Archive for the ‘California’ Category

FTB Disables “MyFTB” Registrations Until 2016

Friday, July 24th, 2015

California’s Franchise Tax Board announced yesterday that they disabled registration for “MyFTB,” the online interactive FTB system, until 2016.

Beginning July 23, 2015, we disabled the ability to register for a MyFTB account while we enhance the registration process. This also impacts the ability to register for CalFile and Web Pay for Businesses. We will reactivate online registration in January 2016 when we launch our enhanced version of MyFTB…

The following services do not require registration and are still available to practitioners or their clients:

  • Check refund status.
  • Web Pay for Individuals (non-registered version).
  • Pay by credit card.
  • Apply for an installment agreement.
  • Use Live Chat.
  • Calculate their tax.
  • Take Head of Household self test.
  • Ask a tax question by e-mail.
  • Get an e-mail reminder to file/make estimate payments.
  • Use subscription services.
  • Access MYCOD account.
  • Report tax fraud.
  • Get an entity status letter.
  • File 199N e-post card.

If you are not already registered with MyFTB, you will need to call the FTB in order to obtain your information.

State Financial Health: Alaska, Dakotas on Top, Illinois, New Jersey, Massachusetts and Connecticut on the Bottom

Tuesday, July 7th, 2015

The Mercatus Center at George Mason University released a study today ranking the 50 states on their financial health. Here are the top six states:

1. Alaska (8.26)
2. North Dakota (2.97)
3. South Dakota (2.84)
4. Nebraska (2.75)
5. Florida (2.74)
6. Wyoming (2.67)

These six states have “Fiscal Condition Index” scores that are significantly higher than all the other states. Of course, where there’s good there’s also bad; here are the bottom seven states:

50. Illinois (-1.86)
49. New Jersey (-1.86)
48. Massachusetts (-1.84)
47. Connecticut (-1.83)
46. New York (-1.49)
45. Kentucky (-1.42)
44. California (-1.41)

Why are states ranked low?

High deficits and debt obligations in the forms of unfunded pensions and health care benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.

Think unfunded pensions and you have one of the huge issues facing states. Illinois leads the way (which isn’t a good thing for the Land of Lincoln). There’s a reality: Whatever you make, spend less. Some states follow that creed; others give it lip service. California may have a “surplus,” but when you look at unfunded pensions things don’t look so good. Sooner or later, that bill will come due.

It’s an interesting analysis, and well worth your perusal.

State Taxes Matter, Lesson #21

Sunday, July 5th, 2015

When does $108 million equal $80 million? When you’re leaving California and heading to Texas.

DeAndre Jordan has been playing center for the Los Angeles Clippers of the National Basketball Association. Mr. Jordan just signed a free agent deal with the Dallas Mavericks for $80 million, $28 million less than what he was offered to stay with the Clippers. It might be that Mr. Jordan believes that the Mavericks have a better chance at winning the 2015-2016 NBA Championship. Perhaps he likes Texas better than California (his hometown is Houston). It also might be that Mr. Jordan likes keeping more of what he makes.

Marc Spears of Yahoo Sports noted to NBA TV,
“First of all the taxes are so bad in my home state of California it ends up being about even.” California’s top tax rate is 13.3%, so if all of Mr. Jordan’s contract were subject to the top California tax rate he’d end up at $93.6 million–still a bit more than the $80 million he’ll get with the Mavericks. Because of Jock Taxes some of what Mr. Jordan will earn will still be subject to various state and local taxes (including California’s); the Spurs will play road games in Los Angeles, Oakland, and Sacramento.

Another NBA free agent, LaMarcus Aldridge, signed for $80 million with the San Antonio Spurs; he played for the Portland Trailblazers last year. Mr. Aldridge is leaving Oregon (which has a 9.9% maximum rate) for Texas’ 0% rate. Yes, the Spurs might be a better team than the Blazers and Mr. Aldridge may like the Spurs’ organization more, but I’m also certain he likes that his tax rate just went down.

Mr. Hyatt Goes to Washington…Again

Tuesday, June 30th, 2015

The saga of Gilbert Hyatt and the Franchise Tax Board, California’s income tax agency, continues. As you may remember, the Nevada Supreme Court ruled last September that the FTB committed fraud against Mr. Hyatt (false representation and intentional infliction of emotional distress), but threw out most of the Mr. Hyatt’s other claims. The FTB filed a Petition for Certiorari in March; it was granted today.

