When I resided in California, I always read Dan Walters’ columns in the Sacramento Bee. He knows his California politics very well. Yesterday he expounded on why California’s Senate Bill 30 (SB 30) ended up failing.

SB 30 would have conformed California tax law to federal tax law (mostly) with regards to homeowners with canceled debt income from their primary residences. As part of the massive tax measure that passed Congress on January 1st of this year, the exemption for canceled debt income from a primary residence was extended for 2013. SB 30 would have conformed. And the measure easily passed the California Senate 36-0. So why didn’t it become law? I’ll let Mr. Walters take over:

SB 30 had no opposition and sailed through the Senate 36-0, but only after the Senate’s leadership inserted a “poison pill” into the measure. It declared that SB 30 could take effect only if another measure, Senate Bill 391, was enacted.

SB 391 did have opposition, principally from the California Association of Realtors. It would impose fees on real estate transactions to raise money for low-income housing…

Ultimately, playing political games was more important than doing the right thing by families that had lost their homes, and that’s shameful.

If a Californian has a short sale or foreclosure in 2013 on his principal residence, it’s likely he won’t owe federal income tax. However, he likely will owe California income tax (unless he is insolvent or bankrupt). This will definitely come as a surprise for many Californians (and tax professionals).

California (rightly) has a miserable reputation for the business climate. While this issue has no impact on the business climate, it does show yet another reason why the Golden State has become, imho, the Bronze State.