Archive for the ‘California’ Category

« Older Entries
Newer Entries »

Sales Factor to be Weighed Equally in California

Wednesday, July 25th, 2012

For business entities operating in multiple states, apportioning corporate tax can be difficult. Every state has different rules. This is especially true when dealing with California.

While California has a “single-factor” (sales) apportionment that can be used, there’s also a “three-factor” apportionment that uses sales, property and payroll. Back in 1993 the legislature said that when using the three-factor apportionment, the weight of the sales factor is doubled.

There’s a problem with that, though: California signed a multi-state compact that said the factors would be weighed equally. Several businesses sued the state. While the lawsuit was thrown out at the district court level, the 1st District Court of Appeal ruled unanimously that the businesses, led by Gillette, were correct. California must abide by the agreement because to not do so would be to break a contract.

I expect the Franchise Tax Board to appeal the case to the California Supreme Court.

Tags:
Posted in California | 2 Comments »

More Municipalities in Trouble in California

Sunday, July 22nd, 2012

Yet another California city may be joining Stockton, Mammoth Lakes, and San Bernardino in bankruptcy. According to the Huffington Post, Compton has $3 million on hand but must pay out $5 million in the next month. The problems are the result of lower property tax collections while labor costs (including pensions) continue to escalate.

Meanwhile, Democrats in Sacramento still push higher taxes as the solution. That “solution” will drive yet more businesses from the Bronze Golden State, and will only exacerbate the problems. Humorously, the state legislature gave raises to legislative aides of up to 10% and then cut the pay of other state workers by 4.62%.

A friend asked me what I thought it would take for California to rationally approach their problems and craft solutions that would work. That is an excellent question. I think the state will need to throw out all of the labor contracts and pension plans that have been negotiated in the past with state employees. California must also drastically cut taxes and regulations, and make the state a place that businesses want to locate in. The legislature’s example of the past week shows that California is still years away from solving their problems.

Posted in California | Comments Closed

The Tax War Against Medical Marijuana

Sunday, July 15th, 2012

Think what you may about medical marijuana (legal in about 17 states), there is a certainty for federal income tax purposes: Marijuana is a Class I narcotic so deducting expenses on a tax return for a marijuana dispensary is a violation of Section 280E of the Tax Code. This poses obvious difficulties for operators of dispensaries. And the federal government has targeted California dispensaries on two fronts: the IRS and landlords.

I’ve reported on this issue before. In early 2011, I noted it would take a while for the cases to get to the Tax Court. In Janet Novack’s excellent summary of the situation, Ms. Novack notes that two dispensaries have filed Tax Court cases. They’ll likely be heard late this year, with decisions coming in 2013.

The problem for the dispensaries is that the law is very clear here, and the IRS is likely correct in assessing the tax. It doesn’t matter that medical marijuana is legal in California–federal tax law is black and white on this issue. While I expect the probable losses in Tax Court to be appealed to the 9th Circuit Court of Appeals, the dispensaries appear to me to be in a losing battle.

Tags:
Posted in California, IRS, Tax Court | Comments Closed

In the Battle Between the Board of Equalization and the Humble Taco Truck…

Sunday, July 15th, 2012

Entrepreneurs look for niches: Opportunities that aren’t being served well by current businesses. Enter the humble taco truck. These food kitchens on wheels tend to serve business workers looking for a quick and reasonably priced meal. I saw them daily when I was living in Orange County.

What’s the biggest enemy of the entrepreneur? That’s easy: Government. It stifles businesses by adding regulations and taxes. And out of my old stomping grounds of Orange County comes a story about 12 taco truck owners who say that they now must fight the BOE.

One issue is that some items sold by these entrepreneurs are taxable while some are not. Thus, estimates are used to determine the sales tax owed to the state. Apparently, these estimates have now become unreasonable.

In this article in the Orange County Register, Steven Greenhut comes to the same conclusion that I did:

The state Capitol is controlled by liberal Democrats, who frequently invoke concern for the poor, working-class people and immigrants to justify spending schemes. Yet here is another example of how these officials, lawmakers and bureaucrats, put the demands of the well-paid and powerful public-employee unions over the needs of cash-strapped immigrants and working people.

State officials refuse to tackle solutions for the pension debt or rein in public spending. Indeed, they are busy approving fanciful projects such as high-speed rail. Yet, the state has no money. This is the end result of an infantile progressive movement that refuses to make hard choices, always blames the private sector and figures that higher taxes will solve every problem.

Read the entire piece and you’ll understand that California is doing everything it can to drive all business out of state.

Tags:
Posted in California, Sales Tax | 1 Comment »

Did a Maryland Tax Increase Cause Taxpayers to Flee the State?

Monday, July 9th, 2012

An organization called ChangeMaryland has a new study that states that 31,000 individuals left the state from 2007 to 2010. ChangeMaryland believes that it’s the tax hikes in the state that have caused the exodus.

