Tax Changes in the California Budget

The California budget deal will likely be voted on today or tomorrow. There are a number of tax changes in it that will impact Californians:

Estimated Taxes Accelerated (Again). Under federal law, taxpayers make four equal (25%) estimated tax payments on April 15, June 15, September 15, and January 15, 2010. California moved to 30% payments for April and June and 20% payments for September and January this year.

In the new budget, the estimated taxes are sped up even more. The first payment (April) will remain at 30% but the second payment (June) will increase to 40%. The September payment is eliminated, but the January payment is moved to December and will be 30%. Corporate estimated payments will follow the same pattern, except that the minimum franchise tax of $800 will still be due in April (15th day of the fourth month of the corporation’s fiscal year). This provision is estimated to accelerate $610 million into the 2009-2010 fiscal year.

Payroll Withholding Schedules Increased. Beginning in 2010 payroll withholding schedules will be increased by 10%. This provision is estimated to accelerate $1.7 billion of revenue into 2009-2010.

Non-retailers with Receipts Over $100,000 (annually) Must Register with the Board of Equalization. This means that service businesses (i.e. accountants, attorneys, consultants, etc.) will be required to register. They will also be required to file use tax returns annually. This provision is estimated to cause a revenue gain of $26 million for 2009-2010.

Backup Withholding Requirements will Conform to Federal Rules. This provision would require California businesses to withhold 7% of payments of interest, dividends, compensation, etc. if the IRS determines that a condition for withholding exists (with this 7% being withheld for the Franchise Tax Board). This provision is estimated to bring in $26 million into the 2009-2010 fiscal year.

You may have noticed that the biggest gains are from accelerating payments. Those are one-time fixes. It’s very clear to me that either this Fall or next Spring the California Legislature will be facing the same issues…unless the plan is that next year (2010) will be paying our 2012 taxes….

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