David R. Doerr, principal contributor
Ronald W. Roach, editor

VOTERS PASS 25 LOCAL SCHOOL BOND MEASURES

Voters in Los Angeles showed their concern for fire protection and library services, while those in San Francisco seemed to like their football team, schools and wild animals, but apparently believed they have enough culture.

Local school bonds were supported in apparent record-setting terms. Twenty-five of 38 local general obligation (G.O.) bond measures -- 66 percent -- were successful in last Tuesday's elections around California. This is despite dismal turnouts. Only 12 percent of eligible voters in Los Angeles cast ballots. A spokesman for School Services of California, Inc., which compiles school election data, said he knew of no other election day when as many as 25 bond measures were successful.

In unincorporated areas and 52 cities within Los Angeles County, Proposition E provides $51 million a year for the Consolidated Fire Protection District. Continuation of the tax required voter approval as a result of Proposition 218, the so-called "right-to-vote-on-taxes" initiative that was enacted last November. The county had unsuccessfully sued to exempt the fire protection district from the initiative's vote requirements.

Proposition E, maintaining a $48 average annual levy on affected property owners, needed two-thirds (66.7 percent) voter approval. It got 77.2 percent.

Another special tax on the ballot in Los Angeles, Proposition L, maintains current library service levels by taxing property owners $22 to raise $9 million a year. It won with 69.9 percent.

In San Francisco, 50.2 percent of voters approved a $100 million bond measure to help finance a new stadium complex at Candlestick Point for the 49ers. Voters also approved a bond measure for schools ($140 million). A zoo bond ($48 million) passed with 66.9 percent of the vote, needing 66.7 percent, but voters rejected a $49 million bond measure for upgrading cultural facilities.

Jonathan Coupal, legal counsel for the Howard Jarvis Taxpayers Association and primary author of Proposition 218, said local elections since last November have shown that voters will approve "appropriate taxes that are for services they support and need. The catastrophic effects predicted by 218's critics never came to pass."

In November 1995, a record 39 school bond measures were proposed and only 18 were approved, SSC reported. SSC's Bob Brattner said he could not find a more successful election checking records dating back to 1986, when local G.O. bond authority was restored by Proposition 46.

Voters in the San Francisco Bay area continue to show a remarkable level of support for school bonds. In those districts, 12 of 13 bond measures were successful.

Statewide, the successful measures amount to $1.3 billion.

The biggest failure was $225 million Measure U in Sacramento, where the tally was just over 65 percent (about 550 votes shy of passage). While proponents spent more than $300,000 against minimal opposition, years of negative headlines about a dysfunctional school board's questionable spending and other issues caused the public to question the board's ability to spend bond funds wisely, according to opinion polling.

In Los Angeles County, five of eight school districts won approval of G.O. bond measures, including the state's largest ($186 million in Glendale, which won with 74 percent of the vote).

Most school bonds were without significant opposition, but an $80 million bond measure in Torrance, Measure A, met organized resistance. It would have established a Mello-Roos District to levy property taxes to fund the bonds, assessing commercial property at a much higher level than residences. Opponents also were critical of projects that would have been financed by the bonds. This measure, opposed by Cal-Tax, received only 57.9 percent of the vote, the lowest level of support of any of the eight measures in the county.

Three parcel tax elections were attempted by school districts, according to SSC. Measures failed in Alameda and North Monterey County unified school districts, but succeeded in Los Altos Elementary School District.

Besides the fire protection district tax in Los Angeles, measures to validate or continue previously non-voter-approved levies generally met with success around the state. In San Diego County, for example, voters gave strong support to special taxes for fire protection and ambulance services. Two of the three measures received more than 90 percent of the vote.

SNAFU DELAYS VOTE ON ASSESSOR'S PROPERTY TAX BILL

Anti-property taxpayers legislation sponsored by county assessors (AB 1027, Caldera) was pending in the Assembly as Caltaxletter went to press because amendment glitches delayed a vote.

When the bill was presented in the Assembly Appropriations Committee, Assembly Member Louis Caldera offered two set of amendments -- one set deleting provisions allowing assessors to use a value-in-use assessment under certain conditions. The other set dealt with other provisions.

The committee reported the bill to the floor with only one set of amendments. As a result, Mr. Caldera had to amend the bill again on the Assembly floor Tuesday to delete the value-in-use provision. This delayed possible full Assembly action on the bill until late last week.

