Archive for the ‘California’ Category

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Tax and Insurance Administration Are Different

Wednesday, December 18th, 2013

Jason Dinesen tweeted tonight about the insurance regulation report card issued by RStreet.org. On Monday, the Tax Foundation posted about the Council on State Taxation (COST) grading states on taxpayer administration. I thought it would be interesting to compare the top states and bottom states in each.

First, the top ten:

Rank Tax Administration Insurance Administration
1. Maine Virginia
2. Ohio Vermont
3. Alaska Illinois
4. Arizona South Carolina
5. Kansas Tennessee
6. Montana Minnesota
7. Pennsylvania Missouri
8. Indiana Nebraska
9. Iowa Wisconsin
10. MA/NC/OK/UT/VA Nevada

Now, the bottom ten:

Rank Tax Administration Insurance Administration
50. California New York
49. Louisiana Hawaii
48. Alabama West Virginia
47. Colorado Florida
46. Arkansas California
45. Nevada Texas
44. Florida Washington
43. Kentucky North Dakota
42. North Dakota Montana
41. NC/VT/WA/DC Massachusetts

One conclusion that I draw is that a state appearing on both bottom ten lists is a state with a bad regulatory environment. California, Florida, North Dakota, and Washington share that dubious distinction. Indeed, California ranks the worst for tax administration and is 46th for insurance administration. It’s no wonder that business executives believe that California’s regulatory climate has miles to go before it becomes average (in ranking).

Only one state makes the top ten in both lists: Virginia. A state with a favorable regulatory climate will attract business, and that’s something that Virginia is doing.

Finally, I do need to point out that states that rate poorly in tax administration but do not have a personal income tax lead to some interesting scores on the COST list. The states without a corporate tax return (such as Nevada) should have a negative score in the Corporate Return Filing Burden column imho–these are states where life is easy for tax administrators.

My thanks to the Tax Foundation, RStreet.org for publishing these charts and to Jason Dinesen for pointing out the insurance information.

Posted in California, Nevada, Virginia | Comments Closed

Health Care Fraud Leads to Tax Charge

Sunday, December 15th, 2013

I’ve mentioned previously that if you fail to report illegal income on your tax return, you’re guilty of tax evasion. Yes, illegal income is just as taxable as legal income. This came into play with an ongoing investigation in Southern California.

It seems some medical practitioners came up with the idea of getting denizens of Skid Row into hospitals for unnecessary medical procedures. Dr. Ovid Mercene of La Mirada was one of the individuals involved in the practice. I’ll let the DOJ press release take it from here:

From 2008 and 2012, while Mercene worked at a Los Angeles-area hospital, he admitted patients, the vast majority of whom were homeless, who had been referred from a purported “care consortium.” The patients, many of whom did not require hospitalization, were admitted for the purpose of defrauding taxpayer-funded health programs such as Medicare, Mercene admitted in court today.

Mercene admitted the “patients” after watching them being transported by van from Skid Row to the hospital, where they were often kept on a special floor away from the hospital’s “regular” patients. These “patients” also were given smoking breaks while in the hospital, even though many of them supposedly suffered from respiratory diseases. After a short hospital stay where numerous unnecessary tests were typically performed, Mercene discharged the “patients” to skilled nursing facilities, even though they did not require such care.

Dr. Mercene received almost $700,000 in kickbacks. Somehow that income didn’t make it onto his tax returns. While I suspect the alleged health care fraud can be prosecuted under various statutes, the government had an easier charge (to prosecute) to make against Dr. Mercene: tax evasion. That’s what he pleaded guilty to last week. He’ll be sentenced next July.

Posted in California, Tax Evasion | 1 Comment »

Former Bell Administrator Pleads Guilty to Tax Fraud; That’s the Least of His Problems

Friday, December 13th, 2013

Former Bell (California) City Administrator Robert Rizzo pleaded guilty yesterday to two counts of tax fraud (conspiracy and filing a false income tax return). Mr. Rizzo, though, will likely never directly serve any time at ClubFed for those counts. Why?

