Franchise Tax Board

Tax break for undocumented immigrants pushed by California Democrats

June 9, 2018 By Adam Ashton 2 Comments

The California state budget could extend a tax break to low-income families of undocumented immigrants.

Assembly Democrats want Gov. Jerry Brown to expand the state’s Earned Income Tax Credit in such a way that people who do not have Social Security numbers can apply for it.

The proposal is meant to help poor Californians recover some of their state income tax. Last year, a household with two children and an adjusted gross income of up to $22,309 would have been eligible for a tax credit. The maximum credit for a family of that size is $2,467, according to the Franchise Tax Board.

The Assembly plan would expand eligibility to people with Individual Taxpayer Identification Numbers. They’re tax-processing numbers the IRS uses to collect tax from people who do not have Social Security numbers. …

Click here to read the full article from the Sacramento Bee

Filed Under: Trending News Tagged With: Franchise Tax Board, Illegal Immigration, Jerry Brown, social security, taxes, Undocumented Immigrations

Will California be the first state to tax space launches?

May 12, 2017 By Chris Reed 5 Comments

One of the world’s leading experts on the commercialization of space questions the California Franchise Tax Board’s move to make the Golden State the first to impose state taxes on private space launch and tourism firms.

John Logsdon, co-founder of George Washington University’s Space Policy Institute, told the San Francisco Chronicle that the commercial launch business was heating up, with private “spaceports” as well as leased military facilities being use to send cargo and – before long – tourists in the state.

The $2 billion in revenue that launch firms generated in 2014 worldwide is expected to continue to grow and make it a lucrative niche industry. Elon Musk’s Hawthorne-based SpaceX company is one of the world’s best-known space firms; a recent launch is pictured above. Vandenberg Air Force Base on the Santa Barbara County coast is considered a superior launch facility.

Against this backdrop, Logsdon questioned why California would seek to lead on space taxation: “States that don’t levy taxes would have that competitive advantage over states that do. If California puts in a tax and Florida or Texas doesn’t have a similar tax, I’m not sure that helps California in a competitive way.”

But Thomas Lo Grossman, the Franchise Tax Board official interviewed by the Chronicle, contended that the tax regulatory framework would actually make private launch firms more comfortable being based in California.

As a recent Quartz.com analysis noted, the state framework is what space companies prefer as the overall basis for taxation and hope it is copied by governments around the world.

“The complicated new formula … sets a tax rate based on how often rockets are flown from California. It uses the 62-mile trip to space as a standard, and reduces the levy on revenue earned in launches from other sites,” wrote space business reporter Tim Fernholz. “The new rules, based on formulae used for terrestrial transport industries, appear to ensure that a California-based company like SpaceX won’t be excessively taxed for revenue generated by launches in other states, while Colorado-based ULA pays its fair share for using California spaceports.”

Florida has already lured away California space venture firm

But unlike Quartz, the Chronicle report addressed Logsdon’s point about the business-friendliness of California becoming the first to levy a state tax in a nation in which a half-dozen states already have launch sites and many more are interested in building them. It noted that Moon Express – a well-financed venture capital firm that hopes to mine the moon for valuable natural resources – had relocated from Mountain View in the Bay Area to Florida. Company CEO/founder Bob Richards cited incentives proved by Space Florida, the state’s ambitious space economic development program.

California’s state efforts to promote space economic development are based with the Office of Strategic Technology in Los Angeles County – but space is only one industry the office seeks to help, unlike Florida’s more specific approach. Project California’s Council on Science and Technology also does some related work.

The Franchise Tax Board will consider adopting the rules after a public hearing on June 16. The board is taking comments on the FTB proposal until June 5.

This piece was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: Elon Musk, Franchise Tax Board, SpaceX

Proposed CA Bill Would Cause Massive Tax Increase and Potential International Trade War

March 20, 2017 By Chris Micheli 8 Comments

Despite multiple tax increases being adopted by voters just last November, SB 567 (Lara) was introduced that, if enacted, will result in another multi-billion dollar tax increase on businesses and individuals. And, the bill could once again raise the ire of major international trading partners, including Great Britain and Japan.

With the newly acquired super-majority status of Democrats in both the state Assembly and state Senate, the business community has been concerned about potential tax increases brewing in the Legislature. SB 567 represents the biggest threat so far.

