Archive for the ‘California’ Category

Are Turf Rebates Taxable?

Wednesday, September 23rd, 2015

The Los Angeles Times has an article asking this question. Because of the drought in California, the Metropolitan Water District had a $340 million incentive program so that homeowners would replace grass (which takes a lot of water) with bark, rocks, and other drought tolerant (xeriscape) landscapes. (The Southern Nevada Water Authority has a similar program.) The MWD has no idea if they have to issue 1099s to rebate recipients under federal law. (It is exempt from California taxation, though.) The article notes that the MWD suggests talking to a tax professional, so I’ll helpfully give an answer.

Any accession to wealth is taxable unless Congress has exempted that from taxation. One such exception are rebates on purchases. If you buy, say, a new car for $25,000 and receive a $1,000 rebate, you really bought the car for $24,000. A car rebate isn’t taxable income. Is the MWD (or SNWA) program a rebate?

No, it’s not. There’s nothing being purchased from the water agency. Instead, you’re tearing out grass, and replacing it with something else. The agency paying the “rebate” isn’t the same agency that’s doing the work. You might do it yourself, or you might higher a landscaping firm to do the work. The landscaping firm isn’t giving you a rebate.

If this isn’t a rebate (for tax purposes), then what is it? Well, the IRS could rule it’s not taxable since it is a lowering of the cost of doing the grass replacement and this is good for the environment. However, that’s not likely. There’s nothing in the Tax Code that says if something is done that’s good for the environment it’s not taxable. Instead, this looks like income–“Other Income” that would be reported on line 21 of Form 1040. You’re receiving a reward (income) for doing something. It’s not a rebate of a purchase. It’s not exempt from taxation under any other of the exemptions under the Tax Code. Thus, it’s taxable income.

Kiplinger’s Tax-Friendly and Least Tax-Friendly States: Bring Me (Mostly) the Usual Suspects

Monday, September 21st, 2015

Kiplinger has come out with their list of most tax-friendly and least tax-friendly states. There aren’t many surprises on the list, and readers of this blog definitely won’t be shocked with the least friendly state. The most friendly state was a little different. Do note that Kiplinger looked at all the taxes in a state, not just income tax.

Most Tax-Friendly States:
1. Delaware
2. Wyoming
3. Alaska
4. Louisiana
5. Alabama
6. Mississippi
7. Arizona
8. New Mexico
9. Nevada
10. South Carolina

Why Delaware? It has a relatively low income tax, no sales tax, low property taxes, and low a excise tax on alcohol. My state, Nevada, is noted for its non-existent income tax.

Here is Kiplinger’s least tax-friendly states:

1. California
2. Connecticut
3. New Jersey
4. Hawaii
5. New York
6. Rhode Island
7. Vermont
8. Maine
9. Minnesota
10. Illinois

Why California?

If you’re moving to the Golden State, plan to take short showers (to conserve water) and to pay the highest state income tax rates in the U.S. Worse, capital gains are taxed as regular income.

California also has the highest statewide sales tax, at 7.5% (it’s scheduled to drop to 7.3% at the end of 2016). The average state and local combined rate is 8.4%; in some cities, the combined rate is as high as 10%.

There’s actually more bad news about California’s taxes noted in the short article.

Kiplinger also has a tax map so you can find your state and whether it is tax-friendly or not.

You Will EFile and Electronically Remit to California’s EDD

Sunday, August 30th, 2015

Beginning in 2017, all California employers with ten or more employees will be required to electronically file all withholding tax reports and electronically remit all payments to California’s Employment Development Department (EDD). Beginning in 2018, all California employers, regardless of size, will be required to electronically file and remit.

These changes are part of legislation recently passed by the California legislature and signed into law by Governor Jerry Brown.

Will the Last One Out Turn the Lights Off?

Thursday, August 27th, 2015

An interesting op-ed in the Orange County Register talks about how Democrats in the California legislature are considering a long list of taxes. The author, Joseph Vranich, is a business relocation consultant based in my old homestead of Irvine, California. Mr. Vranich laments the current state of California:

Think about Dan Castilleja, president of DHF Technical Products, who said when relocating that it’s easier to expand in New Mexico than in the Los Angeles area, where “We are hampered by everything from payroll to taxes to regulation.”

Examples abound of companies leaving for other states – even to the so-called “Rust Belt” – because their friendlier business environments far outshine our disadvantages.

California’s public officials come across as being uncaring about the damage they inflict on businesses, investors, employees and their families and to the towns that lose jobs to distant locations.

Nearly four years ago my business–and the one whole employee in the Bronze Golden State (me)–left for Nevada because sometimes silver is better than gold. Mr. Vranich is seeing the trend starting up again while California has a budget surplus. Consider what will happen when California actually goes through and raises taxes even more.

Today, California is horribly dependent on the stock market. The last report I saw showed that 50% of California’s tax revenues come from 1% of the population. That’s mostly from the tax on capital gains. What happens when the stock market is flat, or suffers a bear market? Meanwhile, the middle class is being driven out of the state.

The solution for California is one that Democrats in California may not like, but it’s the only one that works long-term. Government spending will need to be cut, programs will need to be pared, and regulations made far more business friendly. Businesses don’t like to move, but math is the same in California, Nevada, Tennessee, Texas, and Florida. If California continues to make businesses suffer, businesses have a solution. I made that choice four years ago; others are making it today.

Why Rob Banks, Redux

Tuesday, August 11th, 2015

Back in 2012 I noted that gangs were looking at identity theft as the successor to bank robbery. From Los Angeles comes the news that the California Attorney General’s Office, along with the Long Beach Police and the US Postal Inspection Service did a “takedown” of the “Insane Crip” street gang; 22 members are in custody on charges that include 283 counts of conspiracy, 299 counts of identity theft, and 226 counts of grand theft.

The arrest is the culmination of a three-year investigation into the Insane Crip street gang that began after a Long Beach crime spree tied to the gang. A Long Beach Police Department detective discovered evidence containing the personal identifying information of hundreds of California residents at an address associated with the gang. The defendants had used the stolen personal identifying information to commit financial crimes, including identity theft and tax return fraud.

The defendants exchanged the stolen information via text messages to the leaders of the scheme, who would then file fraudulent tax returns, obtain the refunds and load them onto prepaid debit cards in the name of other victims. The debit cards were then used to fund the gang’s illicit activities, lavish lifestyle and to recruit members.

Kudos to all involved, but I will point out, again, that while the IRS has done more to make identity theft difficult, they’ve done nowhere near enough. Even today most of what the IRS does on this front is reactionary. While electronic returns filed now note the computer they’ve been filed from–which is a help–there is much more the IRS could do. The modest proposal I made nearly three years ago would still stop much of today’s identity theft. Yet the IRS spends money on the Annual Filing Season Program. Oh well, venting doesn’t do any good….

Criminal Charges Dropped Against Roni Deutch

Saturday, August 8th, 2015

Back in 2009, the law firm of Roni Deutch was a huge deal. She was the “Tax Lady,” and her face and advertisements were plastered all over television. Then she was sued by the state of California. And then came the criminal indictments–perhaps the largest criminal indictment in California history.

Fast forward five years, and it’s all over. California has dropped the criminal indictments, and instead of paying $34 million she’ll be paying $2.5 million in the civil suit (per her lawyer). She will also pay $10,000 in fines and must perform 350 hours of community service. Ms. Deutch, who dropped her law license, can even reapply for that.

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.