Articles Posted in California

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In “California Office of Tax Appeals Rejects Franchise Tax Board’s Broad Interpretation of California’s “Doing Business” Standard,” the SALT team examines the board’s rejection of the California Franchise Tax Board’s (FTB) extremely narrow interpretation and application of Swart Enterprises, Inc. v. Franchise Tax Board, involving California’s “doing business” standard.

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(This article was originally published by Law360 on August 24, 2018.)

California is the latest to join a growing list of states to ban local taxes targeted at sweetened beverages or similar sugar taxes. California Assembly Bill 1838 signed into law on June 28, 2018, imposes a 13-year ban on any new local taxes on carbonated and noncarbonated beverages and other “groceries.”1 Arizona and Michigan have done the same and three more states, Oregon, Pennsylvania and Washington are considering similar bans. The public policy debates behind these recent legislative enactments are no different than the all too familiar “sin taxes” that harken of decades, if not centuries past.

Aside from the inherent differences between sugary groceries and the likes of tobacco, alcohol or gambling, sweetened beverage taxes imposed at local levels pose serious compliance issues for distributors and retailers. The recent popularity of these taxes at the local level not only has the beverage and retail industry fired up over the compliance issues, but citizens are beginning to recognize the paternalistic nature of these taxes and their regressive effects on the communities.

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(This article was originally published by Law360.)

California’s A.B. 2731 seeks to accomplish what the federal Tax Cuts and Jobs Act did not, namely, to close the carried interest “loophole.” Currently making its way through state assembly committees, AB 2731 would impose an additional 17 percent tax on interest income derived from investment management services on taxpayers subject to California’s personal income tax law.

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In “California Seeks Input on Clean Energy Equipment Tax Exemption,” an article that originally appeared in Law360, Carley Roberts, Robert P. Merten III and Jessica N. Allen summarize the sales and use tax exemption’s scope and qualifying requirements, the 2017 legislative changes to it, the CDTFA’s proposed amendments and why stakeholders may want to participate in the IPM process.

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TAKEAWAYS

  • New initiative seeks to eliminate Proposition 13 protection for commercial and industrial property by requiring fair market value reassessments at least every three years
  • Initiative seeks to add a $500,000 tangible personal property tax exemption for all taxpayers and a full exemption for taxpayers with less than 50 California employees.

Initiative 17-0055 seeks to put two significant changes to California’s property tax system before voters in November—(1) the elimination of Proposition 13 protection for commercial and industrial properties in favor of reassessment at least every three years and (2) the addition of a tangible personal property tax exemption of $500,000 for all taxpayers and a full tangible personal property tax exemption for taxpayers with less than 50 California employees. Proponents of the Initiative claim these revisions are needed to raise funding to support California schools.

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TAKEAWAYS

  • It is estimated that about $65 million annually would be collected from the commercial real estate industry under the Housing for All tax.
  • It is estimated that about $150 million annually would be collected from the commercial real estate industry under the Universal Childcare for San Francisco Families tax.
  • The election presents commercial landlords with the prospect of a massive tax increase from the current 0.3% rent tax, though the Housing for all Measure is clearly the less burdensome of the two.

There will be competing commercial rent tax measures on San Francisco’s June 2018 ballot. The “Housing for All” measure would impose a new 1.7% tax on commercial rents in San Francisco, effective January 1, 2019. The “Universal Childcare for San Francisco Families” measure would impose a new 3.5% tax on commercial rents (1% on rents from warehouses) in San Francisco (also operative January 1, 2019). Both measures specify that only one measure can be adopted, and that if both measures secure sufficient votes for passage, the measure with the most votes will prevail. If either of these measures were to be adopted it would be in addition to San Francisco’s existing 0.3% gross receipts tax on rentals.

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