SB 567 would make four major changes to California tax law. According to the bill’s author, this measure “will close four popular loopholes that benefit millionaires and ensure high income earners making above one-million-dollars annually, pay their fair share in taxes.” Senator Lara also claims, “Millionaires have mastered our tax code to take advantage of popular loopholes. As a result, the super-rich and the largest corporations in California do not pay their fair share in taxes.”

The approach of seeking new sources of revenue, such as that contained in SB 567, seems counter-intuitive after the electorate adopted multi-billion tax increases just a few months ago by passing Prop. 55 (12-year extension of the Prop. 30 personal income tax increases), Prop. 56 (a $2 tax imposed on each pack of cigarettes), and Prop. 64 (which includes several tax increases on marijuana and marijuana products).

What is different for the 2017 session is that Democrats have achieved the necessary 2/3 majorities in the state Senate and Assembly to pass tax increases without any Republican involvement under the requirements of Prop. 26 (amending Article XIIIA, Section 3(a) of the California Constitution), assuming signature by the governor – or enough votes to override a gubernatorial veto. California is one of just a handful of states that requires a 2/3 majority for increasing taxes by a vote of the Legislature.

What does SB 567 propose? As introduced, the bill contains four significant tax increase provisions. First, for tax years beginning January 1, 2018, SB 567 would require charitable remainder trusts (CRTs) to be at least 40 percent of the initial fair market value of all of the property placed in trust. Existing state law exempts from state tax any charitable remainder trust including that the value of the trust must be at least 10% of the initial fair market value of all the property placed in trust.

A CRT is an irrevocable trust that generates an income stream for the donor to the CRT with the remainder of the donated assets going to charity. Unfortunately, proponents claim CRTs benefit charities but allow taxpayers to avoid paying taxes. The bill would raise the amount going to the charity by 300 percent. It would make a CRT less attractive and adversely impact charitable giving. It would also take California out of conformity with federal law, which creates administrative burdens for both taxpayers and the Franchise Tax Board in administering the law.

Second, for persons who died on or after January 1, 2018, SB 567 would revise the law so that no adjustment is allowed where the person who acquires the property has an adjusted gross income or net income over a specified amount. Existing state law, for the purpose of calculating the gain or loss upon the disposition of property, generally the basis of property acquired from a decedent is the fair market value at the date of death.

California conforms to federal tax law on the “step-up in basis” for appreciated property that has been inherited. SB 567 would eliminate this provision of federal law for those with income above $1 million, once again targeting those upon whom the State of California is ever dependent upon financially. As a result, the bill would create different rules for California taxpayers complying with federal law and force those individuals to pay capital gains on inherited property that has appreciated in value.

Third, SB 567 would retroactively to January 1, 2017 eliminate the deduction for compensation paid to CEOs for pay based on commission or on meeting certain performance goals. Retroactive tax law changes are fundamentally unfair to taxpayers as they change the rules midstream. This creates undue hardship and confusion for residents.

Existing state law, in conformity with federal tax law, provides that a publicly held corporation may not deduct remuneration paid to the CEO to the extent the amount of compensation exceeds $1 million, except where the amount is based on commission or on meeting certain performance goals. As such, a deduction for that compensation is permitted on that basis even if it exceeds $1 million. This change in law would take California out of conformity with federal income tax law by disallowing the deduction for publicly-traded corporations.

Fourth, SB 567 would retroactively to January 1, 2017 remove the water’s-edge election and specify that all existing electors would be unable to file using the water’s-edge method for tax years beginning on or after January 1, 2023, thereby forcing all corporations to file on a worldwide unitary basis. Existing state law allows corporations to elect whether their income is determined on a water’s-edge or worldwide unitary basis.

While the U.S. Supreme Court upheld California’s use of “worldwide combined reporting,” the state allowed a “water’s-edge election” beginning in 1987 due to pressure from foreign governments and multinational corporations, as well as sound tax policy. SB 567 would re-open this debate and cause countries like England and Japan to again propose retaliatory measures against U.S. corporations.

The claim by proponents of this tax law change is that corporations stash money in tax haven countries and worldwide combined reporting is the only way to tax those revenues. SB 567 would repeal the water’s-edge election and force all corporations to pay much more in corporate taxes to California. Under this approach, California companies would end up paying taxes on foreign income earned outside the U.S. which would be inappropriately apportioned to California. The bill would represent a massive tax increase disguised as “fairness” in taxation.

