From an updated taxpayer’s bill of rights to W-2 information, click below to find a news summary from the Franchise Tax Board for March 2010.

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The Sacramento Bee broke the story this morning regarding he senate committees limit on NOLs and getting rid of the ability to transfer tax credits between affiliated companies. Below is the story:

Democratic gas tax plan rolls back corporate tax benefits
The Senate Budget Committee on Tuesday approved rollbacks of two corporate tax benefits as part of a complex gas-tax swap to help close the state’s $19.9 billion deficit.

The committee also approved a 4.8 percent surcharge on residential and commercial property insurance, which would raise roughly $200 million for the general fund.

The Democratic proposal allows companies to apply only 68 percent of past operating losses against their income in 2010, shrinking that tax benefit and increasing state revenues from corporate taxes. Existing state law allows companies to apply 100 percent of certain past operating losses against income in 2010.

The proposal also would prevent corporations from assigning tax credits in 2010 to affiliated corporations or subsidiaries. Current state law allows that practice to occur starting this year.

Those two changes would allow the state to raise $655 million for the general fund. Democrats believe they can pass the changes on a majority-vote basis because they are decreasing taxes on gasoline by a comparable amount, theoretically making the change “revenue neutral.” Gov. Arnold Schwarzenegger had proposed suspending those two tax benefits — among others — but only if the state failed to get enough federal help.

The California Teachers Association is gathering signatures to place an initiative on the November ballot that would block those tax benefits permanently.

The Senate Budget Committee passed the changes Tuesday on an 8-2 party-line vote. The full Senate and Assembly would still have to approve the plan.

The thrust of the gas-tax plan is the elimination of state sales tax on gasoline, replacing that sales tax with an excise tax on gas. That would allow the state to account for gasoline taxes in a different way that saves the state $920 million in general fund dollars. All told, the proposal would cut the deficit by nearly $1.6 billion. Drivers would save roughly 3 cents per gallon in 2010–11.

Transit agencies would lose out under the Democratic plan, but not by as much as under Schwarzenegger’s proposal. Democrats would preserve sales tax on diesel fuel, generating an estimated $313 million annually. The state also would give transit agencies $400 million for operations out of an existing transportation account.

The Democratic plan would allow local governments to place on the ballot an additional fee on gasoline to pay for transit. Voters would have to approve any such fee by a majority vote.

Republicans questioned that part of the proposal, suggesting that it was a back-door way of raising revenues without meeting requirements for a tax hike. Democrats responded by saying they were only expanding the authority of local officials.

Categories: State budget, Taxes

Posted by Kevin Yamamura

California recognizes out-of-state same-sex marriages

On October 11, 2009, the Governor signed Senate Bill 54, which provides that a marriage between two persons who have entered into a same-sex marriage outside the State of California prior to November 5, 2008, that was valid by the laws of the jurisdiction in which the marriage was contracted, is valid in California. / more+

Military Spouses Residency Relief Act

The Military Spouses Residency Relief Act (MSRRA) was signed into law by the President on November 11, 2009. For taxable years beginning on or after January 1, 2009, a service member’s spouse is considered a nonresident for tax purposes if the servicemember and spouse have the same legal residence or domicile outside of California and the spouse is in California solely to be with the service member who is serving in compliance with military orders. / more+

Mandatory e-pay penalty update: Not assessed in 2010

When you are required to make electronic payments but pay by other means, we can assess a penalty equal to one percent of the amount paid, unless your failure to pay electronically was for reasonable cause and not willful neglect. / more+

Luxury Auto Pilot Program

Each year, we receive and process millions of income information records. The nonfiler program uses federal tax return information, information from other California state agencies, third-party data, and income estimates from self-employed activities to determine if a taxpayer has a filing requirement. / more+

EITC Awareness Day is January 29, 2010

The IRS in partnership with local organizations in your area will kick off of the Earned Income Tax Credit (EITC) Awareness Day event on January 29 to promote the federal tax credit. / more+

