent of the federal credit.
Senator Hilda Solis said her bill would be help to those making the welfare-to-work transition. The bill would cost about $542 million in the 1997-98 fiscal year and increase annually to $632 million in 2000-01. It was supported by the California State Council of Carpenters and the California Tax Reform Association. The Department of Finance, however, expressed concern about the measure's cost.
The committee also approved:
Sales Tax Allocation--Leased Vehicles. AB 890 (Caldera) clarifies the situs allocation requirements for sales tax on leased vehicles.
Property Tax Allocation. AB 922 (Battin) modifies the property tax allocation formula for certain qualifying cities under the tax equity allocation formula.
Redevelopment. AB 923 (McClintock) repeals the Community Redevelopment Law.
Property Tax Allocation. AB 927 (Thompson) clarifies the reallocation of property tax when a city library withdraws from the county system.
Property Tax Allocation. AB 934 (Baldwin) provides that property tax from new construction is not allocated to schools.
Hazardous Material Tax. AB 983 (Wayne) expands the hazardous materials tax to unincorporated businesses.
Blood Storage. AB 993 (Perata) exempts from sales tax containers to store human blood. Blood itself is currently exempt from all taxes.
Liquid Petroleum Gas. AB 1019 (Machado) exempts from sales tax liquid petroleum gas sold for residential use or for agricultural food processing.
Property Tax. AB 1027 (Caldera) contains a number of property tax-related provisions adverse to taxpayers. (See Caltaxletter of March 10 for explanation.)
Checkoff--Children's Trust Fund. AB 1033 (Frusetta) reinstates an income tax checkoff for contributions to the Children's Trust Fund.
Sub S Conformity. AB 1039 (Assembly Revenue and Taxation Committee) partially conforms to federal tax treatment of Subchapter S corporations.
Income Tax. AB 1040 (Assembly Revenue and Taxation Committee) is an income tax spot bill.
Taxpayer Information. AB 1041 (Assembly Revenue and Taxation Committee) allows the BOE to give information about unpaid taxes to successors, executors, etc.
Proposition 13 Inflation Factors. AB 1042 (Assembly Committee on Revenue and Taxation) changes the dates for computation of Proposition 13's inflation factor to be applied to base-year values.
Sales Tax. AB 1043 (Assembly Committee on Revenue and Taxation) is a sales tax spot bill.
Conformity Date. AB 1044 (Assembly Revenue and Taxation Committee) changes the date California tax law references federal law from 1993 to 1997. This automatically picks up a significant number of recent federal tax changes.
Manufacturers' Income Tax Credit. AB 1062 (Battin) increases the manufacturing income tax credit from 6 percent to 8 percent.
Computers. AB 1063 (Lempert) expands the manufacturing income tax credit to computers and computer peripheral equipment used by qualified taxpayers relating to computer program services or computer software design. Such property is also exempted from sales tax.
R & D Credit Conformity. AB 1067 (Cunneen) conforms California's research and development tax credit with recent federal changes regarding startup corporations, the alternative three-tier credit, and contracts with consortia.
Property Tax Allocation. AB 1069 (Cardoza) adjusts the property tax allocation formula for negative bailout counties (such as Stanislaus County).
Sprinkler Irrigation Systems. AB 1081 (House) prohibits land with drip or sprinkler irrigation systems from being assessed at a higher value than if the devices were not installed.
Independent Contractors. AB 1131 (Oller) defines certain service providers to be independent contractors not subject to withholding.
Vehicle Registration Fee. AB 1142 (Murray) increases the vehicle registration fee each year by the percentage increase in the consumer price index.
Tax Credit Donations to Community Colleges. AB 1149 (Lempert) establishes specified tax credits for donations to community colleges.
Depreciation of Lessor Improvement. AB 1155 (Shelley) provides for specified gain on lessor improvements disposed or abandoned.
Tax on Alcoholic Beverage Retailers. AB 1177 (Caldera) imposes an additional $25 license assessment on all alcoholic beverage retail establishments. It also allows local governments to impose specified fees on alcoholic beverage retail establishments.