Meanwhile, proponents and opponents were busy working the bill. Mr. Caldera issued a memo to interested parties, setting forth arguments on the remaining provisions of the bill. He stated that since the lien date was moved up two months to January 1 (from March 1) it is "equally reasonable" to move the date for filing a business property statement forward two months to March 31. He noted 18 high-tech companies in Santa Clara County submitted their statements one month early.

A broad coalition of business and taxpayer interests, including Cal-Tax, continues to vigorously oppose the measure. They argue that the bill gives increased and unnecessary powers to assessors, and it is inappropriate to allow counties to interface with the exclusive constitutional duty of the State Board of Equalization in the assessment of utilities or railroads.

Other Assembly developments:

• Soak the Rich. Legislation restoring the 10 percent and 11 percent personal income tax brackets (AB 83, Villaraigosa) was defeated last Tuesday by a 32-40 vote. The bill also established a refundable earned income tax credit.

Proponents argued that the bill increases the progressivity of the personal income tax.

Speaking in opposition, Assembly Member Tom McClintock said the bill reminded him of Alfred Lord Tennyson's line of a "mackerel rotting in the moonlight --it shines and it stinks."

Thirty-two Democrats voted for the bill. All 37 Republicans and three Democrats (Susan Davis, Sally Havice, and Dennis Cardoza) voted against the bill. Absent or not voting were Democrats Debra Bowen, Louis Caldera, Dick Floyd, Bob Hertzberg, Ted Lempert, Mike Machado, Jack Scott, and Howard Wayne. The Assembly granted the author a courtesy reconsideration on Wednesday, so the measure was still pending on the Assembly floor.

• Donations of Food. The Assembly last Monday approved AB 196 (Thomson), establishing a 20 percent tax credit for donations of food products to charities. Assembly Member Helen Thomson said the proposal will increase donations to the poor. Speaking in opposition, Ms. Bowen said the proposal was really a subsidy for farmers for overproduction.
• FTB Legislative Package. The Assembly on Monday approved AB 1040 (Caldera), the Franchise Tax Board's package of non-controversial and relatively minor changes in laws relating to personal income and corporate taxes.
• Biomass Credit. The Assembly on Tuesday approved AB 1513 (Cardoza), providing a $30 per ton tax credit for prunings delivered to a biomass facility.
• Financial Institution Tax Credit. The Assembly on Tuesday approved AB 1520 (Vincent), establishing a 20 percent tax credit for deposits in community development financial institutions.
• Economic Development. The Assembly last Tuesday approved AB 82 (Villaraigosa), extending the life of the Los Angeles Revitalization Zone, and AB 1217 (Bustamonte), establishing two new rural enterprise zones.
• Vineyards-Pierce's Disease. The Assembly on Tuesday approved AB 122 (Brown), expanding the phylloxera accelerated depreciation provisions to grapevines replacing those damaged by Pierce's disease.
• Blood Storage. The Assembly on Tuesday approved AB 993 (Perata), exempting from sales tax containers used for the storage of blood.
• At-Risk Youth. The Assembly on Wednesday approved legislation (AB 741, Washington), providing businesses tax credits for employing youth that have spent time in juvenile facilities. Assembly Member Nao Takasugi spoke in opposition, saying the credit should cover all youth. Capitol observers have dubbed the bill the "commit-a-crime, get-a-job" bill.
• Health Insurance for Self-Employed. Assembly Democrats on Wednesday turned down an attempt by Assembly Republicans to conform to federal law increasing the deduction allowed self-employed persons for health insurance. Assemblyman George Runner attempted to amend AB 741 (Washington) to include the health insurance deduction.
• Local Property Taxes. The Assembly on Tuesday approved ACA 4 (Aguiar), providing local governments constitutional protections against future Legislative efforts to shift property taxes.
• Subchapter S. Objecting to a tax increase contained in the measure, the Assembly on May 29, by a 37-38 vote, rejected AB 1039 (Caldera), conforming state law to federal changes relating to Subchapter S corporations. There was no voiced objection to the bill's conformity provisions, but only to provisions in the bill increasing the Subchapter S tax rate from 1.5 percent to 1.6 percent.