Consultants wanted: California seeks experts knowledgeable in abusive tax shelter transactions

Abusive Tax Avoidance Transactions (ATAT) cost California billions of dollars each year. In 2004, we collected a record $1.4 billion from taxpayers participating in tax shelters during our Voluntary Compliance Initiative. / more+

Get ready for the filing season with e-Services

During these difficult times, it is increasingly important to work both smart and efficiently. / more+

Head of Household guidelines

Our filing season is just around the corner. Some of your clients may inquire about claiming our head of household filing status. This filing status provides a lower tax liability and a higher standard deduction than the single filing status. / more+

California’s Enterprise Zones Wage Credit

In our June 2009 issue of Tax News we asked the question, “Are you familiar with California’s Enterprise Zones?”

We now ask, “Are you aware some taxpayers who work in an Enterprise Zone may be entitled to a credit for the wages they earned?”  / more+

Small business

Misleading letter schemes target corporations and LLCs

Your business clients may receive a misleading letter to file board minutes and/or a statement of information for a fee. Because the letters look and sound official, your clients may be quick to send payment. But wait! Read the fine print, “…products or services being offered are not approved or endorsed by any government agency.” / more+

Ask the advocate

Taxpayers’ Bill of Rights Hearing

The Annual Taxpayers’ Bill of Rights Hearing was held December 3, 2009, at FTB headquarters in the Gerald H. Goldberg Auditorium. We received four proposals in advance and representatives from two organizations made presentations. We are in the process of preparing responses to the proposals we received. / more+

Inside FTB

Take a look at the changes happening here at FTB. / more+

Criminal corner

Our monthly summary of bringing tax criminals to justice and closing the tax gap one case at a time. / more+

Legislative wrap-up 2009

Here is our annual summary of tax-related legislation enacted this session. / more+

Free backup withholding webinar

California conforms to federal backup withholding beginning January 1, 2010. / more+

Corporation tax law changes in California

Recently enacted California legislation adopted new statutes and amended existing statutes that result in major changes to how corporations are taxed in California. / more+

Find forms faster and easier with our form locator

On December 15, 2009, we will have a new search tool on our forms webpage; it is called the Form Locator. / more+

Provisional payment plan pilot program begins December 2009

Our collection response and resolution section will begin to offer a provisional payment plan for personal income taxpayers. Taxpayers who qualify for this pilot program will be allowed to make payments towards their tax liability without involuntary collection action taking place, while they prepare and submit their missing valid tax returns to us. / more+

Top 10 personal income tax errors that delay return processing – 2009

Check to see where we found the most common errors on personal income tax returns. / more+

Top 10 business entity errors that delay return processing – 2009

Check to see where we found the most common errors on business entity returns. / more+

Small business

Will your client qualify for the new jobs credit?

Newly enacted state law, ABX3 15 (Assembly Budget Committee, Stats. 2009 Third Extraordinary Session, Ch. 10) allows a potential income tax credit of $3,000 to a qualified taxpayer for each additional full-time employee hired. / more+

Ask the advocate

Communication guidelines

Quite often we receive questions from taxpayers and practitioners on issues relating to the interpretation of provisions of the R&TC as well as policies and procedures of our department. / more+

Inside FTB

Take a look at the changes happening here at FTB. / more+

Criminal corner

Our monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time.  / more+

Big business

Gross receipts fees discussed at CalCPA

On October 28, we attended the CalCPA Committee on Taxation, our annual liaison meeting. We shared legislative updates affecting us, changes to our auditing and collections, and new communication products available to our taxpayers and tax professionals. / more+

Advisory Board Recognizes Dedication

At the FTB Advisory Board October meeting, we presented David Doerr, Chief Tax Consultant for the California Taxpayer’s Association, with a certificate of appreciation recognizing his 50 years of service to California taxpayers. / more+