Property Tax Allocation. AB 1182 (Sweeney) extends the negotiation period for reallocation of property tax due to a jurisdictional change from 30 to 90 days.
Large Corporate Underpayments. AB 1192 (Takasugi) appears to be a spot bill regarding large corporate underpayments.
Rural Economic Development Incentive Areas. AB 1217 (Bustamonte) requires creation of two rural economic development incentive areas with specified tax benefits.
Cancellation of Indebtedness. AB 1218 (Bustamonte) authorizes the FTB to obtain a copy of a federal information return if a return was required to be filed regarding cancellation of indebtedness.
Sales Tax: Worthless Accounts. AB 1229 (Caldera) relieves from sales tax liability an assignee of a worthless account from a retailer.
Wage Tax Credit. AB 1232 (Granlund) reinstates the wage tax credit at 15 percent of wages.
Nexus. AB 1243 (Granlund) provides that sales to purchaser in California by a retailer having an office or construction jobsite in this state at the time of the sale are subject to sales tax.
Mining Fixtures. AB 1246 (Olberg) defines certain mining property as fixtures and requires separate assessment of each.
Diesel Fuel. AB 1269 (Granlund) imposes a surcharge on diesel fuel brought into California and a credit or refund for diesel fuel bought in California and used outside the state.
Franchise Tax Nexus. AB 1271 (Papan) exempts from bank and corporation taxes any corporation whose sole presence in California is the storage of inventory in a public or contract warehouse.
Proposition 218. AB 1282 (Bustamante) deems a levy imposed to provide water that is calculated on a parcel or per-acre basis to be a "fee or charge" for Proposition 218 purposes.
Minimum Wage. AB 1287 (Wildman) says legislature should provide tax relief to small business to reduce hardship from minimum wage increases.
Club Dues, Executive Compensation. AB 1291 (Strom-Martin) eliminates the deduction for club dues related to production of income and disallows deduction of compensation of certain employees who earn $1,000,000 or more.
Property Tax Appeals. AB 1319 (Alquist) prohibits anyone but a licensed real estate appraiser, attorney or licensed real estate broker from representing a taxpayer at an assessment appeal.
Sales Tax Interest. AB 1340 (Prenter) equalizes the interest rate for overpayments and underpayments of sales tax at the rate determined pursuant to IRC Section 6621 (a)(2).
Property Tax Allocation. AB 1349 (Kaloogian) repeals property tax shift.
R & D Credit Base. AB 1356 (Figueroa) revises the base amount for the research and development credit at 20 percent of qualified research expenditures (rather than 50 percent).
Spot Bill. AB 1358 (Pringle) is a personal income tax spot bill.
Deductions for High Technology Equipment. AB 1360 (Alquist) requires the FTB to report on the revenue effect of the deductions for high-tech equipment.
Guardino: Illegal Local Taxes. AB 1362 (Mazzoni) allows local governments to continue to levy local taxes illegal under the Guardino decision, requiring voter approval of local general taxes.
Deduction for Advertising. AB 1364 (Wayne) denies a business deduction for advertising expenses for tobacco products.
FTB Collection of Child Support. AB 1395 (Escutia) requires the FTB to collect all child support in cases where there has been no payment for three months. It also gives child support priority over state taxes.
State-chartered Credit Unions. AB 1413 (Papan) exempts state-chartered credit unions from bank and corporation taxes, sales taxes, and certain other taxes.
FASIT Conformity. AB 1417 (Campbell) conforms to federal law relating to financial asset securitization investment trust (FASIT).
Minimum Franchise Tax. AB 1419 (Campbell) reduces the minimum tax from $800 to $100.
Community College Expenses. AB 1441 (Wayne) establishes a 100 percent tax credit (up to $500) for community college expenses.
Nexus. AB 1443 (Poochigian) provides that a taxpayer does not have nexus in California if the retailer uses an independent contractor for providing services to property sold by the retailer.
Low-income Credit. AB 1461 (Olberg) establishes a low-income tax credit. Married couples with $17,880 or less would get a 100 percent credit and taxpayers over $27,550 wouldn't get one.