Assembly Minority Leader Curt Pringle offered amendments to remove the tax increase in the bill but the amendments were tabled by Democrats. Mr. Pringle said the state should not be raising taxes on small business. Assembly Member Louis Caldera said that Subchapter S conformity was so important to California business that business is willing to accept a "nominal increase" in tax.

• Property Tax Appeals Board Evidence. The Assembly on May 29 approved substantially amended legislation labeling evidence in property tax appeals board hearings (AB 1319, Alquist). As amended, the bill applies to appeals on residential property worth $1 million or less. Opinions of values prepared for the board must be designated as either "an appraisal report prepared in accordance with the standards specified in Section 11319 of the Business and Professions Code," or an opinion of value which should not be construed as an appraisal report.
• Woodland Sales Tax. The Assembly on May 29 approved a measure (AB 1472, Thomson) allowing the City of Woodland to impose a 0.5 percent sales tax with majority-voter approval.

ASSEMBLY DEMOCRATS KILL BUSINESS TAX PRIORITIES

On party-line votes, Democrats on the Assembly Appropriations Committee on May 30 defeated most business tax priorities for the session. On the other end of the spectrum, higher income tax rates were approved. The bills were on the committee's suspense file.

Among high-priority business tax bills killed were:

• Governor's Corporate Tax Cut. AB 479 (Pringle), Governor Pete Wilson's proposal to cut corporate tax rate by 10 percent.
• Consolidated Combined Report. AB 417 (Davis), allowing taxpayers to include all affiliates in a combined report.
• Research-and-Development Credit. AB 1499 (Caldera), conforming with 1996 federal changes in the R&D tax credit.
• NOL. AB 724 (Lempert), allowing 100 percent of most net operating losses to be carried forward.
• Health Insurance. AB 305 (Wayne), allowing a full deduction for the cost of health insurance purchased by self-employed; and AB 230 (Runner), conforming with federal self-employed medical insurance deductions.

AB 230 at one point had sufficient votes to pass, but at the request of committee Chair Carole Migden, Assembly Member Lou Papan changed his vote from aye to no.

• Manufacturers' Investment Tax Credit (MIC). AB 539 (Firestone), allowing the MIC to be claimed by members of a unitary group; AB 706 (Ackerman), providing certain reorganizations do not void a MIC; AB 1063 (Lempert), extending the MIC to software manufacturers, and AB 648 (Kaloogian), allowing the MIC to be carried forward indefinitely.
• Small Business Expensing. AB 41 (Murray), conforming to federal law relating to amounts that can be expensed by non-corporate small business.
• Interest. AB 222 (Takasugi), equalizing the interest on overpayments and underpayments of sales tax. Under current law, the interest rate on overpayments is less than for underpayments.
• Capital Gains. AB 253 (Takasugi), indexing the basis for computing capital gains.
• Computer Donations. AB 372 (Battin), establishing a schedule of tax credits for donation of computers for school use.
• Child Care Facilities. AB 642 (Baldwin) and AB 484 (Havice), both extending the sunset date on the child care facilities tax credit.
• Educational Assistance. AB 1360 (Alquist), excluding from income, educational assistance provided by employers for graduate education. This bill was of particular importance to the high-tech community.
• Hot Interest. AB 1192 (Takasugi), providing no interest will be charged if a second large corporate tax deficiency for a year is paid promptly.
• Water's-Edge Elections. AB 1469 (Ducheny), allowing taxpayers to perfect incorrect water's-edge elections.

Among bills approved the committee were:

