United States: California Tax Developments

Last Updated: May 9 2015
Article by Marty Dakessian, Mike Shaikh, Shirley J. Wei, Erin J. Mariano and Jenny J. Choi

Most Read Contributor in United States, October 2017

Regulatory Updates

GO-Biz Rolls Out First Awards of 2015 For fiscal year 2015, the Governor's Office of Business and Economic Development ("GO-Biz") is authorized to award $151.1 million in California Competes Tax Credits to taxpayers who apply for and compete for the lucrative credits. There were three application periods for the 2014-2015 fiscal year. On January 15, GO-Biz awarded $31 million in tax credits to 94 taxpayers. The credit awards for the first application period for fiscal year 2015 ranged from $20,000 to more than $3 million.

For the second application period, which ran from January 5 through February 2, GO-Biz received 253 applications requesting credits totaling $289 million. However, GO-Biz was authorized to award only $75 million of credits for this application period.

The third application period for fiscal year 2015 ran from March 9 through April 6. For this period, GO-Biz is authorized to distribute $31.1 million of credits, plus any unallocated amounts from the first application period.

Takeaway: The California Competes Tax Credits are part of the governor's new economic incentive plan. The application process consists of multiple steps, and includes both a quantitative component and a qualitative component. As noted above, some of the credit awards have been substantial. Contact an author of this update to discuss the eligibility requirements and the application process for the 2015-2016 year.

Legislative and Administrative Updates

New Members on the State Board of Equalization Following the November 2014 elections, two new members were elected to serve on the five-member State Board of Equalization. Fiona Ma was elected to represent the Second District, which includes 23 counties in Northern California. Board Member Ma previously served on the San Francisco Board of Supervisors, and also represented California's 12th Assembly District and served on the Assembly Revenue and Taxation Committee.

Diane Harkey was elected to represent the Fourth District, which includes five counties in Southern California. Board Member Harkey previously served three terms in the California State Assembly representing the 73rd District encompassing south Orange County, and was Vice-Chair for the Assembly Revenue and Taxation Committee.

Controller Betty Yee has appointed Yvette Stowers to serve as Deputy State Controller for Taxation. Since 2008, Ms. Stowers has served as a Tax Consultant Expert II to Board Member Yee, handling complex tax disputes and reviews involving multinational corporations, small businesses and individual taxpayers. Ms. Stowers previously served as a Program Specialist and Audit Manager at the Franchise Tax Board.

Gov. Brown Releases Proposed Budget Gov. Brown published his annual budget proposal in January. In the proposal, Gov. Brown projected general fund revenue of more than $113 billion (a 4.9% increase from last year). This projected increase comes not from proposed tax law or rate changes, but mostly from a forecasted increase in personal income tax collections.

The lack of tax increase proposals in the governor's budget does not necessarily mean that tax increases are not on the horizon. In 2012, with the strong support of Gov. Brown, the voters passed Proposition 30, which temporarily increased both sales and personal income tax rates in the state. With the sales tax increase set to expire in 2017 and the income tax increase set to expire in 2019, there have been some proposals to make those rate increases permanent. Gov. Brown has not publicly supported these proposals. The governor has also remained silent on proposals to expand the sales tax base to apply to services.

Takeaway: Gov. Brown's revised budget will be released in May. This revised budget may include tax law changes that were not part of the governor's original budget proposal.

Senate Bill Introduced Relating to California Public Records Act California's Public Records Act, codified in the Government Code1 and governed by the state constitution, generally requires that government records be made available for public inspection or disclosure upon request, unless a specific exemption from disclosure applies. The state and its agencies bear the burden of proving that records are exempt from disclosure.

Sen. Bob Wieckowski introduced Senate Bill 201 February 10, 2015. The Bill would amend the Public Records Act to allow third parties seeking to block disclosure of a public record to seek an injunction or declaratory relief in the California courts. Under the Bill, the courts are to apply the Public Records Act, as if the third-party action had been initiated by a person requesting disclosure of a public record. The Bill would also require third parties seeking an injunction or declaratory relief to provide notice to the person who requested the action at the same time as it serves the public agency. Finally, the Bill would require courts to permit the person whose request prompted the action to intervene upon request.

Takeaway: The Public Records Act is a powerful tool for citizens and keeps the government accountable to the public. This Bill would add certain notice requirements to the Public Records Act process to provide individuals and businesses with protections against the disclosure of sensitive information (such as tax information) through Public Records Act requests.

Assembly Bill Would Provide Automatic Refunds to Taxpayers who Paid an Unconstitutional or Illegal Tax On February 26, 2015, Assembly Bill No. 867 was introduced to extend common-sense protections to taxpayers by requiring California to provide an automatic full refund to all individuals who paid a tax or other amount that is later declared unconstitutional or illegal. Currently, taxpayers must timely file a claim for refund and exhaust all of their administrative remedies in order to receive a refund of tax paid. AB 867 would allow taxpayers to file a claim for refund within one year from the final and non-appealable decision of a court of competent jurisdiction that a tax, fee, assessment, surcharge, or other amount paid was determined to be illegally levied or collected by the tax agency. Under AB 867, a taxpayer would be able to bring an action in court for recovery of the whole or any part of the amount claimed once the one-year claim period had expired without issuance of a refund. The state would also be required under the bill to automatically issue refunds of amounts illegally levied or collected to taxpayers who can be sufficiently identified through the state agency's system. The state would be required to issue a refund even in situations where the normal statute of limitations for filing refund claims had expired. Under the bill, interest would be allowed on all refunds of unconstitutional or illegal taxes, computed as provided under current law for interest on overpayments.

Takeaway: This bill represents good tax policy. Taxpayers who pay amounts that are later found to be unconstitutional or illegal should not be required to expend time and resources to go through the administrative process.

Awards

Mike Shaikh named Law360 Rising Star Law360 named Mike, a senior associate on our team, as one of the top attorneys under 40 in the nation. Mike was acknowledged for his successful representation of taxpayers in significant controversy matters, both at the administrative level and in court. The publication also recognized Mike's experience as tax counsel on business transactions. Mike is an outspoken leader in the state tax community, having published numerous articles and spoken about state tax matters in many venues. Law360 has recognized this commitment to his clients and the tax community by awarding Mike the honor of a Rising Star.

Meet the Team: Kyle Sollie Kyle, a partner on our team, was formerly resident in the San Francisco office. Now located in Philadelphia, Kyle serves as an East Coast liaison with the California practice, offering clients an eastern-time-zone California technical resource. Kyle works with clients on cutting-edge issues in California, such as extending NOL carryover periods, avoiding NOL "silos" for California taxpayers, "untrapping" California EZ credits, getting factor representation for foreign dividends received by California water's-edge taxpayers, limiting the effect of California "foreign investment offset" rules, and reducing California tax on gains reported on federal form 4797.

About Reed Smith State Tax Reed Smith's state and local tax practice is composed of more than 30 lawyers across seven offices nationwide. The practice focuses on state and local audit defense and refund appeals (from the administrative level through the appellate courts), as well as planning and transactional matters involving income, franchise, unclaimed property, sales and use, and property tax issues. View our State Tax team. For more information on Reed Smith's California tax practice, visit State Tax - California.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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