LEGISLATIVE UPDATE:
Legislative Session Ends – Major Tax Threats Shelved Until Next Year

Taxpayers breathed a sigh of relief at the end of August as the two-year legislative session ended without any major broad-based taxes being approved.

The opinions included two other “firsts”: the first split decision (one of the cases in which the taxpayer prevailed) and the first decision involving the California Department of Tax and Fee Administration (a minor case in which the OTA denied a retailer’s petition for the return of seized tobacco products).

Minutes before adjournment, Governor Jerry Brown made a guest appearance in the Senate. The casually dressed governor, flouting the Senate’s jacket-and-tie requirement, spoke from the floor and praised senators for “the most powerful legislative session” in recent years.

Brown, who will leave office in January when the next governor is sworn in, said: “Who knows, I might find a way to come back somehow. … I don’t know what the hell I’m going to do next, but I’m going to find some way to cause trouble.”

One of the most prominent proposals on the final day of session was the governor’s proposed “voluntary tax” on water users – a charge that would be applied to users’ bills, with a process that would allow them to opt out of paying (contained in SB 844 and SB 845, both by Senator Bill Monning). Assembly Speaker Anthony Rendon announced that the proposal would be held until next year. “[A] piecemeal funding approach won’t work,” Rendon said in a written statement. “Building on the hard work of Senator Bill Monning and others in this area, Assemblymembers Eduardo Garcia and Heath Flora have agreed to lead our house’s safe water efforts. Working together, the Legislature will ensure that all Californians have access to this fundamental human need.”

While the year began with lawmakers proposing a variety of responses to last year’s federal tax reform, the session ended with only one bill going to the governor. SB 539 (de León), expanding the College Access Tax Credit in a way designed to allow Californians to qualify for a larger federal deduction for amounts contributed to the Cal Grant Program, cleared both houses on the last day of session with only two votes in opposition.

Thanks to CalTax-supported Proposition 54, the 2016 initiative that requires the language of a bill to be posted online for at least 72 hours before a final vote, there were no last-minute legislative surprises.

Unless Governor Brown calls the Legislature back to Sacramento for a special session, the Legislature will not convene until December 3, when both houses will hold one-day organizational sessions to swear in new members. While lawmakers can begin introducing bills at that point, most work will commence when the Legislature returns to Sacramento during the first week of January.

Additionally, lawmakers have scheduled a handful of no-vote “informational hearings” during the fall interim on topics including “transportation growth opportunities” and wait times at the Department of Motor Vehicles. These hearings can be used to generate publicity for key issues, or to gather information in preparation for legislation to be introduced in the next session.

Action during the last day of the session included:

CalTax-Sponsored Bill on Partnership Audit Adjustments Goes to Governor. SB 274 (Glazer), a CalTax-sponsored bill that establishes a process for taxpayers to report and pay California taxes resulting from federal partnership audit adjustments in a way that facilitates tax administration for the Franchise Tax Board and eases reporting compliance for taxpayers, was sent to the governor after the Senate voted 39-0 to concur with Assembly amendments.

This bill – the product of a collaborative effort undertaken by the FTB, CalTax and several national organizations – authorizes the FTB to collect from partnerships or their individual partners any increased state tax liability resulting from federal audits of partnerships, and provides a process and a timeline for taxpayers to report and remit to the FTB their share of California taxes.

“Net Neutrality” Measure Clears Assembly. SB 822 (Wiener), a “net neutrality” bill that prohibits Internet service providers from taking certain actions that interfere with consumers’ ability to access content (including intentionally blocking content, speeding up or slowing down traffic or prioritizing access based on pay levels) was sent to the governor after the Senate voted 27-12 to concur with Assembly amendments.

Legislation Authorizing Payment of Attorney Fees in Tax Dispute Goes to Governor. SB 939 (Portantino), appropriating approximately $6.2 million to the attorney general to pay settlements for court cases – including a tax dispute that began 40 years ago – was sent to the governor with a 78-0 vote of the Assembly. The appropriations include $5.4 million from the Motor Vehicle Account to pay the taxpayers’ legal fees in Woosley v. the State of California, a successful class-action suit prompted by the Department of Motor Vehicles overcharging vehicle taxes on out-of-state vehicles in the early ‘70s.

Parcel Tax Exemption for Davis Teachers and School Employees Goes to Governor. SB 958 (Dodd), CalTax-opposed legislation that allows teachers and school employees from the Davis Joint Unified School District to be exempted from parcel taxes imposed by the district, was sent to the governor after the Senate voted 24-12 to concur with Assembly amendments.

 

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