Public Safety Sales Tax Allocation. AB 1466 (Baldwin) modifies the local government allocation formula for the 0.5 percent public safety sales tax.
Water's-edge Elections. AB 1469 (Ducheny) authorizes the FTB to grant relief where a failure to perfect a water's-edge election occurs because of a prior act or omission of an affiliated corporation was included in a combined return.
Sales Tax Interest. AB 1472 (Thomson) equalizes the rate of interest paid on overpayments and underpayments of sales tax.
Water's-edge Elections. AB 1488 (Pringle) validates water's-edge election (for franchise tax unitary apportionment purposes) beginning in 1988 for specified taxpayers who filed for such election and timely paid all taxes as shown on the return, but who unintentionally failed to perfect the election.
People in Poverty. AB 1494 (Olberg) exempts the poor from personal income tax.
Conformity. AB 1499 (Caldera) conforms to the Federal Small Business Job Protection Act with respect to the definition of start-up companies, the availability of an alternate three-tier credit regime and research expenses.
Agricultural Prunings. AB 1513 (Cardoza) establishes a $30-per-ton tax credit for agricultural prunings that are delivered to a biomass conversion facility.
Partnership Returns. AB 1520 (Vincent) requires the FTB prescribe how specified information shall be included in partnership returns.
Tax Credit Carryforwards. AB 1530 (Poochigian) allows taxpayers to carry forward unusable tax credits (because they exceed tax) to succeeding years until the credit is exhausted.
Local Debt. ACA 13 (Goldsmith) requires local voter approval of any new debt incurred by a redevelopment agency and any other debt incurred by a local agency exceeding 5 percent of the agency's general fund expenditures.
Automatic Teller Machines. ACR 27 (Papan) requests the BOE to rescind actions classifying automatic teller machines as fixtures.
EDD Tax Consultations. SB 887 (Monteith) requires the Employment Development Department to provide employment tax consultation services.
Hazardous Waste Tax. SB 1090 (Costa) permits taxpayers to credit local taxes on hazardous waste facilities against the state hazardous waste tax.
Low-emission Vehicles. SB 1096 (Brulte) exempts from sales tax the incremental costs of low emission vehicles. It also establishes tax credits for construction of a qualified refueling property and for the incremental cost of purchasing a qualified vehicle.
Excise Taxes: Minor Changes. SB 1101 (Senate Revenue and Taxation Committee) is a BOE-sponsored bill making minor changes in various excise taxes.
Fuel Taxes. SB 1102 (Senate Revenue and Taxation Committee) is a BOE-sponsored bill, which among other provisions adds or increases penalties for noncompliance.
Changing Tax Returns. SB 1103 (Senate Revenue and Taxation Committee) authorizes the Franchise Tax Board to revise the amount of wages reported on a tax return under the mathematical error procedures, except that taxpayers are permitted to appeal.
Managed Audits. SB 1104 (Senate Committee on Revenue and Taxation) allows the BOE to establish "managed audits," where specified taxpayers could do their own sales tax audits.
Property Taxes. SB 1105 (Senate Revenue and Taxation Committee) is a BOE-sponsored bill making minor changes in property tax statutes.
Income & Franchise Taxes. SB 1106 (Senate Revenue and Taxation Committee) is a 221-page bill sponsored by the FTB making various income and franchise tax law changes.
Property Tax. SB 1107 (Senate Revenue and Taxation Committee) is an omnibus property tax bill sponsored by the County Treasurers and Tax Collectors Association. Among other provisions, it authorizes tax collectors to forego collection of small unsecured roll tax bills.
Tax Credit for Welfare Recipients. SB 1154 (Solis) establishes a 20 percent refundable tax credit for amounts up to $2,000 deposited by recipients of AFDC into an "individual development account."
Pesticide Mill Tax. SB 1161 (Costa) continues the pesticide mill tax by an unknown amount.
Health Care Tax Credit. SB 1162 (Brulte) establishes a $25 per month per employee (or a 25 percent of funds expended) tax credit for eligible employers providing health care coverage to employees.
Personal Income Tax Reduction. SB 1165 (Hurtt) and SB 1171 (Hurtt) reduce tax rates applicable to current personal income tax brackets.
