March 2010: Governor Signs California Budget Package

8/7/2019 March 2010: Governor Signs California Budget Package

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Governor SignsCaliornia

Budget Package



MARCH 2010

On February 20, 2009, Caliornia Governor Arnold Schwarzenegger signed into law the state’s budget package. The budget address-

es the state’s $42 billion budget decit and includes approximately $15 billion in spending cuts, $12 billion in tax hikes, and $11

billion in borrowing. Changes were made to the personal income tax, sales and use tax, and vehicle license ee. Numerous changes

were also made to the corporation income tax.

A brie summary o changes that will impact taxes:

PERSONAL INCOME TAXPersonal income tax rates will increase by 0.25% in 2009 and remain in eect or our years. The increase may only be 0.125%

depending on whether ederal legislation is enacted which will make additional ederal unds available to the state.

An additional 1% personal income tax imposed on the portion o a taxpayer’s income in excess o $1 million.

The dependent credit, set at $309 or 2008, will be reduced to $99 in 2009 and will be adjusted or infation or each o the suc-

ceeding our years through 2012.

A one-time tax credit will be available or those who purchase a qualifed principal residence ater February 28, 2009 and beore

March 1, 2010. The credit is 5% o the purchase price, up to a maximum o $10,000. The credit is claimed over a 3 year period

starting with the year o purchase. The total amount o the credits which may be claimed statewide is $100 million, allocated by the

Franchise Tax Board on a rst-come, rst-service basis.

SALES AND USE TAXStarting on April 1, 2009, an additional 1% sales and use tax will be imposed and will be in eect until July 1, 2011.

GOVERNOR SIGNS CALIFORNIABUDGET PACKAGE



FEBRUARY 2011

VEHICLE LICENSE FEEThe annual vehicle license ee will increase rom 0.65 % to 1% o the vehicle’s market value, with an additional 0.15% ee on

all vehicles, except or certain commercial vehicles. These provisions are conditionally operative rom May 19, 2009 to June 30,

2013.

CORPORATION INCOME TAXES“Doing Business” - The denition o “doing business” in Caliornia is changed beginning with the 2011 taxable year. In order to

be considered “doing business” and thereore required to le a tax return in Caliornia, a taxpayer must satisy one o the ol-

lowing: - be organized or commercially domiciled in Caliornia; - have Caliornia sales, including sales by an agent or independent

contractor, in excess o the lesser o $500,000 or 25% o the taxpayer’s total sales; - have Caliornia real and tangible personal

property in excess o the lesser o $50,000 or 25% o the taxpayer’s total real and tangible personal property; - have compensa-

tion paid in the state in excess o the lesser o $50,000 or 25% o the taxpayer’s total compensation paid.

Single Sales Factor - Taxpayers may make an irrevocable election to apportion their business income utilizing a single sales

apportionment actor rather than the current three actor ormula o payroll, property and a double-weighted sales actor. This

election is not available or cer tain specialized industries. The election can be made beginning with the 2011 taxable year.

Finnigan Rule - Beginning with the 2011 taxable year, Caliornia will adopt the Finnigan rule or determining the sales actor

or apportionment purposes. Under this rule, an out-o-state sale will not be thrown back to Caliornia or sales actor numera-

tor purposes i a member o the taxpayer’s unitary group is taxable in the purchaser’s state. Currently, the member making the

sale must be taxable in the purchaser’s state to avoid having the sale being thrown back to Caliornia or sales actor numerator

purposes.

Sales Sourcing - Also beginning with the 2011 taxable year, sales o other than tangible personal property will be sourced as

ollows: - sales o services are in Caliornia to the extent the purchaser o the service received the benet o the services in

Caliornia; - sales rom intangible property are in Caliornia to the extent the property is used in Caliornia; - sales rom the sale,

lease, rental or licensing o real property are in Caliornia i the real property is in Caliornia; and - sales rom the rental, lease or

licensing o tangible personal property are in Caliornia i the property is located in Caliornia.



FEBRUARY 2011

NEW JOB CREDITEmployers with 20 or ewer employees at the end o the preceding year may qualiy or a nonreundable tax credit against

personal or corporation income tax or each new qualied employee hired. The credit is $3,000 or each increase in qualied ull-

time employee hired and begins in the 2009 taxable year. Unused credits may be carried orward or eight taxable years.

________________________________________________________________________________________________________________

Thank you or your time and continued support o the Enterprise Zone program

As always, please call i you would like to discuss any o these items urther.

Your Tax Partners,

Mark G. Cook, Partner Richard A. Linder, Partner Jon Widdowson, PartnerSteven J. Cupingood, Partner David Neighbors, Partner Michael Wu, PartnerJohn A. Eckweiler, Partner Todd Northrup, Partner Don Leve, PartnerDan B. Faulk, Partner Javier Ramirez, Partner

Andrew L. Gantman, Partner Thomas E. Wendler, Partner

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inorm you that any U.S. tax advice contained in thiscommunication (including attachments) is not intended or written to be used, and cannot be used, or the purpose o (i) avoiding penalties underthe Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.Notice: Opinions, conclusions, and other inormation in this message are not intended to represent recommendations or advice to you or anyother person. Each person’s circumstances are unique, and we strongly suggest you discuss your specic situation with your proessional advisorbeore taking any action based on the inormation herein or inormation to which this message reers.

March 2010: Governor Signs California Budget Package

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