Taxable Talk

My parents live in the San Fernando Valley, an area within the City of Los Angeles. The Los Angeles Daily News has an interesting story on how Los Angeles increased the trash pickup fee by 254% without having to take the measure to a vote.

Californians passed two propositions, Proposition 13 and Proposition 218, that mandate votes on tax increases. So how did Los Angeles get around this? Well, the 254% increase wasn’t an increase; rather, it was an elimination of the subsidy of trash pick-up fees.

Over the next few years Angelenos will see their trash fees increasing from $11/month to $28/month. Interestingly enough, here in Irvine we pay just under $36/quarter for trash service. And it is not subsidized, but it is privatized. Somehow, this is not surprising.

Californians have signed enough petitions so that two tax measures will be on the November ballot. One would increase the cigarette tax to make it the most expensive in the state; the other would add an ‘oil severance’ tax, taxing oil production in the state.

The proposed cigarette tax increase would add $2.60 to a pack of cigarettes, making the total cost over $6.50 per pack. That’s a lot of quarters for the vending machine. The new tax would fund emergency rooms and health insurance for children. I expect this measure to pass easily.

The oil extraction tax would be used to fund alternative energy. Proponents also hope to decrease fossil fuel use by 25% in California. Given that the population in California continues to increase, their goal won’t be reached no matter what. In any case, this measure will face fairly determined opposition, especially when Californians discover that increasing oil taxes will increase what they pay at the pump.

News Stories: Cigarette Tax, Oil Extraction Tax

That’s one of the most vexing questions for the business owner. Is your staff employees, or can they be classified as independent contractors? The IRS has a webpage devoted to helping taxpayers make the classification choice.

Employers must withhold payroll taxes from employees, and match some of those taxes (FICA) and pay additional taxes (FUTA & SUI). However, independent contractors are responsible for their own taxes. There’s a benefit to companies to have personnel as independent contractors rather than employees.

However, California has its own rules. And it’s harder to be considered an independent contractor in California. California has a 24-fact test to determine whether someone is an independent contractor or an employee (it’s available here).

FedEx has classified its ground delivery personnel in California as independent contractors. EDD ruled that they’re employees. FedEx has appealed the ruling. The potential liability is $7.8 million.

FedEx News Story

My writing partner lives in Youngstown, Ohio. The last time I checked a map it was over 2000 miles from the Bronze Golden State. However, the Board of Equalization must look at different maps.

According to this column in the North Lake Tahoe Bonanza, the BOE ruled that if the managing member of an LLC is a California resident, the LLC must pay California taxes solely for this reason. I can’t find the ruling online, so I do not know any of the other details.

But on its face this ruling seems ridiculous. Consider a hypothetical Ohio LLC, Youngstown Tubing, LLC. The business is located in Youngstown. The LLC has no sales effort in California. Its managing member resides in California, but he travels to Youngstown for all of the LLC’s business. Yet (supposedly) because of the BOE’s ruling, this Ohio LLC would owe California franchise tax and the (previously ruled unconstitutional) LLC fee tax. I can’t see how this ruling can survive a challenge in federal court; then again, I was shocked that the Supreme Court declined to hear the Huckaby case (where a Tennessee telecommuter was forced to pay New York income tax).

I have requested additional information from the BOE; perhaps I’ll be surprised when I read the ruling and find that this ruling makes sense. I’ll keep you informed.