Well, Mr. Rizzo pleaded no contest to 69 state counts of corruption. In what is (and was) a huge scandal, Mr. Rizzo and his cronies basically used the City of Bell as their own personal piggy bank. He’s going to be going to state prison for 10 to 12 years (his sentencing will be in March). The scandal allegedly included salaries of up to $800,000; gas tax money being used for these salaries; and falsifying city documents to hide the salaries. The city council members from that time period are awaiting trial.

It is very likely that Mr. Rizzo’s sentence will be served concurrently with his state sentence. However, Mr. Rizzo will owe restitution to the IRS (along with to the state and city).

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Posted in California | 1 Comment »

Gilbert Hyatt In New York

Wednesday, November 27th, 2013

The decision on the Gilbert Hyatt appeal here in Nevada has still not come out. However, when I did my weekly check I discovered that the Gilbert Hyatt case has now reached New York State.

The entire Gilbert Hyatt case revolves around when Mr. Hyatt moved from California to Nevada. Mr. Hyatt said he became a Nevada resident in September 1991; the Franchise Tax Board said he left California in April 1992. Usually, seven months don’t make much difference. Here, though, that’s not the case. Mr. Hyatt is a successful investor and received a substantial payment in late 1991 (after September).

The Franchise Tax Board (California’s state income tax agency) audited Mr. Hyatt and assessed taxes and penalties. In 1996, Mr. Hyatt protested the audit. The Protest Division did not complete its review until 2007; Mr. Hyatt then appealed the FTB’s decision to the Board of Equalization. (The BOE hears appeals from the FTB).

Meanwhile, Mr. Hyatt filed a lawsuit against the FTB in Nevada (back in 1998). Before the case was tried, the FTB asked the Nevada courts to throw out the case based on sovereign immunity. That went up to the US Supreme Court; the Supreme Court ruled unanimously that Nevada does not have to immunize the FTB for intentional torts. The case was decided in 2009, and the FTB lost. The Appeal of that was heard in May 2012, and the decision has not yet been announced. The judgment to Mr. Hyatt totals $490 million.

So what is the litigation in New York? It stems from the appeal to the BOE by Mr. Hyatt. The FTB served a subpoena duces tecum on attorneys for U.S. Philips Corporation in New York, asking for information on Mr. Hyatt’s patents, income received in 1991 and 1992, his relationship to Philips, licensing of patents, and related items; they also asked for depositions of individuals. Mr. Hyatt asked the New York court to stop the subpoenas and depositions; the FTB contended that Mr. Hyatt did not have standing to challenge the subpoenas.

At the lower court (the New York Supreme Court), the Court ruled that Mr. Hyatt did have standing, that the FTB couldn’t asks for information on a patent infringement case, but that it could ask for information related to his residency and income in 1991 and 1992 (and related items). The Supreme Court modified the subpoena duces tecum to just that information. Both Mr. Hyatt and the FTB appealed; the appellate court upheld in all respects the original order. This decision came out in March.

The New York case relates to the BOE appeal. Presumably, the subpoenas have been served and the depositions have been taken (or soon will be taken). Sometime in 2014 the actual BOE appeal would occur…only 18 years after the protest was made!

That’s the key takeaway from this post. If you fight the FTB, the FTB will delay, delay, and delay some more in the hope that you can’t afford the litigation. Mr. Hyatt has deep pockets and can afford to litigate; many (most) individual and entities fighting the FTB don’t have the deep pockets to do so.

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Posted in California | Comments Closed

Dan Walters with Another Example of California Dreamin’

Tuesday, November 12th, 2013

When I resided in California, I always read Dan Walters’ columns in the Sacramento Bee. He knows his California politics very well. Yesterday he expounded on why California’s Senate Bill 30 (SB 30) ended up failing.

