California Tax Activity: What CPAs Should Be Aware of in California

During 2016, California has experienced some significant developments in tax law through ballot propositions, legislation, administrative guidance, and judicial and administrative cases. These developments are summarized below.

Budget and Ballot Propositions

The Golden State annually increased tax revenue between 2008, when tax receipts were $95 billion, and the 2016-17 budget that included tax revenue projections at $121 billion. Some of this growth is attributable to economic recovery. Some of it is also due to tax increases, such as Proposition 30 passed in 2012. In spite of this increase, however, there continues to be no shortage of items vying for additional funding.

In November 2016, there were numerous tax increases on the ballot in the form of propositions. Thus, in spite of how ‘‘rich’’ the revenue may seem in comparison to recent years, there have still been a number of very interesting tax changes and increases in California this year.

The November 8 ballot propositions that California passed include:

  • Proposition 55, an extension of the personal income tax increases in Proposition 30;
  • Proposition 52, a Hospital Tax;
  • Proposition 56, a Tobacco Tax Increase; and
  • Proposition 64, which will increase taxes on legalized recreational marijuana.

Each of the largest tax measures all passed. This appears to continue a trend where voters statewide are comfortable passing tax laws that are either ‘‘sin taxes,’’ or the taxes they believe will not directly affect them.

California Tax Legislation and New Legislature

The California Legislature’s regular sessions ended without direct broad-based tax increases. Many insiders had predicted that with the Democratically controlled California Legislature and a strong Democratic governor some dramatic changes would be on the horizon, such as a property tax split roll or an expansion of sales tax on services.

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