Taxable Talk

I appear to have returned from my vacation full of classic rock. Tonight’s selection is Kansas’ Dust in the Wind. Here’s an excerpt:

[Now] Don’t hang on, nothing lasts forever but the earth and sky
It slips away, and all your money won’t another minute buy.

Dust in the wind, all we are is dust in the wind
Dust in the wind, everything is dust in the wind.

I chose that particular selection because that’s what California has as a budget: Dust in the wind.

Bill Leonard says that the new budget features a structural deficit of anywhere between $8 and $26 billion. Hmmm, that sounds familiar. It’s another budget filled with one-time fixes and gimmicks. Yes, it’s signed into law and the IOUs will vanish…but only temporarily. There’s no chance that revenues for the remainder of 2009 will meet projections, and the legislators in Sacramento will have to be called back for the third time in 2009 to fix the budget.

What must be done is simple: Cut, cut, cut. Like it or not, expenses will need to be pared to match revenues. If you think Californians are for tax increases in the middle of a recession, I’ve got a bridge (actually, several) to sell you.

Here’s a link to listen to Kansas performing Dust in the Wind.

The California budget deal will likely be voted on today or tomorrow. There are a number of tax changes in it that will impact Californians:

Estimated Taxes Accelerated (Again). Under federal law, taxpayers make four equal (25%) estimated tax payments on April 15, June 15, September 15, and January 15, 2010. California moved to 30% payments for April and June and 20% payments for September and January this year.

In the new budget, the estimated taxes are sped up even more. The first payment (April) will remain at 30% but the second payment (June) will increase to 40%. The September payment is eliminated, but the January payment is moved to December and will be 30%. Corporate estimated payments will follow the same pattern, except that the minimum franchise tax of $800 will still be due in April (15th day of the fourth month of the corporation’s fiscal year). This provision is estimated to accelerate $610 million into the 2009-2010 fiscal year.

Payroll Withholding Schedules Increased. Beginning in 2010 payroll withholding schedules will be increased by 10%. This provision is estimated to accelerate $1.7 billion of revenue into 2009-2010.

Non-retailers with Receipts Over $100,000 (annually) Must Register with the Board of Equalization. This means that service businesses (i.e. accountants, attorneys, consultants, etc.) will be required to register. They will also be required to file use tax returns annually. This provision is estimated to cause a revenue gain of $26 million for 2009-2010.

Backup Withholding Requirements will Conform to Federal Rules. This provision would require California businesses to withhold 7% of payments of interest, dividends, compensation, etc. if the IRS determines that a condition for withholding exists (with this 7% being withheld for the Franchise Tax Board). This provision is estimated to bring in $26 million into the 2009-2010 fiscal year.

You may have noticed that the biggest gains are from accelerating payments. Those are one-time fixes. It’s very clear to me that either this Fall or next Spring the California Legislature will be facing the same issues…unless the plan is that next year (2010) will be paying our 2012 taxes….

California has a budget deal. That said, the devils is always in the details and those are lacking this morning. What’s known is that local governments (counties and cities) will face a $5 billion cut, the plan includes borrowing and some “speeding up of tax collections” and other one-time fixes.

Needless to say, I’d like to know more about the changes in tax collections. Estimated payments went to a 30/30/20/20 scheme this year; are they thinking of a 45/45/5/5 scheme? Or some other foolish ideas that will make California’s excellent business climate even more palatable? Supposedly the details will be available late today or tomorrow. I’ll let you know when I see them.

The Flash Report said this evening that a budget deal is done. “Lots of cuts, lots of borrowing, lots of gimmicks. But from the briefings I have had so far, the cuts are substantial, with mega-billions that are permanent.” The vote will supposedly be on Thursday. The budget should be available for public consumption either late tomorrow or Wednesday.

I read this story this morning and couldn’t believe it. Yet I’ve been assured it’s true. California’s DMV is returning a check because it was sent in too quickly from the time the notice was received!

There’s another few bucks down the drain for the Bronze Golden State