• Income Tax Brackets. AB 83 (Villaraigosa), reestablishing 10 percent and 11 percent personal income tax brackets. The bill also establishes a refundable earned income tax credit and provides a credit for community college tuition.
• Nexus. AB 1271 (Papan), providing that a corporation solely warehousing goods in California warehouses will not have nexus for corporate tax purposes.
• Corporate Minimum Tax. AB 8 (Leach), formerly providing a five-year exemption from the $800 corporate minimum tax; AB 27 (Strom-Martin), formerly reducing the corporate minimum tax for new corporations to $300, and AB 1419 (Campbell), formerly reducing the corporate minimum tax to $100. All three bills were amended to provide for a study of the feasibility to reduce the minimum tax. The actual tax reduction has been deleted.
• Bunker Fuel Sales Tax Exemption. AB 366 (Havice), which had extended the bunker fuel sales tax exemption. It was amended to state intent to study the feasibility of extending the exemption.
• Private Railroad Cars. AB 478 (Takasugi), formerly revising the assessment basis for private railroad cars. It was amended to remove provisions relating to railroad cars. It now provides a statement of intent to conform to federal law changes.
• Credit Unions. AB 1413 (Papan) previously exempted credit unions from taxation. It was amended to express intent of the Legislature to examine feasibility of tax relief to credit unions.
• Propane Sales Tax Exemption. AB 1019 (Machado), formerly a sales tax exemption for purchases of propane gas. It was amended to provide a refundable 10 percent personal income tax credit for purchase of propane gas for residential use.
• Conformity. AB 1044 (Caldera), formerly conforming to specified federal tax law changes. The conformity provisions were deleted and the bill now provides an intent statement on conformity.
• Acupuncturists. AB 410 (Gallegos), providing a partial sales tax exemption for acupuncturists.
• Research and Development. AB 1356 (Figueroa), changing the base amount in figuring the research and development tax credit from 50 percent to 20 percent. Amendments stripped the bill of it's base changing provisions, and it now just has intent language.

Other bills killed by the committee include AB 56 (Mazzoni), establishing a tax credit for donation of school facilities; AB 68 (Brown), a sales tax exemption for purchases of animals from animal shelters; AB 77 (Morrow) and AB 109 (Kaloogian) establishing tax benefits for replacing shake roofs with fireproof materials; AB 119 (Runner), establishing a tax credit for adoptions; AB 171 (Cunneen), restoring the van-pool tax credit; AB 203 (Takasugi), conforming with recent Subchapter S federal changes without raising taxes; AB 265 (Battin), conforms to federal law allowing certain contributions to be excluded from the alternative minimum tax; AB 336 (Miller), a tax credit for teachers for out-of-pocket expenses for purchases of school materials; AB 511 (Caldera), subventing the funds from the bank tax to local government; AB 613 (Margett), adopting the federal depreciation system for telecommunication equipment; AB 638 (Alby), establishing enterprise zone tax incentives for private firms bidding on work at McClellan Air Force Base; AB 803 (Machado), exempting cellulose casings from sales tax; AB 813 (Baldwin), establishing a tax credit for swimming pool safety devices; AB 1229 (Caldera), revising worthless accounts provisions of sales tax law; AB 1232 (Granlund), establishing a tax credit for specified wages paid welfare recipients; AB 1340 (Prenter), exempting vehicle trade-ins from sales tax; AB 1417 (Campbell), conforming to federal law relating to financial asset securitization investment trusts (which is also in other legislation); AB 1461 (Olberg), eliminating bottom tax brackets, and AB 1608 (Pringle), exempting newspapers from sales taxes.

Six days later, on the Assembly floor, Republicans unsuccessfully attempted to withdraw a number of the defeated bills. Assembly Member Nao Takasugi said the Appropriations Committee killed all the Republican tax bills that passed the policy committee with a bipartisan vote, except three that were amended and passed as empty shells.

Republicans also criticized Democrats for not making public all committee roll call votes on motions to hold bills in the committee. "This violates open government," charged Assembly Member Charles Poochigian.

S CORP CONFORMITY PASSES SENATE

Legislation conforming to federal Subchapter S corporation tax law changes (SB 5, Lockyer), passed the Senate last Tuesday. The bill also contains an increase in the Subchapter S tax rate.

Other Senate Action:

• Use Tax Collection. The Senate approved on Tuesday SB 110 (Dills), requiring California business, when shipping a product to a purchaser from an out-of-state facility, to allocate the local use tax collected on the purchase directly to local jurisdictions in which the delivery occurs. It also establishes a bill of rights for local jurisdictions to appeal a BOE staff allocations of local sales tax.
• Firearm Dealers Sales Tax Exemption. The Senate on Tuesday approved SB 591 (Johnson), exempting from sales tax the portion of a firearms purchase price representing costs of registration.
• Breast Cancer. The Senate on Tuesday approved SB 602 (Alpert), extending the sunset date to the year 2003 for the income tax checkoff for breast cancer research.
• Check the Box. The Senate on May 29 unanimously approved legislation conforming to federal, "check-the-box" regulations (SB 1231, Alpert).
• Conformity. The Senate passed SB 455 (Alpert), the Senate version of the omnibus bill to conform state tax law to recent federal changes. However, as a result of amendments added in the Appropriations Committee, the bill has no force and effect unless further amended. It is stated that the provisions in the bill are for display purposes only. At some point, the Legislature will have to decide whether it wishes to enact a viable conformity bill.