SB 30 would have conformed California tax law to federal tax law (mostly) with regards to homeowners with canceled debt income from their primary residences. As part of the massive tax measure that passed Congress on January 1st of this year, the exemption for canceled debt income from a primary residence was extended for 2013. SB 30 would have conformed. And the measure easily passed the California Senate 36-0. So why didn’t it become law? I’ll let Mr. Walters take over:

SB 30 had no opposition and sailed through the Senate 36-0, but only after the Senate’s leadership inserted a “poison pill” into the measure. It declared that SB 30 could take effect only if another measure, Senate Bill 391, was enacted.

SB 391 did have opposition, principally from the California Association of Realtors. It would impose fees on real estate transactions to raise money for low-income housing…

Ultimately, playing political games was more important than doing the right thing by families that had lost their homes, and that’s shameful.

If a Californian has a short sale or foreclosure in 2013 on his principal residence, it’s likely he won’t owe federal income tax. However, he likely will owe California income tax (unless he is insolvent or bankrupt). This will definitely come as a surprise for many Californians (and tax professionals).

California (rightly) has a miserable reputation for the business climate. While this issue has no impact on the business climate, it does show yet another reason why the Golden State has become, imho, the Bronze State.

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Posted in California | 1 Comment »

Another Film Tax Credit Scandal

Sunday, November 10th, 2013

There have been plenty of scandals regarding tax credits for the film industry in recent years (see, for example, Iowa). A new one has just arisen, this time in California.

The Los Angeles Times reported back on Halloween that State Senator Ron Calderon (D-Montebello) has been accused of bribery in relation to California’s film credits:

The [state] Capitol was roiling over comments attributed to Calderon in a report by the Al Jazeera cable network, based on what it identified as a sealed FBI affidavit, that he had enlisted other lawmakers to help him influence policy. In exchange, the affidavit alleges, the senator accepted $88,000.

State Senator Calderon has not been charged. Meanwhile, the FBI is investigating the leak of the affidavit to Al Jazeera.

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Posted in California | 1 Comment »

Bubba Paris Sacked, Pleads Guilty to Not Filing a Tax Return

Thursday, October 31st, 2013

Former San Francisco 49er William H Paris, Jr. (aka Bubba Paris) is now a motivational speaker. He’ll have a new topic to talk about: Why You Should Pay Your Taxes.

Back in February Mr. Paris was indicted on three misdemeanor counts of failing to file a tax return. He was alleged to have earned between $41,700 and $83,800 annually from 2006 to 2008. He pleaded guilty on Wednesday to one count of not filing a tax return in a plea deal. Mr. Paris agreed to make restitution of $126,530; he’ll be sentenced next February. He faces up to one year at ClubFed and a possible fine of up to $100,000.

That’s the second former football player who has not had a good week. Former Philadelphia Eagle Freddie Mitchell was sentenced to 37 months at ClubFed earlier this week. Mr. Paris, though, is not facing as lengthy a sentence. At most he faces one year in prison; given that he has promised to make restitution it’s likely he’ll get probation.

A hint to celebrities: You’re a perfect target for IRS Criminal Investigations when you don’t file and pay your taxes. If you are convicted, it will be covered in the news. Consider that Bubba Paris didn’t report tax on $182,743 and is paying restitution of $126,530 (which include penalties and interest)–That’s a tax rate of 69%! He’ll also have to pay California, too. It’s a lot easier to just pay your taxes in the first place.

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Posted in California, Tax Evasion | 1 Comment »

Noguez Gets More Charges

Wednesday, October 30th, 2013

Los Angeles County Assessor John Noguez finds himself facing more felony counts in the ongoing bribery/tax evasion scandal rocking the Los Angeles County Assessor’s Office. The new charges relate to three more building where Mr. Noguez and consultant Ramin Salari allegedly took bribes to lower the building’s assessments. Both Mr. Noguez and Mr. Salari pleaded not guilty to the new charges.

The last time I wrote about this scandal was last October. The preliminary hearing is set for January.

