The Golden State is terminally ill according to many observers. As a result of California’s ongoing fiscal problems, a special commission formed by Governor Schwarzenegger earlier this year is pushing forward a major proposal to completely overhaul the personal and business tax structure.
The purpose of the proposed provisions is to “normalize” future tax receipts regardless of economic conditions and also halt the exodus of businesses and high net-worth individuals who are leaving the state in droves to escape some of the highest income and sales tax rates in the country.
The proposed restructuring is pretty dramatic and looks more like combined heart and brain surgery rather than the locally popular face lift and tummy tuck.
The changes proposed in today’s U.C. Berkeley commission meeting include:
1) a reduction of all personal tax rates – with the top rate falling from 10.3% to 6.5%,
2) elimination of the corporate income tax – currently 8.84%,
3) concurrent establishment of a new “Business Net Receipts Tax” which would apply a tax (details pending) on the net sales and purchases made by businesses,
4) eliminate (1% per year over 6 years) the current state general purpose sales tax – currently 6%. Combined with county/ city sales tax rates – the current California sales tax rates exceed 10% in some jurisdictions,
5) Initiate new “rainy day” reserve fund which the governor has been calling for over the past few years,
6) Institute a tax appeals dispute resolution process to eliminate the current “stacked deck” known as the State Board of Equalization.
The commission is hoping to advance their final proposal in the next several weeks.
For more information, including descriptions of these far-reaching proposals, please click on the following link:
Following is an overview of the commission’s actions from last week.
Bureau of National Affairs
Commissioners May Endorse California Tax Overhaul if Specific Elements Included
Posted September 11, 2009, 7:10 P.M. ET
LOS ANGELES—Some members of a special commission appear ready to endorse a vast overhaul of the California tax system at a final meeting Sept. 14, but said Sept. 10 they must first be satisfied that their fellow members will address specific reservations they each have about the broad plan.
Members of the Commission on the 21st Century Economy also backed off their original plan to ask lawmakers and Gov. Arnold Schwarzenegger (R) to take up their recommendations immediately in the form of proposed legislative language and enact them as soon as possible. Instead, commissioners agreed that the changes require more study.
At a lengthy meeting Sept. 10, Chairman Gerald Parsky suggested the commission introduce its final report to the governor and Legislature with an explanation that members believe the package, which centers around a new net receipts tax on businesses, is promising enough to warrant further study. Commissioners are likely to say that lawmakers and the governor should “proceed with a public process” to fully evaluate the proposals, and enact them upon completion of a more thorough review.
At the core of the package are proposals to eliminate the corporate income tax, mostly or completely eliminate the state portion of the sales and use tax, reduce and partially flatten the personal income tax, and impose a new business net receipts tax.
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Despite objections from the business community and California Chamber of Commerce until more details are released, the Commission is pushing hard to release their recommendations this week. We applaud the thorough efforts of the Commission to improve our state’s dismal tax structure, which is rated near the bottom of every national survey.
Scan down for earlier blog posts regarding the CA Enterprise Zone Program, which can minimize California’s tax bite for many companies until these or other tax revisions are adopted.