Moreover, SB 567 would grant California the ability to tax income earned outside of the water’s-edge of the United States, a practice which is not followed by any other state in the nation. The practical effect would be to allow the state to tax income that has already been subject to taxation by a foreign jurisdiction. And California-based companies would be subject to retaliatory tax measures by other countries in which they are conducting business.

As the Legislative Counsel has correctly determined, SB 567 makes multiple changes in state statutes that would result in a taxpayer paying a higher tax within the meaning of Article XIIIA, Section 3 of the California Constitution and thus requires a 2/3 majority vote of both houses of the Legislature in order to reach the governor’s desk. Hopefully, the Legislature will reject this measure.

Chris Micheli is a lobbyist with the Sacramento governmental relations firm of Aprea & Micheli, Inc. He can be reached at cmicheli@apreamicheli.com.

This piece was originally published by Fox and Hounds Daily.

Filed Under: Top Stories Tagged With: California legislature, Chris Micheli, Franchise Tax Board, Tax

CA Tax Board Owes Millions to Overcharged Taxpayers

August 8, 2015 By Dave Roberts 9 Comments

The California Franchise Tax Board potentially owes millions of dollars to 27,000 taxpayers who were overcharged interest after applying overpayments from one year to estimated tax payments in the following year. Due to FTB interest miscalculations going back nearly two decades, many more taxpayers may have been overcharged. But they’ll never be reimbursed due to the expiration of the statute of limitations.

How Much is Owed?

The FTB is trying to figure out exactly how much money is owed to about 24,000 individual tax filers and 3,000 businesses still eligible for refunds, and what it will cost the agency to process those claims, FTB Filing Division Chief Anne Miller told the board at its July 21 meeting:

These two interest calculations may impact a limited number of individuals and business entities that meet a set of specific and rare criteria. The criteria are centered primarily around overpayments being transferred or refunded from one particular tax year followed by an additional tax assessment on that same tax year. As a result, our systems may have overcharged interest.

Due to the complexity of the calculations, it’s been quite a challenge for us to determine the fiscal impacts. We estimate that if work was to be done manually on each of these individual accounts, it could take three hours per account. We have enlisted the help of our experts in the Economics and Statistical Research Bureau to help us with these calculations because they are so complex.

About 1,000 of the individual taxpayers are owed for more than one year, placing the total adjustments around 28,000. That equates to 40 FTB staffers working for a year to do the calculations, based on three hours per adjustment if an automated solution isn’t found.

“[W]e believe the adjustments could range from a very minor amount (a few dollars) to thousands of dollars for each account,” said the FTB in its Aug. 3 Tax News. The total amount owed could be in the millions of dollars, according to the California Taxpayers Association, which brought the problem to the attention of FTB management in March.

“CalTax is aware of millions of dollars in miscalculated interest based on what a limited number of taxpayers have told us,” said Gina Rodriquez, CalTax vice president for state tax policy. She continued:

In one case, the FTB overcharged interest by $1 million, and in another case $2 million.

In some of the cases that were reported to us, taxpayers asked the FTB to adjust the interest before their cases went final, i.e., before the taxpayer’s protest, appeal or settlement went final. Taxpayers who had already paid and subsequently discovered the error had to file refund claims to get the interest back if they already paid their assessments. In all cases reported to us, the FTB made the adjustment for the interest miscalculation without any argument, as they knew their calculations were wrong.

When I met with FTB management in the spring to discuss this issue, the FTB acknowledged that their computer system cannot properly calculate interest for taxpayers that fall into the two affected categories.

Origins of Miscalculation

The main category of miscalculation, potentially affecting 26,000 taxpayers, dates back to a lawsuit that May Department Stores Company won in 1996 against the United States for miscalculation of interest on the company’s tax underpayments a decade earlier. The IRS issued a notice in 1997 acquiescing to the court decision.

The complexity of the situation is evident on an FTB web page, which explains that you may be owed a refund under the May Department Stores ruling if:

You filed an amended return for additional tax or received a deficiency assessment after the original return was filed for the same tax year, and
On the original return, you elected an overpayment transfer to the subsequent year’s estimate tax, and
On the subsequent year, the required first quarter estimate payment was less than the requested overpayment transfer amount. The maximum amount of the adjustment is one year of interest on the additional tax or deficiency amount.

