Taxable Talk

It's still election season, and here in the Bronze Golden State, Democrats will vote on June 6th for their candidate for Governor to oppose the Governator. It's rare we see such frank honesty as that given by one candidate, Phil Angelides.

Mr. Angelides wants to increase taxes on all corporations, and all families making $500,000 a year or more. He also supports Proposition 82, so his proposed tax increases are on top of those tax increases. The economic development offices in Las Vegas, Phoenix, and Denver are thrilled with you, Mr. Angelides.

California is already among the worst states in the US for business. If Mr. Angelides is elected Governor, he's definitely aiming for the #50 spot. But at least he's honest about it.

News Story: Sacramento Bee

Tuesday, April 11th is election day in Orange County. If you live in the 35th State Senatorial district, you will vote on the replacement for John Campbell. You can find your polling place here. Remember to vote!

As I perused this morning's Orange County Register, I was surprised to see the Nevada Development Authority advertising in the Register. You can find the ad on page 7 of the business section. It reads:

"California Business Profits After: Worker's Comp, Business Taxes, High Power Bills, Anti-Business Legislation = [hand shown holding some peanuts]. 5 Ways to lower your nut. Eliminate personal income tax, axe corporate income tax, don't pay inventory tax, lower workers' comp costs, relocate to Las Vegas."

A similar ad appears in today's Los Angeles Times. The NDA's website has links to some of their television commercials, which are quite humorous (and effective).

Meanwhile, in the "Am I Really This Stupid" side of the ledger, both the Los Angeles Chamber of Commerce and the San Francisco Chamber of Commerce are supporting Proposition 82, the Mandatory Pre-School/Income Tax Increase, Help Las Vegas, Phoenix, and Denver Initiative. Showing some sanity, The California Chamber of Commerce opposes Proposition 82. If Las Vegas really wants to see an increase in business relocations, they should hope that Rob Reiner's flawed initiative passes.

Toys "R" Us operates in California and, of course, pays California taxes. California uses a three-part allocation formula based on unitary taxation to determine how much a corporation operating in multiple states must pay. Toys "R" Us came to the conclusion that if the sales portion of the formula included the principal amount of short-term notes, that their California tax would go down. So they filed an appeal, and took their case to court.

Toys 'R Us lost in district court, and they appealed their claim for $4.8 million plus interest to the Court of Appeals (Third Circuit, CA). In FTB v Toys "R" Us, the main issue was whether the California rule results in an equitable apportionment formula. The Franchise Tax Board (FTB) successfully argued that if Toys "R" Us could include the principal, they could move between 11% and 28% of their annual sales to a different state by just relocating their Treasury Department.

The FTB tends go too far in its regulatory tactics and enforcement actvities; however, I completely agree with them and the Court's decision. Perhaps principal could be included for a business that's a financial services corporation. For a retailer, though, this doesn't make sense.

Hat Tip: Central Valley Business Times

You're a business owner, and you've just won a nice contract with the State of California. Don't forget to add sales tax.

Yes, if you're selling to the State of California, you must charge California sales tax. Let's look at this logically, based on a $10,000 sale to a state agency.

We'll assume that the sale is made in Orange County (sales tax rate of 7.75%), resulting in sales tax of $775.00. You collect $10,775, keep $10,000, and then remit $775 back to California. The Board of Equalization collects the money, and then turns it over to the General Fund. The General Fund allocates the money to the appropriate state and local agencies, including the agency that you sold to.

Wouldn't life be simpler if the state were exempt from state sales tax? You could argue that local and state agencies wouldn't benefit from the sale. However, the real beneficiaries of California's policy are the bureaucrats administering sales tax. California's rules increase their workload and lead to more employees. If California were to exclude government sales from sales taxes, sales tax revenues would go down, of course. But so would expenses.

In the end it would be a wash (as far as direct revenues and expenses). However, because you would need fewer employees to administer the Board of Equalization, and a bit less time for companies to prepare their quarterly reports to the BOE, costs would decrease and productivity would increase.

What are the chance of this happening? Just about zero.