Taxable Talk

California law requires parcel taxes to be uniform for every parcel. That means a parcel of 0.1 acres and a parcel of 10 acres must be charged the same tax. It seems simple, right?

Well, back in 2008 voters in the Alameda Unified School District (near Oakland in the East San Francisco Bay region) approved Measure H. That allowed a parcel tax, of $120 on residential property. However, commercial properties were charged a sliding scale. Smaller properties were charged $120; however, some larger properties owed $9,500 per year.

A property owner filed a lawsuit claiming the tax on larger commercial properties should be limited to the $120 per year. He lost at trial but appealed the decision. The appellate court reversed the decision, so for now uniform is back to its original meaning. Unless the decision is overturned on appeal (I do expect the Alameda Unified School District to appeal to the California Supreme Court), the school district will have to refund most of the $18 million it collected.

Unfortunately, there’s a dark cloud on the horizon. As the court noted,

We are well aware that we are being called on to interpret statutory language enacted in a different economic era and in the wake of two of the most far-reaching tax constraining measures ever passed by the state electorate (Propositions 13 and 62), that the state has since faced crippling economic conditions, and that school districts and other local governmental entities are more dependent than ever on the revenues from special taxes. The courts, however, cannot recalibrate the taxing power statutorily delegated to local entities; any adjustment in that regard must be made by the state Legislature.

Given that Democrats now have a super-majority in the California legislature, I expect uniform to be a thing of the past in the near future.

News Story: San Francisco Chronicle
Hat Tip: Tax Foundation

California Governor Jerry Brown promised that the new taxes that have gone into effect will balance the budget. Well, in November California revenues were $842 million below expectations, and California is $802 million under budget for the fiscal year (which began in July).

The problem for California is simple: Raising taxes causes people to change behaviors. That will be somewhat difficult initially (the income tax increase is retroactive for the entire 2012 tax year); however, 2013 is another story. While I do expect California’s April tax revenues to meet expectations, I doubt that many other months will do so. Also hovering in the background is the possibility of a $500 million bill to Gilbert Hyatt (the Nevada Supreme Court will decide that in the coming weeks).

Elections have consequences. California approved Proposition 30 last week, raising state income taxes “temporarily” by a minimum of 1% (from 9.3% to 10.3%); the top rate is now 13.3%. That is not a typo: If you make $1 million or more, you will be in the 13.3% marginal tax bracket. That likely will cause business owners to look at states where the climate isn’t as nice but the taxes are nicer.

(This may not be the only tax increase for businesses. There is a chance that Democrats will have a “supermajority” in the California legislature. Currently, it takes a two-thirds vote to pass tax increases; Republicans have opposed all tax increases. If Democrats obtain the supermajority, expect to see plenty of new taxes. I’d guess on a repeal of Proposition 13 for commercial property, a broadening of sales tax to include services, and an oil severance tax just as starters. I probably should remind Democrats of Alan Greenspan’s line, “Whatever you tax, you get less of.” But I digress….)

Take-Two Interactive Software will move 150 jobs when their QA studio moves from Northridge (in the San Fernando Valley area of Los Angeles) to Las Vegas. The City of Las Vegas and Nevada threw in $1.2 million in incentives; I’m sure that might have helped the cause along. But consider that Take Two won’t have to pay California state income tax and Los Angeles business tax anymore, and that makes the saving seven greater.

As many of you know, I executed my own “Escape from California” last year. I haven’t regretted it for a minute. I expect many other business owners to follow in my footsteps.

Democratic Governor Jerry Brown of California is dreaming of a tax increase. Voters in California apparently aren’t sharing the same dreams; perhaps they see the current economic climate and wonder, ‘If we have to make do with our current earnings, why shouldn’t you [the government]?’

A new poll shows Proposition 30, Governor Brown’s tax increase measure, ahead 48% to 44%. As this San Jose Mercury-News article points out, tax measures usually need more than 50% support to pass as voters are skeptical regarding taxes.

Meanwhile, the Los Angeles Times runs an article noting, “Taxes won’t make the rich leave California,” citing a liberal think-tank study. To the Times’ credit, they do note that another study came to the opposite conclusion. I’ll add that tax data supports the conclusion that people are leaving California. And it’s certain the reason they’re leaving has nothing to do with the beautiful climate (weather), so perhaps the high taxes and regulations do have an impact.