The other miscalculation category, known as “corporation interest netting,” may affect about 1,000 businesses that have made a previous refund or payment transfer, then filed a subsequent deficiency or amended return for additional tax with interest for the same tax year.

Thus far fewer of those overcharged are aware that they are owed money. “We’ve received three written requests for interest adjustments as well as a few visits to our website,” Miller told the board. “But our contact center has not reported any phone calls on this issue.”

Time Running Out

The clock is ticking on taxpayers who want to receive refunds. The statute of limitations runs out four years from the date the return was filed if it was filed within the extension period, or one year from the date a payment was made.

FTB plans to avoid this situation in the future. “In order to better serve taxpayers who may qualify for the interest computation adjustments, we have trained our staff to proactively identify cases that meet this criteria as well as put procedures in place to ensure that cases that do meet the criteria proactively receive proper treatment,” said Miller.

FTB Chairwoman Betty Yee, who is also the state controller, was appreciative of Miller’s work. “Thank you for really responding with such a strong focus on just initially identifying the universe [of affected taxpayers], which I know was quite complex,” said Yee. “And now to try to put a fiscal impact around what’s been identified. We look forward to getting that information in September.”

In her capacity as state controller, Yee directed the FTB on April 8 to review the interest miscalculations. “These rulings deal with complex interest calculations that affect very few taxpayers. However, these taxpayers are entitled to receive refunds of allowed overpaid interest,” Yee said. “As chair of the FTB, I work to ensure the rights of taxpayers are protected.”

FTB Board Member Jerome Horton said, “I want to thank the department for being proactive on this and engaging. It’s very important. As always we have stepped up and done so.”

Miller is scheduled to provide an update at the board’s next meeting on Sept. 22.

Originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: Betty Yee, California Taxpayers Association, Franchise Tax Board, taxes

CA Tax Board Delays Refunding Taxpayers’ Money

December 11, 2014 By Dave Roberts 3 Comments

California’s Franchise Tax Board is taking too long to complete audits and resolve taxpayers’ refund claims, protests and appeals, costing businesses hundreds of millions of dollars, according to the California Taxpayers Association.

Gina Rodriquez, vice president of state tax policy for CalTax, voiced her concerns last week at the FTB’s annual Taxpayers’ Bill of Rights hearing. The Bill of Rights, which was enacted by the state Legislature in 1988, spells out the rules and procedures for tax audits and taxpayer protests and appeals of those audits. The protest is the first step in the audit appeal process.

The FTB has consistently shortchanged taxpayers by not following its own guidelines, according to Rodriquez. “CalTax brought this to your attention last year,” she told the tax board. “However, the FTB seems to have fallen a bit short in addressing our concerns. I want to go through this with you again this year.

“Taxpayers’ liabilities should be determined within a reasonable timeframe. Once determined, any overpayment should be returned to them as quickly as possible. The FTB’s high compliance backlog seems to violate the spirit of the Taxpayers’ Bill of Rights. The FTB must do more to avoid any conflict between protecting revenue and providing due process to taxpayers.”

FTB guidelines require the agency to resolve tax protests in two years. But in 2013 it was taking FTB auditors nearly twice as long, 44 months, to close out protest cases, according to Rodriquez.

Report

The 2014 annual report to the Legislature by the FTB’s Taxpayers’ Rights Advocate Steve Sims has also noted the problem. “For the past several years, I have raised concerns about the additional time and resources required for taxpayers to protest an assessment,” said Sims in the report.

“I am pleased that the focused efforts by our Legal and Audit Divisions to resolve older protests resulted in a 200 percent increase in the number of cases resolved, and an overall reduction of 12 percent in the total number of protest inventory cases. Yet, for the business-entity, docketed protests resolved by our Legal Division for FY 2013/14, only 47 percent of the tax at issue was sustained. This once again raises concern about the number of revisions to assessments that occur once a business entity taxpayer elects to file a protest.”

The FTB has also fallen short in responding in a timely manner to taxpayers’ claims for refunds, said Rodriquez.

“The FTB has in its inventory more than 500 refund claims that are more than three years old,” she said. “This is an unacceptable number, as it means hundreds of millions of dollars – and maybe more, we don’t have a real good handle on the dollar amount – [withheld from] the taxpayers’ working capital, stifling economic advancement.”