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The 2014 State Business Tax Climate Index: Bring Me the Usual Suspects

Wednesday, October 9th, 2013

The Tax Foundation released its 2014 State Business Tax Climate Index. In what will shock few readers of this blog, the usual suspects remain at both the top and bottom of the list.

First, let’s look at the top states–the best for business:

1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Washington
7. Montana
8. New Hampshire
9. Utah
10. Indiana

What do these states share? Generally, low taxes (and in the case of some of these states, no income tax). But as the Tax Foundation noted, “But this does not mean that a state cannot rank in the top ten while still levying all the major taxes. Indiana, which ousted Texas from the top ten this year, and Utah have all the major tax types, but levy them with low rates on broad bases.”

What happens when you have high taxes, complex taxes, and non-neutral taxes? You end up in the bottom ten:

41. Maryland
42. Connecticut
43. Wisconsin
44. North Carolina
45. Vermont
46. Rhode Island
47. Minnesota
48. California
49. New Jersey
50. New York

Let’s take my home state, Nevada, and compare it with California (my old state) to see why each ranks where they do. The Tax Foundation looked at five taxes: Corporate Tax, Individual Income Tax, Sales Tax, Unemployment Insurance Tax, and Property Tax.

Nevada doesn’t have a corporate tax or an individual income tax, so the state is tied at number one for both. California ranks dead last on the individual income tax. Not only does the Bronze Golden State have the highest state tax rate, there are numerous conformity issues (with federal taxes), and a tax bureaucracy that is hard to work with. California is below average for the corporate tax. This isn’t because California is that good; rather, there are states that are far worse.

Nevada and California rank 40th and 41st respectively on sales tax. Both states have complex systems with rates that vary in different districts. Additionally, both states have fairly high sales tax rates. California significantly outranks Nevada on Unemployment Insurance Tax. Nevada’s tax rate is one of the highest; California’s is relatively low with conformity on the maximum income base for this tax ($7,000). Nevada slightly outranks California on property tax (9th versus 14th). California’s low ranking is because of limits from Proposition 13. It’s something that gives certainty and is probably the third rail of California politics.

What most observers forget is the importance of the individual income tax. Most businesses pay tax through individual income taxes, not corporate taxes. S Corporations, LLCs, LLPs, general and limited partnerships, and sole proprietorships are flow-through entities that are taxed on the individual level. States that provide low rates on individual income taxes generally do better for businesses. While California is known for its entrepreneurs (think Silicon Valley), its tax climate discourages such ventures.

And for those who think that taxes don’t matter, I’m in Nevada as a result of taxes and California’s miserable business climate. Nissan moved its headquarters from California to Tennessee, and taxes were a big factor. For both small and large businesses (and everyone in between), these issues count. The Tax Foundation’s full study is well worth your perusal.

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Posted in California, Legislation, Nevada | 1 Comment »

Sometimes, Pigs Do Fly (California Repeals FTB’s QSB Tax Grab)

Sunday, October 6th, 2013

I look out the window of my office, and I saw the pig that flies:

A flying pig?

[The Flying Pig is via a Creative Commons license, from Wikipedia. And, no, I didn’t see one flying by my office in Las Vegas.]

California Governor Jerry Brown signed legislation “repealing” the Franchise Tax Board’s grab of revenue via the QSB decision. For those who don’t remember, last year a court ruled that California couldn’t discriminate against owners of Qualified Small Business Stock who reinvested the proceeds in a non-California company. So the Franchise Tax Board had ruled that anyone who did this would be subject to back taxes on the proceeds of their QSB stock. It was a decision that had California’s tech community in an uproar.

Kudos to Governor Jerry Brown who officially put the end to the FTB’s tax grab. He signed legislation that through legislation states that entrepreneurs and others who followed the law do not have to pay back taxes, penalties, and interest to California.

So pigs did fly in Sacramento…at least for one day.

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Posted in California | Comments Closed

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