California: Business Net Receipts Tax Proposal Keeps Moving Forward

California's Commission on the 21st Century Economy is reaching the end of its discussion on proposals for revising California's taxing structure.

The Commission met on September 10th and released several new documents discussing its current thoughts on potential proposals, including changes to the personal income tax, a business net receipts tax, changes to the corporation tax, sales and use tax, and requirements regarding the rainy day reserve fund. For more information, see the Commission's website.

According to the Commission's website, the following is a description of the major components of the proposed tax plan, with the initial year of implementation in 2012.Personal Income Tax

The personal income tax (PIT) would significantly change in structure and the state’s reliance on this revenue source would diminish substantially. Under the proposal, the number of tax brackets would be reduced from six to two; credits would be eliminated (except for the other states’ tax credit); deductions would be dramatically curtailed.

After a phase-in period based on reductions in the current law PIT, the new PIT structure beginning in year three of the plan would be as follows:

  1. Tax rate of 2.75% for income up to $56,000 for joint filers ($28,000 single filers) and 6.50% for incomes above that amount.
  2. Standard deduction of $45,000 for joint filers ($22,500 single filers).
  3. Itemized deductions limited to mortgage interest, property taxes and charitable contributions.

Corporation Tax

The corporation tax on businesses would be eliminated in 2012, the first year of the tax plan.

Sales and Use Tax

The state portion of the sales and use tax (SUT) would be phased-out beginning in the initial year of the tax plan. The SUT would be reduced by 1% during each of the five years of the plan’s phase-in period.

Annual reductions would be contingent on the revenues generated by the newly imposed business net receipts tax as described below. To the extent that revenue from the new tax fell short of estimates, the precise reduction in the SUT rate would be adjusted.

Business Net Receipts Tax

A business net receipts tax (BNRT) would be imposed on all businesses deemed to be doing business in the state. Doing business would constitute not only physical presence in the state but also economic presence.

The tax would be based on net receipts, calculated by subtracting purchases from the gross receipts of the firm. It would apply to all forms of business including C corporations, pass-through entities and sole proprietorships.

The BNRT would apply to all sectors of the economy. The tax would be phased-in over a five year period as other taxes were eliminated and phased-out.
Rainy Day Reserve Fund

The annual transfer of 3 percent would continue under this proposal. New reserve requirements would increase the target for the reserve fund to 12.5 percent of state revenues, up from 5 percent of revenues. Unanticipated or one-time revenues and receipts would be dedicated to building up the reserve.

The circumstances under which revenue transfers to the reserve fund could be suspended would be severely restricted. In addition, there would be more stringent controls on the circumstances for the withdrawals of moneys from the reserve fund as well as the purposes for which the money could be used.

REMEMBER

All of the above proposals are in the early discussion stages, and only represent current recommendations by the Commission. There are a number of steps to be taken before these proposals would be enacted into law, including a great deal of scrutiny and review.

If you have any questions, please contact me at leveragesalt@earthlink.net.

This blog

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website: www.leveragestateandlocaltax.com

You can reach Brian at strahle@leveragesalt.com.

Connect with Brian on LinkedIn. Follow Brian on Twitter. Join the Leverage | SALT LinkedIn Group, connect and contribute with your colleagues!  

Because state and local taxes are deceptively simple and endlessly complicated.

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.

42616

Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.

74900

Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.

47601

Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

87449
Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.
20025

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".

54725

William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.

79447

Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (www.ubcc.com), a software development firm of high-volume, high-productivity accounting and payroll technology.

24587

Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

63143

Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

33978
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
101278
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.
25301

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

51596
Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
27141
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.
31436

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.

98788

The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.

32626

FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.

109675

Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.

59918

Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

38644
Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.
65644

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of Yellowbook-CPE.com a website devoted to training for governmental auditors.

91513

AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish AccountingWEB.co.uk share their ideas, insights, and perspectives from across the pond.

52590