540X Easy Reply Amended Return Pilot Program

We will soon begin a pilot program giving certain taxpayers the option of quickly concluding an audit when first contacted by us, if the taxpayer agrees with the proposed adjustments to their return. / more+

Useful Information Found on MyFTB Account – Tell your clients

MyFTB Account is a resource that’s available for your clients to access useful tax information 24/7. / more+

Documents, Second Mortgages, Tax Reporting – How to Handle a Foreclosed Home for Tax Purposes

In our July 2009, Foreclosure and Short Sales, and October 2009, Business Foreclosures or Short Sales, issues of Tax News, we addressed some of the questions we received related to a foreclosure. / more+

FTB/CSEA Liaison Meeting a Success

On September 25, we attended the California Society of Enrolled Agents (CSEA) annual Liaison meeting. / more+

540NR Booklet Mass Mailing Discontinued

We decided to discontinue the mass mailing of our Nonresident or Part-Year Resident Income Tax Booklet California 540NR directly to taxpayers. / more+

Small Business

Announcing the California Child Support Guide for Business

DCSS announces the California Child Support – A Guide for Business — a complete step-by-step web-based guide designed to help employers meet child support requirements in California. / more+

Ask the Advocate

Taxpayers’ Rights Advocate Role

As the Taxpayers’ Rights Advocate, I continue to be pro-active, visible, and accessible to taxpayers. / more+

Inside FTB

Take a look at the changes happening here at FTB. / more+

Criminal Corner

Our monthly summary on bringing tax criminals to justice, and closing the tax gap one case at a time.  / more+

A coalition of more than 40 business and employer groups led by the California Chamber of Commerce is continuing to raise questions and concerns about the new “business net receipts tax” being considered by a special state tax commission.

The CalChamber and coalition called on the commission to take time to undertake a thorough analysis of how the new tax will affect jobs and the economy, even after a tax rate is unveiled, before the commission votes on whether to adopt the proposal.

“We expect that the commission will provide an estimated business net receipts tax rate before its final hearing, but we are a short time away from what may be the decision day, and still do not have it,” said CalChamber President and CEO Allan Zaremberg.

“In order for commissioners to understand the impact of this tax on companies and industries, businesses must have the time to calculate how this tax will affect their often-complicated operations.”

The proposed business net receipts tax is designed to be a type of value-added tax in which companies are taxed on total receipts minus all purchases from other firms. The intent behind this new tax is to reduce revenue volatility by basing it on total receipts, rather than profits. The tax also would bring a large category of services businesses into the tax base.

More Specifics Needed
The CalChamber-led coalition presented its latest comments in a letter responding to Gerald Parsky, chairman of the Commission on the 21st Century Economy. At a commission workshop last week, Parsky invited the CalChamber and coalition to follow up testimony with their remaining ongoing issues with the business net receipts tax proposal.

The commission has scheduled a meeting on September 10 in Los Angeles to discuss its tax recommendations.

When creating the commission last fall, Governor Arnold Schwarzenegger asked the group to examine the state’s tax structure with a goal of stabilizing state revenues and reducing volatility, as well as promoting California’s economic prosperity and competitiveness.

In July, the Governor extended to September 20 the deadline for the commission to present its findings and said he will call a special session of the Legislature afterwards to consider the commission’s recommendations.

The coalition said it is requesting a detailed written proposal—including the tax rate and a full analysis of the policy, operational and transitional implications—so that California businesses and economic experts have the opportunity to respond to the commission regarding the proposal and analysis.

“As we emphasized during our workshop testimony, we believe it is crucial for the commission to take sufficient time to analyze” the proposed business net receipts tax, “rather than be driven by any arbitrary deadline, so that any vote of the commission . . . is an informed vote,” the coalition stated in its letter.

A thorough analysis and response by sectors affected also must be available for legislative review because the commission intends for its recommendation ultimately to be presented to the Legislature for consideration, the coalition said.