From Chris Smith of the Franchise Tax Board I learned that the Supreme Court will look at two issues: “Whether Nevada may refuse to extend to sister States haled into Nevada courts the same immunities Nevada enjoys in those courts.” As Mr. Smith notes, this relates to monetary damages that Mr. Hyatt received. Second, “Whether Nevada v. Hall, 440 U.S. 410 (1979), which permits a sovereign State to be haled into the courts of another State without its consent, should be overruled.”

The latter will be the key issue for me. In the Nevada trial, the FTB was found to have committed fraud. If Mr. Hyatt had resided in California (instead of Nevada), he would have been powerless to sue the FTB for damages (California law does not allow this). Consider if the FTB were to repeat the same actions against you where you reside; wouldn’t you like to have some recourse against them? Remember what Bill Leonard wrote about this case:

Tax agents rummaged through his trash without warrants, visited business partners and doctors, and shared his Social Security Number and other personal information with the media. This is outrageous behavior and I call on the FTB to rein in their agents. What really galled me is the FTB testified in open court that this level of harassment was only a typical audit. If true, then the stormtroopers are alive and well at the FTB.

Remember, those actions occurred not in California but in Nevada.

This is the second time that the Hyatt case has been to the US Supreme Court. Back in 2003, the Supreme Court ruled 9-0 that Mr. Hyatt could sue, and that Nevada v. Hall should not be overturned. It will be interesting to see what happens this time. The case will likely be heard this Fall with a decision probably coming in early 2016.

Honesty Is Usually a Good Policy

Sunday, May 3rd, 2015

Ronald Jerome Boyd is the Chief of the Los Angeles Port Police. The Port Police are responsible for policing Los Angeles Harbor (which is one of the busiest in the country). Mr. Boyd has been Chief since November 2004 (and has been head of emergency management at the port since January), but he’s now on paid administrative leave. That’s because he’s been indicted on 16 counts of corruption and tax charges.

Chief Boyd is alleged to have been involved in obtaining a port contract to a software company where he would share in 13.33% of the profits. Chief Boyd is alleged to have lied to FBI agents during the investigation. The contract was for a smartphone app called “Portwatch.” The problem is that Chief Boyd allegedly didn’t reveal that he was going to receive that kickback.

Adding to his woes are tax charges. Chief Boyd is alleged not to have filed tax returns from 2008 to 2011 for his security business and to have substantially underreported income on his personal tax returns from 2007 to 2011.

Chief Boyd will be surrendering to authorities this coming week.

Bozo Tax Tip #5: Ignoring California

Monday, April 6th, 2015

Perhaps I should call this Bozo Tax Tip “Forming a California Trust.” Why? Let me explain.

Let’s assume John and Jane, two California residents, form a trust to benefit their children, Ann and Bob. Ann lives in Florida; Bob resides in California. The trust is an irrevocable trust, so it files its own tax return (a Form 1041). The income to the beneficiaries is reported on Schedule K-1s. Ann is surprised and calls her accountant when she receives both a federal K-1 and a California K-1.

The issue is simple: The trust is a California trust, so the income is California-source. California requires that a Schedule K-1 for Form 541 (California’s trust tax return) be included. Yes, Ann must pay California tax on the income. Ann’s CPA called me and asked me why I included the K-1 from California. My response was succinct: I have to and Ann has to pay the tax.

California’s desire to have anyone and everyone pay California tax has led to many trusts relocating to Nevada (which has no state income tax) and other trust-friendly states. California isn’t one of those states. Ann’s parents, John and Jane, could have formed the trust in Nevada but because they didn’t Ann is stuck in the Hotel California. You can check out any time but you can never leave.

Ignoring the California K-1 is a Bozo idea. Instead of just paying tax, you will get the joy of paying tax, penalties, and interest. If your parents are in California and thinking of forming a trust to benefit you, it may be worth your time to talk about Nevada to them. Otherwise, welcome to the Hotel California.

Bozo Tax Tip #6: Nevada Corporations

Sunday, April 5th, 2015

As we continue with our Bozo Tax Tips–things you absolutely, positively shouldn’t do but somewhere someone will try anyway–it’s time for an old favorite. Given the business and regulatory climate in California, lots of businesses are trying to escape taxes by becoming a Nevada business entity. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation is a California corporation, a Delaware corporation, or a Nevada corporation.