FTB WITHDRAWS LEGAL RULING

The Franchise Tax Board has withdrawn Legal Ruling 402, relating to refund claims. Legal Ruling 402 held that a refund claim would be valid if, as of the date of filing, the entire amount of tax and penalties (but not associated interest) assessed or asserted against the taxpayer for the claim year have been paid.

According to the FTB, an appeals board has held in Anand Garg v. the BOE that the California Constitution forbids a court from adjudicating the validity of a tax before the tax, together with interest and penalties, has been paid in full.

It is interesting to note that the taxpayer (Mr. Garg) won this case and the issue was whether Mr. Garg would be fully reimbursed for his expenses to contest the illegal tax.

NEW WINE IN OLD BOTTLES

Club Dues, Executive Compensation. Assembly Member Virginia Strom-Martin has amended her AB 1291, which repeals the business expense deduction for club dues and corporate executive pay in excess of $1 million. Her amendments, which she contends makes the bill "revenue neutral," provide: (1) deduction of the first $500 in club dues; (2) a new tax credit for salmon restoration, and (3) a reduction of the minimum franchise tax from $600 to $200.

POTPOURRI: SYMPOSIA, SIGHTINGS, SALUTES & SNAFUS

Dronenburg Eyes Local Office. The State Board of Equalization's Ernie Dronenburg is seriously considering running for San Diego County treasurer-tax collector in 1998, and two state legislators -- Senator Dave Kelley and Assembly Member Howard Kaloogian -- might challenge each other for the BOE seat. That is how The San Diego Union-Tribune's Capitol Bureau Chief, Ed Mendel, sees the situation in a June 3 article. He notes that the incumbent treasurer-tax collector, Paul Boland, 71, is completing his third four-year term and Mr. Boland quotes his doctors as saying he should "stay busy." Thus, he has not publicly foreclosed a re-election campaign. Mr. Dronenburg, who has served on the BOE since 1978 and is currently its chair, faces term limits next year. He believes Mr. Boland is not likely to seek another term and he needs to talk to him. He told Mr. Mendel: "Everybody has been very positive and supportive. They say, 'Gee, you're such a natural for the job.'" If a federal judge's ruling against term limits is upheld later this year, making it possible for Mr. Dronenburg to seek another BOE term, he says it would be hard to change course once he commits to the local race. And Mr. Mendel said Mr. Dronenburg, a Republican from El Cajon, is "eager to begin campaigning soon." Senator Kelley, a Republican from Hemet, says it is 99.9 percent certain that he will run for the BOE seat that includes San Diego and Riverside counties, among others, and is considered strong GOP turf. Mr. Kaloogian, a Republican from Carlsbad, is already lining up support.

Riordan Signs Budget. Los Angeles Mayor Richard Riordan on June 3 signed a $4.01 billion budget for 1997-98 that he described as balanced and without new taxes. It overcomes a projected $101 million shortfall, said the mayor, who did not veto the $100,000 that the City Council added to spending on each member's office.

Amnesty for Home Businesses. The Los Angeles City Council on May 28 approved the extension of an amnesty period for home-based businesses until September 5. Council Member Laura Chick's proposal had won preliminary approval in April. If home businesses fail to register by September 5 and pay a $25 fee, plus a tax based on the type of work, they may be subject to audit and back taxes. The amnesty period was to have expired on June 5.

COMING UP

June 9: STATE BOARD OF EQUALIZATION MEETING
Location: Room 207, 5901 Green Valley Circle, Culver City at 10:30 a.m.
Subjects: (1) Business tax appeals; (2) Executive Director's report; (3) Corporate and personal income tax non-appearance matters.

June 10: STATE BOARD OF EQUALIZATION MEETING
Location: Room 207, 5901 Green Valley Circle, Culver City, at 9:00 a.m.
Subjects: (1) Business tax appeals; (2) Property Taxpayers' Bill of Rights public testimony.

June 11: STATE BOARD OF EQUALIZATION MEETING
Location: Room 207, 5901 Green Valley Circle, Culver City, at 9:00 a.m.
Subjects: Corporate and personal income tax appeals.