Taxable Talk

Rob Reiner resigned as head of the First-5 Commission on Wednesday, as more pressure mounts to do a thorough investigation. Indeed, as the Chronicle story notes, both Democrats and Republicans believe something's fishy with how the Commission spent money raised through the cigarette tax.

Meanwhile, Los Angeles County Sheriff Lee Baca and other law enforcement officers came out in support of Proposition 82, the help Las Vegas, Phoenix, and Denver Initiative (aka the tax the wealthy for mandatory pre-school initiative). Support for Proposition 82 has fallen to 52 percent, which is about 30 percent higher than it should be if voters realized the economic consequences. There's still no word if the Nevada Development Authority will sponsor advertisements supporting Proposition 82.

I live and work in beautiful Orange County, California. Several years ago the voters of this county passed a 0.5% sales tax increase to fund transportation issues (such as the widening of Interstate 5 through Orange County). That sales tax increase expires at the end of 2011. The Orange County Transportation Authority (OCTA) administers the tax, and has been running a somewhat blatant advertising campaign in support of renewing Measure M. Just one little problem: that's probably illegal.

No matter what your view is on Measure M, it's irrelevant; it's illegal (under California law) for a government agency to publicly campaign for a proposition. And as the Orange County Register noted in an editorial, the OCTA issued an 8-page campaign mailer an 8-page informational brochure praising the benefits of Measure M. Sort of sounds like the campaign for pre-schools that Rob Reiner ran. You can see the ad/brochure here.

While Rob Reiner has suffered the consequences of his actions, it's uncertain whether the OCTA will. Hopefully, the Legislature and the Orange County Board of Supervisors will tell the OCTA to spend their money on improving the freeways and not on glitzy campaign literature informational brochures.

CTEC, the California Tax Education Council, released a press release reminding taxpayers of the automatic extension available (Form 4868). The press release noted that the extension, which is an extension of time to file, not pay, is for four months.

Well, that used to be correct.

This year the automatic extension is for six months, a rare case where the IRS is matching how California has handled extensions.

Somehow it seems appropriate that the agency that regulates some California tax preparers (CTEC regulates all preparers in California except EAs, CPAs, and attorneys) isn't aware of the rules.

I previously wrote about Las Vegas' attempt to draw more businesses from California. A few days ago I saw one of the ads: A giant peanut crushed a Californian, akin to California's huge tax burden crushing a business. One Los Angeles television station, KABC, has refused to run the ads, citing an anti-California theme and offensiveness.

KABC is correct. The ads are anti-California, but they're hardly offensive. Accurate is a better statement, especially when you compare the extremely offensive (high) tax burden in California to the non-offensive (low) tax burden in Nevada.

I haven't seen another ad that the Nevada Development Authority has run. It features a poker game between California business and Las Vegas business. According to the Las Vegas Review-Journal, the Las Vegas business gets three aces and a "No state personal income/corporate tax card" while California gets an anti-business card. Las Vegas moves all-in while California folds.

The Nevada Development Authority has $5.5 million in marketing dollars to spend. But their most important bit of marketing is out of their hands—the results in the California June primary on Proposition 82, which would increase California's already offensive tax burden.

Courtesy of Roth Tax Updates, and CCH, here's how to request a refund:

Taxpayers should fax their protective claims to the FTB at 916-845-9796. In the fax, taxpayers should note that this is a protective claim and assert that the LLC fee is an unconstitutional tax. The following information should also be included: (1) the LLC's name and identification number; (2) the tax years involved; (3) the amount of the claim; and (4) the name of a contact person and his or her phone number and fax number. The FTB will send an immediate fax confirmation.

The FTB is going to appeal, so don't expect any money any time soon.

Proposition 82, Rob Reiner's Preschool/Tax Increase Initiative, is really the "Help Las Vegas, Phoenix, and Denver" Initiative. Las Vegas decided that I am absolutely correct. Today, Las Vegas' mayor, Oscar Goodman, announced a new initiative to bring more California businesses to Las Vegas. "There is very little we can give them that they don't get already. We just give them ourselves."