FTB Penalties. SB 1166 (Hurtt) repeals specified personal income tax penalties.
Wage Tax Credit. SB 1167 (Hurtt) restores the wage tax credit of 10 percent of wages paid to employees meeting the requirements of the GAIN program.
Charitable Contributions. SB 1168 (Hurtt) is a spot bill regarding the deduction for corporate charitable contributions.
Sales Tax. SB 1170 (Hurtt) is a sales tax spot bill.
Payment of Federal Taxes. SB 1178 (Mountjoy) requires payment of federal taxes to the state. The money would then be paid to the federal government on behalf of the payees, except payment may be withheld if the Legislature determined a federal mandate to be unconstitutional.
Sales Tax Prepayments. SB 1197 (Leslie) is a spot bill on sales tax prepayments.
Biomass Energy Tax Credit. SB 1216 (Costa) creates a tax credit of $0.015 for each kilowatt hour of energy produced by a biomass energy production facility.
Unitary Information Return. SB 1233 (Alpert) is a spot bill regarding unitary information returns.
Indexing. SB 1234 (Alpert) is a spot bill regarding the inflation factor for personal income tax indexing.
Levee Tax Credit. SB 1248 (Monteith) grants a 50 percent income tax credit for levee restoration.
Casualty Losses. SB 1249 (Leslie) removes specific limits on casualty losses stemming from disasters occurring in 1996 and thereafter. It also gives taxpayers an alternative valuation method.
Checkoff Military Museum. SB 1253 (Mountjoy) extends until 2002 the personal income tax checkoff for contributions to the military museum.
Feed for Zoo Animals. SB 1267 (Peace) exempts from sales tax feed for animals in zoos.
Prepaid Telephone Calling Cards--Tax Study. SB 1271 (Monteith) requests the BOE to report to the Legislature next year on the impact of imposing sales tax on prepaid telephone calling cards.
Proposition 13 Inflation Factor. SB 1272 (Sher) changes the dates for computing the two percent inflation factor allowed on Proposition 13 base-year values.
Smokemeters. SB 1275 (Haynes) establishes a 30 percent tax credit for purchase and installation of smokemeters on trucks.
Property Tax Allocation. SB 1294 (Leslie) modifies property tax shift for counties that adopted the "Teeter Plan" of distributing property tax revenue prior to 1994-95.
Conformity Charitable Contributions. SB 1300 (Calderon) conforms the charitable deduction of appreciated property to federal law. For July 1, 1996 to May 31, 1997 no reduction in the deduction for the long-term capital gain will be recognized.
Nexus Exhibitors at Conventions. SB 1308 (Lewis) provides exhibitors at California conventions for 15 days or less do not have nexus for sales tax purposes.
Local Sales Tax. SB 1310 (Johnson) allows local governments to impose a one percent sales tax rate, which would reduce the state rate by one percent. (In effect, local government would be allowed to take a one percent sales tax rate away from the state).
Property Tax Exemption: Animal Habitat. SCA 9 (Haynes) exempts from property tax agricultural land used for breeding, migrating or winterizing of indigenous wild animals.
Zero-based Budgeting. SCA 13 (O'Connell) and SB 1304 (O'Connell) incorporate Controller Kathleen Connell's plan for zero-based budgeting and performance standards for the state's budget.
March 31: ASSEMBLY REVENUE AND TAXATION COMMITTEE HEARING
Location: Room 126, State Capitol, at 1:30 p.m.
Subjects: Among bills on calendar are AB 203 (Takasugi), conforming to federal
Subchapter S provisions, and AB 511 (Caldera), relating to the bank tax.
April 2: SENATE REVENUE AND TAXATION COMMITTEE MEETING
Location: Room 3191, State Capitol, at 1:30 p.m.
Subject: Among bills on calendar is SB 552 (Watson), increasing cigarette taxes.
Note to subscribers: Caltaxletter, as per custom, observes Easter recess along with the Legislature. Our next issue (Vol. X, No. 13) will be published Monday, April 7.
| Taxletter Section | Member Section | Home |
© Copyright 1997, California Taxpayers' Association. All rights reserved.