(March 19, 2010) The California Chamber of Commerce is opposing and is asking the Governor to veto two problematic tax bills passed during the recently completed special legislative session.
The Governor called the special session of the Legislature to deal with the state’s budget crisis. The following two proposals revise state tax law in ways that harm business.
Given that ABX8 6 passed the Legislature with just a majority vote on March 4, it violates the constitutional requirement for tax increases to be approved by a two-thirds vote of the Legislature.
The Governor announced this week that he plans to veto the bill.
- SBX8 32 (Wolk; D-Davis) New Tax Penalty. SBX8 32 reduces complexity and waste in tax reporting and administration by conforming many California tax provisions to recent changes in federal tax law, but is harmful to the business community because it also includes a harsh, unfair new penalty on taxpayers.
A coalition of business representatives, including the CalChamber, pointed out to legislators that SBX8 32 includes a controversial provision imposing a 20 percent penalty on erroneously claimed refunds. The penalty would apply if the Franchise Tax Board decides the refund request is not reasonable, but “reasonable” is not defined, giving the Franchise Tax Board wide latitude to impose the penalty.
Currently, taxpayers are subject to a strict liability 20 percent “understatement penalty” for understatements in excess of $1 million with no right to appeal. Adopted in 2008, the penalty is the only one of its kind in the nation and is applied on top of other penalties for inaccuracies on tax returns.
This provision has caused taxpayers to substantially overstate their taxes to avoid the penalty, which is applied even when an understatement was reasonable or outside of a taxpayer’s control, such as unexpected federal adjustments.
Adding an erroneous refund penalty will whipsaw taxpayers that have overstated their liability to avoid the understatement penalty and now can be penalized for asking for a refund the Franchise Tax Board deems unreasonable.
The Governor this week urged legislative leaders to send him a “clean bill” that deals with federal conformity issues without including the tax penalties for businesses.