Maryland is a decidedly liberal (“blue”) state with relatively high taxes. The study states that the millionaire’s tax, which ran from 2007 to 2010, cost the state $1.7 billion in tax revenues: Individuals impacted by the tax fled to low-tax states (primarily Florida). As I noted last December, California lost over 720,000 taxpayers and $48 billion of AGI from 1993 to 2008 while the population of the state increased.

There is an obvious conclusion: Tax rates matter, and individuals will move to avoid higher taxes. I’m an example of that, and it appears that many former residents of Maryland are, too.

Posted in California, Maryland | 2 Comments »

Jerry Brown Dreams of a Tax Increase and Other California Tidbits

Sunday, July 1st, 2012

Quite a few things to report on from the Bronze Golden State.

First, the budget was signed by Governor Jerry Brown. The budget only “works” if voters approve the new taxes he proposed and that will be on the November ballot. However, if a competing measure proposed by activist Molly Munger passes (or if neither passes), there will be major problems with California’s budget.

One of the budget “trailer” bills changed the placement of measures on the ballot, and moves Governor Brown’s tax proposal to the top (with others falling underneath). Molly Munger has sued the California Secretary of State stating that you can’t change the rules in the middle of the game.

Even if a tax increase passes at the ballot box–and that’s definitely uncertain–taxes almost never bring in the money that politicians think they will. Individuals modify their behavior. California continues to drive businesses out of state (like mine), and the fix is one that is anathema to Democrats in Sacramento: Regulations and taxes must be cut, not increased, to make California more competitive economically with other states.

If I were a development officer in Arizona, Nevada, Colorado, Texas, or Utah, I’d be ready to make some phone calls as there will likely be plenty of businesses ready to head east.

Posted in California | Comments Closed

Stockton Likely to File Chapter 9 Bankruptcy This Week

Monday, June 25th, 2012

I used to work in Stockton, California. It’s a city east of the San Francisco Bay Area in central California. It’s in the San Joaquin Valley, and in recent years grew into a bedroom community for the Bay Area. And therein lies the problem.

When cities grow, planners have a bad tendency to think the growth will continue forever. It didn’t. Add in California’s ridiculous pension scheme and you have a recipe for disaster. It’s likely that Stockton will file Chapter 9 bankruptcy later this week.

And it’s not just Stockton that’s in deep financial trouble. Los Angeles is in very poor financial shape. When I lived in Irvine I paid $36 a quarter for trash pickup; my mother pays $36 a month within Los Angeles. The difference is the generous pay and pensions provided to public employees within the City of Angels. The money to support such pay no longer exists, and the day of reckoning is approaching for municipalities throughout the Bronze Golden State.

Will the Democrats who run the largest cities in California (and the legislature) realize you can’t spend money you don’t have? Based on the last ten years, probably not.

Tags:,
Posted in California | Comments Closed

49ers Sacked by Santa Clara County

Monday, June 25th, 2012

The San Francisco 49ers want a new stadium instead of playing at Candlestick Park. And in 2010 voters in Santa Clara approved the financing of a stadium. However, a monkey wrench was thrown into the plans last week when Santa Clara County eliminated $30 million in funding for the stadium. The funding for the stadium included $40 million from redevelopment agencies; the total cost of the stadium is estimated at $1.2 billion. The $30 million is from property taxes out of redevelopment zones.

City of Santa Clara officials claim the vote was done in spite of public notice laws. The only certainty is that lawsuits are sure to follow.

Tags:
Posted in California, Property Taxes | 1 Comment »

California Cigarette Tax Voted Down

Sunday, June 24th, 2012

Proposition 29 on the June ballot in California would have increased cigarette taxes in the state by $1 per pack. On Friday, supporters officially threw in the towel and conceded defeat. Though there are 110,000 votes still to be counted, the measure trails by 28,000 votes and passage appears mathematically impossible.

Tags:
Posted in California | Comments Closed

California Dreamin’

Sunday, June 17th, 2012

The California legislature passed yet another Bad Budget™ that used gimmicks and a hoped for tax increase this fall to balance the budget. The budget passed on a party-line vote with no Republican support. Governor Jerry Brown has not yet signed the budget, and it’s possible he’ll use his red pencil (the line-item veto) to make changes.

The budget assumes the following

  • Voters will approve Governor Brown’s proposed tax increase on the November ballot.  That’s anything but a given since support is now at only 52% with the economy not exactly being a rosy situation;
  • That there are no further shortfalls with tax revenues. Given the economy, there are definitely some rose-colored glasses being used;
  • That borrowing costs don’t increase. The budget has plenty of borrowing; and
  • That no unforeseen expenses hit the state. Even the $500 million that’s likely to go to Gilbert Hyatt would be a problem.

 
Even if everything in this scenario happens–something I think is very unlikely–the best case for California next June is that they will be looking at a $3 billion deficit. The worst case is something well over $20 billion.

Here’s a song that explains my feelings well:

Tags:
Posted in California | Comments Closed

« Older Entries
Newer Entries »