Revenue and Taxation

The major legislation passed and signed into law relative to revenue and taxation were the budget trailer bills SB 28X (Perata) and AB 1452 (Assembly Budget Committee). Major provisions of this legislation included: (1) establishing a new 20% penalty for corporate taxpayers that understate their taxes by $1 million or more; (2) accelerating estimated corporate quarterly payments; (3) eliminating “safe harbor” for taxpayers with incomes over $1 million; (4) suspending the net operating loss deduction for two years and limits various incentive credits for two years; (5) requiring payment of the estimated limited liability company payment by June 15 of the current taxable year instead of April 15 of the following year; (6) providing for accrual of tax revenues; and (7) reinstating and making permanent the 12-month presumption period for application of the use tax to vehicles, vessels, and aircraft purchased outside this state and subsequently brought into California.

Other tax legislation of note chaptered into law included: SB 111 (Ashburn) deleting existing language that grants a 15-year exclusion from “new construction” property tax reassessment for improvements necessary to comply with local ordinances on seismic safety. (Becomes operative only if SCA 4 is passed by the voters); SB 1055 (Machado) permitting a solvent taxpayer to exclude from his/her gross income an amount of qualified principal residence indebtedness discharged by the lender, which is in conformity with the federal Mortgage Forgiveness Debt Relief Act of 2007; SB 1064 (Hollingsworth) adding natural disasters at the end of 2007, and in those occurring in 2008, to the list of disasters eligible for full state reimbursement of local property tax losses, beneficial homeowners’ property tax exemption treatment, and favorable “carry forward” treatment of excess disaster losses; SB 1101 (Cedillo) extending the sunset date for the Emergency Food Assistance Program Fund, and changing the designation’s name on the personal income tax return to the Emergency Food for Families Fund; SB 1146 (Cedillo) requiring cities that assess a city business tax or that require a city business license, upon the request of the Franchise Tax Board, to submit annually to the Franchise Tax Board specified information collected in the course of administering the city’s business tax program; SB 1233 (Harman) improving the administration of the “change in ownership” exclusion for parent-child and grandparent-grandchild property transfers; SB 1495 (Kehoe) ensuring that taxpayers claiming the property tax disabled veteran’s exemption do not lose the exemption after a disaster; SB 1502 (Steinberg) adding the ALS Lou Gehrig’s Disease Research Fund as a voluntary contribution fund checkoff on the personal income tax form, when another checkoff is removed from the tax form; SB 1562 (Hollingsworth) expanding the exemption from property tax for trees or any grapevine damaged by the extremely strong and damaging winds that started on 10/20/07, and by the wildfires that started on 10/21/07, which were subject of the Governor’s proclamation of a state of emergency; SB 28 X (Senate Budget and Fiscal Review Committee) enacting one of the 2008-09 revenue and taxation budget trailer bills; AB 583 (Hancock) providing for a tax checkoff where taxpayers may designate to the Voters Fair Elections Fund to assist implementation of the California Fair Elections Act of 2008 which authorizes candidates for the office of Secretary of State to obtain public funds for campaign purposes; AB 1451 (Leno) extending the existing exclusion through the 2015-16 fiscal year, and modifying the existing exclusion for active solar energy property used for electricity transmitted to a utility; AB 1452 (Assembly Budget Committee) enacting one of the 2008-09 revenue and taxation trailer bills; AB 1812 (Arambula) extending the repeal dates for the California Firefighters’ Memorial Fund and the California Peace Officers Memorial Foundation Fund from 1/1/11 to 1/1/16; AB 1895 (Silva) providing a specific statute of limitations for issuing a deficiency determination against a corporate officer (or other responsible person) who is personally liable for a business’ unpaid sales and use taxes; AB 1935 (Fuller) permitting the addition of the California Ovarian Cancer Research Fund checkoff to the personal income tax form; AB 2047 (Houston) extending the Board of Equalization’s current offers-in-compromise program to businesses that have not been discontinued or transferred and to successors of businesses that may have inherited tax liabilities of their predecessors; AB 2249 (Niello) permitting depository institutions to provide the Franchise Tax Board with information, for the purpose of allowing the Franchise Tax Board to collect improperly deposited tax refunds from people to whom the refunds should not have gone, and timely credit the accounts of people to whom the refunds should have gone; AB 2291 (Mendoza) permitting the addition of the Municipal Shelter Spay-Neuter Fund checkoff to the personal income tax form upon the removal of another voluntary contribution fund from the form; AB 2411 (Caballero) amending the statute of limitations for filing a claim for refund of property taxes in the case of a taxpayer who applies for a reduction in an assessment, and revising the method for determining the amount of interest calculated on property tax refunds resulting from a property tax roll correction; AB 2518 (Torrico) permitting the addition of the California Cancer Research Fund checkoff to the personal income tax form upon the removal of another voluntary contribution fund from the form; AB 2928 (Spitzer) allowing the Department of Corrections and Rehabilitation to refer restitution awards to the Franchise Tax Board for collection; and AB 3016 (Cook) extending the sunset date of the California Military Family Relief Fund as a voluntary contribution on the personal income tax form, and expanding eligibility grants to include all reserve members of the United States Armed Forces.

Vetoed revenue and taxation legislation included: SB 153 (Migden) revising existing property tax law to provide that a transfer of a co-tenancy interest in real property from one co-tenant to the other that takes effect upon the death of the transferor co-tenant does not constitute a “change in ownership”; SB 1641 (Oropeza) allowing the Franchise Tax Board and the Board of Equalization to submit reports required by law in electronic form; and AB 2344 (Beall) increasing the license fee on retailers engaged in the sale of cigarettes or tobacco products to $185, and requiring the retailer to pay the fee annually.

On 10/30/08, the Governor signed an Executive Order to create the bipartisan Commission on the 21st Century Economy which is designed to reexamine and modernize California’s out-of-date revenue laws. The Commission is to be made up of 12 members: six appointed by the Governor, three by the Senate pro Tempore, and three by the Speaker of the Assembly. The Commission is to report to the Governor by 4/15/09 to make recommendations to change laws to achieve the following goals: (1) establishing a 21st Century tax structure that fits the state’s 21st Century economy, (2) stabilizing state revenues and reducing volatility, (3) promoting the long-term revenue property of the state and its citizens, (4) improving California’s ability to successfully compete with other states and nations for jobs and investments, (5) reflecting principals of sound tax policy including simplicity, competitiveness, efficiency, predictability, stability and ease of compliance and administration, and (6) insuring that the tax structure is fair and equitable. The Commission would comply with applicable open meetings laws and would disband 30 days after delivering their report unless service is extended by further Executive Order.