Goodman noted to Reuters that Las Vegas isn't offering business incentives. Well, they don't need to. Even with increased real estate costs in Las Vegas, it's still less expensive than California. Add in workers compensation, high income taxes, and the potential disaster of Proposition 82, and you have a trifecta. Las Vegas even has a beach (well, I saw one at the Mandalay Bay hotel's pool....)

News Story: Reuters

Proposition 82, the pre-school/tax increase/help Las Vegas, Phoenix and Denver Initiative, continues to have support at the polls here in the Golden State. Rob Reiner, who wrote the initiative, continues to find himself in a hole.

Yesterday Reiner held a news conference in Sacramento. Reiner is chair of the "First 5" Commission, funded by a tobacco tax. The First 5 Commission spent $23 Million on a series of commercials that ran in December and January promoting pre-school. I doubt it's a coincidence that Reiner happens to have written an initiative that will be voted on in June that creates a bureaucracy for pre-school.

Meanwhile, every Republican State Senator has called on the Governator to replace Reiner on the First 5 Commission. Both Republicans and Democrats have forced the State Auditor to audit the First 5 Commission. The initiative is now facing opposition from not only groups such as the Howard Jarvis Taxpayers Association, but Democrats. Republican political commentators such as Hugh Hewitt have been taking the Governator, Reiner and the initiative to task.

Still, the $23 Million has had an impact. With no major Republican issues on the June ballot (as of now), and a Democratic primary for Governor, it will be very interesting to see if Proposition 82 passes. If the election were held today, it would (according to polling data). That shows you the sad state of California's electorate.

And it's a big but.

Thanks to the TaxProfBlog and Roth Tax Updates for giving me the tip on a case decided in San Francisco, Northwest Energetic Services v. Franchise Tax Board. Northwest, a Washington State LLC, sued to recover its LLC Gross Receipts Tax, er, Levy, from the Franchise Tax Board. Northwest had no operations in California, but was registered in the state. The court ruled that the levy is really a tax and that because the tax, er, levy was based on unapportioned income, it violated the due process and interstate commerce clauses of the Constitution.

As Joe Kristan (Roth Tax Updates) notes, the FTB will appeal.

In any case, as I read the decision, the levy (tax) is legal for a California based business with all of its income derived from California. Indeed, if the gross receipts levy is modified so that it is based on an apportionment (similar to Schedule R used on California corporate tax returns), then it would be legal.

If you are a member of an LLC, make sure that your LLC applies for a refund. California has a four-year statute of limitations on refunds (given timely filing); your refund request for tax years 2001 needs to be postmarked by April 15th (certified mail, return receipt requested, of course).

Given that California is still in dire financial straits, don't expect anything to change. Remember that the California LLC code prohibits professionals from being a member of an LLC in the state. Also remember that this decision will be appealed, and, as Joe Kristan notes, you should continue to pay your LLC levy, er, tax for the foreseeable future.

Hat Tips: TaxProf Blog, Roth Tax Updates

For those of you (like me) who voted last December in the election to replace Chris Cox as Congressman, it's just about time to vote on his replacement. John Campbell was the State Senator for the 35th District (Irvine and surrounding cities). On April 11th, we will vote in a special election for his replacement.

The Orange County Registrar's home page on the election is here. The district is overwhelmingly Republican; there are two Republican candidates in the primary: Diane Harkey and Tom Harman. If no candidate receives 50% of the vote plus one, there will be a run-off election held in conjunction with the State Primary Election on June 6th.

According to the San Francisco Chronicle, State Senator Don Perata (D-Oakland) has dropped his support of Rob Reiner's Proposition 82, the mandatory preschool/increase income tax/Help Arizona, Nevada, and Colorado Initiative, because it was too expensive. Perata noted that the estimated cost per child (under Proposition 82) would be over $8,000 (for a half-day); this is larger than the per-student cost for a full day of school at some elementary schools in California.

Perata was also troubled by the year-end advertising campaign that First Five mounted, noting "That was over the line. A blatant effort to promote the initiative." There have been calls in the state legislature for audits of First Five.

News Story: San Francisco Chronicle

The Franchise Tax Board is in its second year of the "Ready Return Program." Under this program, the FTB prepares returns for individuals who have very simple returns -- just wage income, single, no dependents. But the program has been quite controversial.

Professor Maule today gives an excellent review of the program. If you're at all interested in the controversy, read it all.