Taxable Talk

You're a successful business, with revenues over $1 million annually. Besides income taxes, your only regulatory fee is a $387 business license fee. The city you're in proposes a 15% gross receipts tax (subject to voter approval on November 8th). What would you do?

That's the situation facing the Player's Club in Ventura. It's a four-table poker club, legal under California law. (In California, gambling that doesn't conflict with state law—poker and similar card games—are legal in an establishment that gets a license from the state and the local jurisdiction it's in.) Almost every city that has legal gambling (in California) has a gross receipts tax. The City of Ventura doesn't.

As Bill Kracht, Manager of the Players Club, told the Ventura County Star, "We are supporting it. It's not that we want to pay more in taxes, but we recognize it's part of the business. Other cities have been doing it for years."

Coverage: Ventura County Star

California currently has a four-year statute of limitations on income taxes, but no statute of limitations on collections of tax monies. As we previously noted, the Franchise Tax Board earlier this year sent out notices to taxpayers—asking for payments on returns as old as from the 1960s. I prepared a 1974 tax return for a client just to show the FTB that there was no money due to the FTB.

Needless to say, the people complained to their legislators. In an usual display of bipartisanship (especially in Sacramento), the legislature passed a law that goes into effect on January 1, 2006 limiting collection efforts by the FTB to 20 years. (The IRS is limited to 10 years.)

So, can you, on January 1, 2006, finally shred your 1980 tax returns?

No.

Unfortunately, nothing prevents the FTB from saying you never filed your return and still go after you. If you haven't filed, there is no statute of limitations. But, you say, I did file back in [fill in the date]. The FTB says prove it. In order to do so, you'll need either your electronic receipt (if you filed electronically), or your return receipt (if you filed using certified mail, return receipt requested).

Isn't this ridiculous, you ask, because there's no way the FTB would stoop so low as this?

I'm sorry, I do not trust the FTB on this issue. The bureaucrats within the FTB are not exactly known for their benevolance when it comes to collections. The FTB is the same agency that went dumpster diving (and was rebuked by the US Supreme Court) to prove that an ex-Californian didn't really move to Nevada (he did). The only thing that works in dealing with the FTB is evidential proof. Until the culture of the FTB changes, save your returns forever.

In just a few weeks, California voters will go to the polls to decide several key propositions. Among these are two that definitely could impact taxes: Propositions 76 and 77.

Proposition 76 would impact California budgeting system. State spending would be limited based on an average of recent revenue growth. Given that California has had a sustained budget deficit (our elected Democratic legislators haven't met much spending that they would oppose), I feel that this ballot proposition should be carefully considered. You can find the arguments in favor here and the arguments against here.

Proposition 77 would change how the redistricting is done in the state. If you've ever looked at how district lines are drawn, you know that it's gerrymandering to the max. Personally, I'd prefer our legislators to draw fair lines so that we would see a couple of incumbents actually have to fight for their jobs (almost every legislative district in the state is considered "safe" for the incumbent) but I think there's no chance for this happening. Take a look at the arguments for and arguments against.

There are a number of other propositions on the ballot that you should examine; these impact prescription drugs, utility regulation, unions, and abortion. You can find information on these in your sample ballot or on the Secretary of State's website here.

Finally, if you live in the 48th Congressional District (as I am) don't forget that we will be voting to determine the successor to Christopher Cox as our Congressman on December 6th.

Also, I should note that I will be traveling this coming week so the next post may not be until Thursday.

The Federal Tax Code is complicated enough. As a practicing tax professional in California, it would be nice if California conformed to the Federal Code. On Friday, Governor Schwarzenegger signed AB 115, putting California into conformity with more of the Federal Code. Provision include:

· For 2005 (and beyond), California conforms to the Federal definition of qualified child, filing status, and dependency exemption;

· For 2006 (and beyond), California has a liberalized student loan deduction; and

· California conforms to IRC §179 (to $25,000)


However, California treats these provisions differently:

· No Health Savings Accounts (HSAs);
· No special PAL treatment for real estate professionals; and
· Differences in §179 treatment.

Of course, Congress is still in session (the State Legislature has recessed for the year) so there is a possibility that we'll see more changes out of Washington.