Key Issues
The coalition letter outlines transitional and operational questions that were not addressed in a “Preliminary Overview” released by the commission on August 21 or the commission’s August 26 and August 28 workshops on the proposed business net receipts tax:

How did the commission arrive at the proposed tax rate? Will the commission model the rate over the past several economic cycles (about 10 years) to determine the ability of the business net receipts tax to generate revenue and stem volatility? What is the risk that revenues will substantially deviate from the commission’s projected estimates?
Which came first, the rate or the base? In other words, was the rate developed as a result of the commission’s judgment as to what best comprises the base of a business net receipts tax as a matter of tax policy, or did the commission determine the most appropriate rate for the economy, and engineer the base to accomplish that rate?

The coalition expressed appreciation for the commission’s strong statements clarifying that only the Legislature, and not an administrative body, would have the authority to set and change the business net receipts tax rate, but noted that the coalition cannot provide a complete analysis of this proposal, nor can an individual company understand it, without knowing the rate and the base to which it applies.

What are the proposed deductions that will be available under the business net receipts tax? More details are needed, the coalition said.

For example, according to the “Preliminary Overview,” employers would not be able to deduct from revenues the cost of employees, an expense that is allowed under the current corporate income tax system. At the workshop, however, the commission indicated there was a possibility of a partial deduction for employee costs.

What about tax fairness? Although the commission’s intent is to develop a less volatile tax system, it should also give due consideration to tax fairness. California’s current tax system is based either on profits, such as the personal and corporate income taxes, or is passed through as a tax on consumption, like the sales tax. The business net receipts tax is imposed upon companies even when they are in a loss position, and it cannot be passed on as a transactions tax.

The coalition noted that it is not aware of any substantial discussion of why the business net receipts tax is a preferable tax policy to the current taxes that are based on profits or consumption. It pointed out that the only other major tax similar to this proposal is the property tax, the subject of the Proposition 13 tax revolt 30 years ago when it became unaffordable for major parts of California society.

Taxpayers and policymakers deserve more discussion and analysis on this issue, the coalition said.

Which economic sectors will be winners and which losers under a business net receipts tax? Adoption of this recommendation must await analysis of its impact on specific economic sectors, the coalition said.  For example, businesses with low profit margins and high employee expenses presumably would be especially hard-hit, as would companies in a loss position.

In addition, based on the limited information so far available, it appears the business net receipts tax may shift more of the tax burden onto small businesses, since many pay under the personal income tax system, and would not benefit from elimination of the corporate income tax.

What impact will the proposal have on California jobs and the economy? Adoption of the recommendation must also await analysis of this impact, the coalition stated. If the business net receipts tax amounts to a tax on employees (because it appears employers will not be able to deduct the cost of employees as they do now), will it motivate companies to outsource jobs to other states and nations? Will it further constrain California’s ability to compete for future investments if business loses important incentives such as the research and development or enterprise zone credits? What will become of California’s ability to compete with other states and countries if the cost of exported California goods becomes substantially higher than goods offered by other states and countries? Additionally, will the cost of doing business increase for Californians, due to higher prices for advertising and other business purchases?

Staff Contact: Kyla Christoffersen

Here is the FTB’s October 2009 Tax News. Enjoy.

Click to Read

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Schwarzenegger’s Committee on the 21st Century Just Came Out With Its Draft Proposal for Overhauling California’s Tax System. The tax commission has just released draft language of its package, which includes the following:

– Lower personal income tax for all filers, phased in over three years through 2014. Single filers would have an automatic deduction of $22,500, while joint filers would have an automatic deduction of $45,000. Filers would pay 2.75 percent on taxable income up to $28,000 single and $56,000 joint. They would pay 6.5 percent on all taxable income above those levels.The only itemized deductions for filers would be mortgage interest, property taxes and charitable contributions.

The current state income tax bracket tops out at 9.55 percent (which includes a .25 percent temporary increase approved in February). Millionaires pay an additional 1 percent on income above $1 million, and they would continue to pay that under the new plan.