Now, if you’re planning on moving to Nevada forming a business entity in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada entity is, well, bozo.

Gilbert Hyatt Loses in Federal Court

Sunday, March 15th, 2015

A federal court in Sacramento ruled against inventor Gilbert Hyatt last week. Mr. Hyatt is involved in a 22-year old battle with California’s Franchise Tax Board (the state’s income tax agency). This all stems over when Mr. Hyatt moved to Las Vegas, and that seven month difference has resulted in a case that has already made it once to the US Supreme Court.

The underlying issue is a residency audit of Mr. Hyatt to discover when he moved to Nevada. Did he move at the end of September 1991 or April 1992? At audit, the FTB ruled it was April (leading to an additional $7.4 million of income tax owed to California). Mr. Hyatt appealed to the California Board of Equalization. That appeal remains unresolved and that got Mr. Hyatt upset.

He filed a federal court case in Sacramento demanding that the appeal be heard. The Court dismissed the case; Mr. Hyatt will appeal. Meanwhile, later this year I expect the retrial of Mr. Hyatt’s intentional infliction of emotional distress damage award against the FTB for committing fraud against him. Last year, the Nevada Supreme Court threw out most of a $500 million verdict for Mr. Hyatt, but did leave $1.4 million of damages (based on the FTB committing fraud) and ordered a retrial on the IIED damages related to the fraud.

Taxes Impacting the Giants

Tuesday, February 24th, 2015

The San Francisco Giants have been one of baseball’s more successful teams; they’re the current world champions. But they haven’t been as freewheeling in spending money as other teams. Their General Manager blames California taxes.

The top tax rate for California is 13.3%, and it kicks in at $1 million of income. As you can imagine, most major league baseball players earn far more than that. In an interview with Hank Schulman of the San Francisco Chronicle, GM Brian Sabean stated:

“To entice a free agent to come to San Francisco, we’re almost in an overpay situation, so why get involved in all those battles where you’re not going to be able to go up the totem pole money-wise?” Sabean said.

When asked to elaborate on why the Giants have to overpay, Sabean said, “You’ve got the state of California taxes.” …Asked if the high California income tax has been a problem for a while, Sabean said, “To a certain extent. Things now are getting more and more about the signing bonus, more and more about your take-home. Exponentially, when you get involved in some of those numbers, it makes a sizable difference to some.”

There’s an obvious implication here: the big spending Los Angeles Dodgers and New York Yankees have inflated their salaries to cover high state taxes. Jon Lester, this year’s biggest free agent signee, ended up with the Chicago Cubs. Illinois’ income tax is now down to 3.75%; that’s a lot lower than California. This may be good news for Cubs fans like me.

California at Bottom of Small Business Entrepreneurship Rankings

Wednesday, December 31st, 2014

While I was on vacation, the Small Business & Entrepreneurship Council released its 19th annual “Small Business Policy Index 2014: Ranking the States on Policy Measures and Costs Impacting Small Business and Entrepreneurship.” (Hat Tip: Joe Kristan) The listing measures the costs, both in taxes and regulations, on small businesses. As noted in the report,

Some elected officials, policymakers and special interests believe that taxes, regulations and other governmental costs can be increased with impunity. Economic reality tells a different story. Ever-mounting burdens placed on entrepreneurs and small businesses by government negatively affect economic opportunity. People go where economic opportunity is, in turn, bringing more opportunity with them. The “Small Business Policy Index” tries to make clear the relative governmental burdens placed on entrepreneurship among the states, so that business owners and their employees, elected officials and citizens in general can better grasp the competitive position of their respective states.

Here’s the listing of the best states:

1. South Dakota
2. Nevada
3. Texas
4. Wyoming
5. Florida
6. Washington
7. Alabama
8. Indiana
9. Colorado
10. North Dakota

And here are the bottom ten:

41. Connecticut
42. Maine
43. Iowa
44. Oregon
45. Vermont
46. Minnesota
47. Hawaii
48. New York
49. New Jersey
50. California

In looking at the actual factors, California is near the bottom on most tax and regulation rankings. (interestingly, California had the best score on unemployment tax.) Contrast that with Nevada, which doesn’t have a state personal income tax, doesn’t have a corporate income tax, and doesn’t have the regulatory burden of California. It’s no wonder that Nevada ranks higher than California.