Taxable Talk

And it’s a big but.

Thanks to the TaxProfBlog and Roth Tax Updates for giving me the tip on a case decided in San Francisco, Northwest Energetic Services v. Franchise Tax Board. Northwest, a Washington State LLC, sued to recover its LLC Gross Receipts Tax, er, Levy, from the Franchise Tax Board. Northwest had no operations in California, but was registered in the state. The court ruled that the levy is really a tax and that because the tax, er, levy was based on unapportioned income, it violated the due process and interstate commerce clauses of the Constitution.

As Joe Kristan (Roth Tax Updates) notes, the FTB will appeal.

In any case, as I read the decision, the levy (tax) is legal for a California based business with all of its income derived from California. Indeed, if the gross receipts levy is modified so that it is based on an apportionment (similar to Schedule R used on California corporate tax returns), then it would be legal.

If you are a member of an LLC, make sure that your LLC applies for a refund. California has a four-year statute of limitations on refunds (given timely filing); your refund request for tax years 2001 needs to be postmarked by April 15th (certified mail, return receipt requested, of course).

Given that California is still in dire financial straits, don’t expect anything to change. Remember that the California LLC code prohibits professionals from being a member of an LLC in the state. Also remember that this decision will be appealed, and, as Joe Kristan notes, you should continue to pay your LLC levy, er, tax for the foreseeable future.

Hat Tips: TaxProf Blog, Roth Tax Updates

For those of you (like me) who voted last December in the election to replace Chris Cox as Congressman, it’s just about time to vote on his replacement. John Campbell was the State Senator for the 35th District (Irvine and surrounding cities). On April 11th, we will vote in a special election for his replacement.

The Orange County Registrar’s home page on the election is here. The district is overwhelmingly Republican; there are two Republican candidates in the primary: Diane Harkey and Tom Harman. If no candidate receives 50% of the vote plus one, there will be a run-off election held in conjunction with the State Primary Election on June 6th.

The Franchise Tax Board is in its second year of the “Ready Return Program.” Under this program, the FTB prepares returns for individuals who have very simple returns — just wage income, single, no dependents. But the program has been quite controversial.

Professor Maule today gives an excellent review of the program. If you’re at all interested in the controversy, read it all.

The Tax Foundation today released its business climate survey of the 50 states. For the record, here are the top ten states:

1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Nevada
6. New Hampshire
7. Texas
8. Delaware
9. Montana
10. Oregon

California ranks 40th, just missing out from the bottom ten. The bottom five are Vermont, Ohio, Rhode Island, New Jersey, and New York.

The last time the Tax Foundation ran their list (2004), California ranked 45th, so the state has managed to improve. Well, perhaps. Or perhaps some other states have managed to fall below the Golden State. Here’s what the Tax Foundation says about New York: “New York has the worst individual income tax in the country, in addition to the 7th and 3rd worst wealth and unemployment taxes respectively. New York receives its highest score on its business tax, 18th best.” California, for the record, ranks 39th for business tax, 47th for individual income tax, 38th for sales tax, 20th for unemployment insurance tax, and 7th for wealth tax.

The report is quite illuminating, and I recommend perusing it. You can find it here.

Thanks to the TaxProfBlog for pointing this survey out.