While all tax filers would pay lower taxes, the commission’s Powerpoint presentation shows that the new lower tax brackets make the system less progressive in nature. The drop to 6.5 percent from 9.55 percent is most significant for higher-income earners, who already pay most of the state’s personal income taxes. While filers earning between $50,000 and $75,000 would get a 14 percent cut on their taxes, those earning $75,000 and above would get roughly a 30 percent reduction.

Sacramento – The Franchise Tax Board (FTB) today released the 2009 state tax brackets. Brackets are “indexed” each year by adjusting them to reflect changes in the California Consumer Price Index (CPI).

Filing requirement thresholds, the standard deduction, and certain credits were adjusted along with income tax brackets based on the deflation rate of -1.5 percent, as measured by the California CPI for all urban consumers from June 2008 to June 2009. Last year’s inflation rate measured 5 percent. This has only occurred one other time since indexing became law in 1978.

The standard deduction will decrease for single or “married filing separate” taxpayers from last year’s rate of $3,692 to $3,637. For joint, surviving spouse, or head of household taxpayers, the standard deduction decreases from $7,384 to $7,274. The personal exemption credit amount for single, separate, and head of household filers will decrease from $99 to $98 and for joint filers or surviving spouses it will decrease from $198 to $196. The Renter’s Credit is available for single filers with adjusted gross incomes of $34,412 or less and joint filers with adjusted gross incomes of $68,824 or less.

A new tax law sets the dependent exemption credit for tax years 2009 and 2010 to the indexed personal exemption credit, lowering the credit to $98. Last year’s credit was $309.

In addition, FTB provides minimum filing requirement thresholds to ensure that most people who will not owe taxes are not required to file a tax return. FTB adjusts these tables each year to include the added senior exemption and the dependent exemption credits. For example, most single people under 65 years old with no dependents would not need to file a state return until they have adjusted gross income of $11,698 or more.

Other tax credits affected by indexing include the Joint Custody Head of Household Credit, Dependent Parent Credit, and Qualified Senior Head of Household Credit.

More information about this and other tax matters is available at ftb.ca.gov.

The Franchise Tax Board (FTB) outlined several arguments that are widely established as frivolous and advised that using those arguments to avoid paying taxes could result in a penalty.

The baseless arguments include contending that paying taxes or filing a return is “voluntary,” that tax returns can ignore all taxable income, or that filing a tax return violates constitutional protections against self-incrimination. FTB has adopted the IRS’ list of frivolous tax arguments, explained in IRS Notice 2008-14 and IRS Publication The Truth About Frivolous Tax Arguments.

Unpaid taxes and false tax returns both contribute to the annual $6.5 billion tax gap facing California. The State of California also spends considerable resources responding to frivolous tax arguments, putting a strain on other public services.

FTB does not expect to issue many penalties. However, it can assess a $5,000 frivolous submission penalty on a specific submission that includes material that:
· Is based on a position FTB identifies as frivolous.
· Reflects a desire to delay or impede the administration of federal income tax laws determined by the IRS or California income or franchise tax laws determined by FTB.

A “specified submission” can be one or more of the following documents:
· A protest filed with the FTB.
· A request for an oral protest hearing.
· A request for an installment agreement or offer in compromise.
· A complaint submitted through the Taxpayer Advocates Office.

FTB will notify the person in writing before issuing the penalty. Taxpayers can avoid the penalty by withdrawing their frivolous submission, in writing, within 30 days after the notice is sent. Otherwise, there are two ways to contest the penalty:
· Request relief by sending FTB 626, Request for Chief Counsel to Relieve Penalties.
· After paying the penalty in full, file a claim for refund within the statute of limitations.

For more information, visit ftb.ca.gov, and search for “frivolous submissions,” or call FTB at 916.845.7790, Monday through Friday, from 8 a.m. to 5 p.m.

The above was a news release from the FTB.