For me, Christmas is a time to reflect on the birth of Jesus Christ and all the blessings he has bestowed on us. Serving as your taxpayer advocate on the Board of Equalization is certainly one of these blessings.
From my family to yours, I wish you a very Merry Christmas and a Happy New Year.
A Welcome Gift for California Job Creators: California’s Security Deposit Shakedown is Over
It’s no secret that starting a new business in California is tough. With our high tax rates and hostile regulations, we are consistently ranked one of the worst states in which to do business and create jobs.
For years the California State Board of Equalization has been making this problem worse by demanding security deposits from all new California corporations and LLCs. The required security typically equals half a year’s worth of estimated taxes and ranges from $2,000 to $50,000 per company. This "shake-down" effectively penalizes new business owners before they can get their business up and running, make their first sale or owe any tax.
Most states do not impose automatic security requirements. In fact, California’s requirements have been among the most sweeping in the nation, catching many new business owners by surprise.
It’s challenging enough starting a new business in California. Forcing new business owners to turn over up to $50,000 of their money does nothing to help them succeed, nor has it proven cost-effective in protecting the state from unpaid taxes.
Since being elected to Board of Equalization three years ago, ending this onerous practice has been my top priority. That’s why I am pleased to announce that on December 17, my colleagues and I voted to eliminate these burdensome security requirements for nearly all new businesses.
The Board’s action immediately suspends automatic security requirements for corporations and LLCs registering with BOE. Going forward, the Board will require security only when a business has a history of non-payment or poses a high compliance risk.
In addition the Board will review and release much of the security currently held in the form of cash and liquid deposits, surety bonds and personal guarantees. BOE staff expects to begin releasing deposits to business owners in February 2014.
This is welcome holiday news for thousands of California small businesses. The state currently holds security belonging to more than 15,000 taxpayers and valued at nearly $300 million. We expect more than half of this amount will be released to taxpayers, boosting California’s economy and jobs.
Tax Reprieve Brings Holiday Cheer for Thousands of Californians
Thousands of struggling Californians who short sold their homes to avoid foreclosure can rest easier this holiday season knowing they won’t be hit with huge income tax bills.
The threat was real. A California law protecting homeowners from paying taxes on forgiven debt associated with a short sale expired at the end of 2012, and legislative efforts to extend it failed. Furthermore, a federal law providing the same protections expires at the end of this year.
Nearly everyone believed the result would be that debt forgiven in a short sale would be viewed as taxable income. A homeowner who short sold a home for $300,000 but owed $450,000 would be forced to pay taxes on $150,000 of forgiven debt, known in the tax world as “cancellation of debt income.” It wouldn’t matter that the homeowner didn’t receive those dollars—he or she would still owe the tax.
According to the Franchise Tax Board, the cumulative tax hit for Californians would have surpassed $50 million at the state level alone. These tax bills would have hammered thousands who have already suffered the most during the recent economic downturn. Likely some would have been forced into bankruptcy.
Rather than simply mail in the keys when forced to move, these homeowners had taken the extra and often difficult step of negotiating a short sale with their lender. Little did they know they could be punished for doing so.
Those who became aware of the potential tax consequences have been worried sick. One homeowner told me she has literally lost sleep trying to figure out how she could possibly afford to pay.
After the legislative solution failed, I sent a letter to the Franchise Tax Board’s Chief Counsel requesting a legal opinion on this matter. Perhaps there was another pathway to protect taxpayers.
California’s New Year will begin with the Democratic Party once again holding a supermajority in both houses of the Legislature. With a new legislative session, and a handful of active bills aimed at stripping important taxpayer protections established by Proposition 13, this could mean trouble for California taxpayers.
Proposition 13 provides certainty to both homeowners and businesses as to what their property tax bill will be from year to year. It also created a two-thirds vote requirement in local elections for special taxes, including regressive parcel taxes.
The protections guaranteed by Proposition 13 have long been safe because any changes require a two-thirds vote of the Legislature. Unfortunately, the Democratic Party was able to hold on to their supermajority through a string of special elections this past year, meaning taxpayers remain in jeopardy.
Here are some pieces of anti-Proposition 13 legislation to keep an eye on in 2014. These bills have already been introduced and could move forward at any time.
Senate Constitutional Amendment 7 (Wolk) would lower bond approval for local library facilities from a two-thirds threshold to 55% and is currently in the Senate Appropriations Committee.
Senate Constitutional Amendment 9 (Corbett) would lower the approval threshold from two-thirds to 55% to increase special taxes for community and economic development projects. This bill is currently in the Senate Appropriations Committee.
Senate Constitutional Amendment 11 (Hancock) lowers the vote threshold to 55% to allow any local government entity to approve a special tax for any purpose. It is currently in the Senate Appropriations Committee.
Assembly Constitutional Amendment 3 (Campos) lowers the vote threshold to 55% for either local bond measure or special taxes to fund emergency service facilities projects. It is currently in the Assembly Revenue and Taxation Committee.
Assembly Constitutional Amendment 8 (Blumenfield), currently in the Senate Governance and Finance Committee, also deals with lowering the vote threshold to 55% for local bond measures to fund emergency service facilities projects.
California ranks as one of the worst states in which to do business. Our state's income taxes, sales taxes and fuel taxes rank at or near the top. Even property taxes aren't particularly low -- California ranks 14th -- but without Proposition 13, they would be much, much higher.
I will be opposing these bills and encourage you to do the same. The Legislature’s majority party needs to learn taking even more money from private taxpayers to "invest" in more government bureaucracy doesn't grow our economy. In fact, it does quite the opposite.
Q – Do nonprofit and religious organizations have to pay sales and use tax?
A – Many nonprofit and religious organizations are exempt from federal and state income tax. However, despite their many significant contributions to our state, nonprofit and religious organizations are often treated just like other California sellers and buyers for sales and use tax purposes. There is no broad exemption from California sales and use tax. This means a nonprofit’s sales and purchases are generally taxable.
There are special exemptions and exclusions from sales and use tax available for certain nonprofit and religious organizations, depending on the type of organization and the organization’s practices and activities.
You can learn if you qualify for possible exemptions by reading Publication 18 on Nonprofit Organizations.