CalTax doesn’t know how many hundreds of millions of dollars in potential refunds are being tied up by the FTB’s delays because “the FTB does not have a complete picture of its refund claim inventory,” said Rodriquez. “[FTB] staff is unable to tell CalTax whether the inventory has increased since the 2008 enactment of the Large Corporate Underpayment Penalty, also known as the LCUP.

“The 20 percent LCUP is quite punitive. So punitive, in fact, that taxpayers are forced to file their original returns with an overpayment to avoid the imposition of the penalty. Then they subsequently have to file refund claims for legitimate issues. The LCUP does ultimately increase government and taxpayer costs due to the increased workloads in the returns. The legislative purpose in enacting the LCUP in the 2008 budget negotiations was to raise revenue. And I ask: Has that goal been reached?”

No interest

Adding insult to injury, the FTB does not pay interest on the refunds, potentially allowing the state to use the money for years, itself accruing interest, without any compensation to the taxpayers.

Noting the IRS resolves federal tax refund claims much quicker, Rodriquez asked, “Why can’t the FTB have a dedicated staff to work those refund claims? We know we have a problem; let’s address it with some resources.”

FTB is also dragging its heels on audits, according to CalTax.

“Delayed audits have led to unfair audit practices,” said Rodriquez. “FTB is not completing many multi-state and high-level audits in a timely manner. In addition, CalTax members have reported a growing trend among auditors not to process overpayment issues before the audit closes. Some auditors request that taxpayers file a claim for a refund to address the overpayment issue for the same year that it’s under audit. This not only violates the published audit guidelines, but it worsens the high [backlog] inventory problem we have with refund claims.”

In addition, the FTB is taking too long to resolve appeals, she said. “Taxpayers deserve to have their appeals heard within a reasonable time frame. As years pass with a pending appeal, interest accrues, the audit file becomes stale, taxpayers die, key witnesses move on or become unavailable. Additionally, taxpayers lack any guidance for the years subsequent to the years under appeal.”

Concerns

Sims acknowledged CalTax’s concerns, but said the FTB is working to improve its performance, despite not having enough staff members. “[M]any of those issues have been raised in my annual report to the Legislature,” he said. “But I also want to talk to the effort the department has made in terms of trying to fix some of the problems. I’ve been working with our audit and legal division on this issue for more than the two or three years it’s been raised – more like five years. And I do want to say a lot has been done in terms of improving the process.

“One of problems regarding the protest inventory – she’s correct, it’s taking too long, in my opinion. But at the same time, they have reduced the volume of protests. I don’t know that we would have been able to do both at the same time because of the limited resources. Resources are somewhat limited. There is a resource issue that really needs to be addressed.”

Another reason for tax disputes taking longer to resolve is that they tend to be more complex than in prior years. “Taxpayers are becoming a lot more sophisticated,” he said. “The issues that are getting filed on these claims, they are full-blown audit-type issues. They require experienced resources. The department has taken certain steps to involve attorneys in the process a lot earlier to try to assist in handling these types of issues.”

Issues

Board Member Jerome Horton would like more information on the causes of the delays. “Why don’t we set up a meeting so I can have an opportunity to take a look at these in a little more detail,” he said. “I would like to have the department delineate those items that are systemic, those that are institutional and then those that are resource-type issues. If we are having a resource issue, we should consider requesting additional resources to be able to address those.”

A tax concern was also raised by Lynn Freer, president of Spidell Publishing, which provides publications and seminars for tax professionals. She said California tax law differs from federal tax law concerning the Affordable Care Act, which she dubbed “the Accountants’ Crying Act.” That lack of conformity can complicate taxes for self-employed filers who receive an insurance premium credit in 2014 only to find out they have to pay the credit back in 2015 because their income turned out to be too high to qualify for the credit.

“There are all sorts of technical issues involved,” said Freer. “So we would like to request guidance. We would like a rapid resolution. But one step further, it would be nice to have conformity. If we were to automatically conform to federal law, it would be much easier for these taxpayers. Unfortunately, folks who are involved in this premium credit are typically going to be lower-income taxpayers. They are least able to afford to pay folks to figure these things out, or least able to handle problems when they arise later.”

The FTB board did not respond to her request for Obamacare tax clarification.

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: CalTax, Franchise Tax Board, FTB, taxes

Will California be the first state to tax space launches?

Florida has already lured away California space venture firm

Proposed CA Bill Would Cause Massive Tax Increase and Potential International Trade War