Government Relations
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CCTA Legislative & Regulatory Updates
( Archive )State Legislative - Week of January 13, 2012
Budget
Governor Releases Proposed Budget. Last week, Governor Jerry Brown released his proposed 2012-13 fiscal year budget. The Governor estimates the state's General Fund budget for the upcoming fiscal year at $92.5 billion which is about $7 billion more than the current year. Within this proposed budget, the Governor estimates that the state must deal with a $9.2 billion structural deficit. Last year, the Governor and the Legislature had to deal with a $26.6 billion structural deficit so the state budget has improved significantly.
The cornerstone of the Governor's plan is balanced on California voters approving his tax proposal to increase the state sales tax by half cent ,and raise the personal income tax by one percent on individuals making $250,000 or more a year and two percent for an individual making over $500,000 a year. These tax increases would expire in 2016. The Governor estimates that the tax increases would raise about $7 billion which is disputed by others as too high. If voters reject the Governor's tax proposal, the Governor's budget includes an automatic $5.4 billion in budget cuts including a $4.8 billion cut to education. Given the recent improvements in the economy, Republicans believe that the tax increases are unnecessary.
Mandatory Single Sales Factor. Although the Governor's proposed budget did not include any specific details, the Governor noted in his summary that "the Administration will propose legislation to reform the enterprise zone program and move to a mandatory single sales factor for apportioning multistate business income." The Governor noted that the ability for taxpayers to elect single sales factor apportionment under current law has weakened the growth of corporate tax revenues.
New Surcharge on Employers. The Governor's 2012-13 budget plan also includes a proposed new surcharge on employers to pay the accrued interest on the $9.97 billion outstanding unemployment insurance (UI) loan that California has with the federal government. The governor expects to raise about $473 million annually, starting on January 1, 2013. The surcharge likely will be in the form of an increased employment training tax (ETT), which employers currently pay at a rate of 0.1 percent on the first $7,000 of each employee's wages. The ETT, established in 1982 as a temporary tax, is supposed to be used to train employees in targeted industries to improve the competitiveness of California businesses. A 2001-02 budget trailer bill (AB 429) repealed the January 1, 2002 sunset date, thereby making the ETT permanent.
The proposed employer surcharge would be in addition to the $21-per-employee federal payroll tax increase starting this month that is the result of California's failure to pay back its UI loan from the federal government for two consecutive years. Employers must now pay more Federal Unemployment Tax Act (FUTA) taxes by reducing their FUTA credit by 0.3 percent, and must file a newly revised federal Schedule A, along with their federal Form 940s.
It is unclear if the increase would require a 2/3 vote.
Universal Service Roundtable: The California Broadband Council and Senator Padilla, hosted what was described as a "roundtable discussion" on the Federal Communications Commission (FCC) recently issued decision on universal service and inter carrier compensation. The roundtable was meant to be an informal dialogue, recognizing that stakeholders have appeals and ongoing rulemakings on universal service and ICC issues. The discussion focused on state implementation of federal reforms and how they may interrelate to California's broadband policies and goals to providing service to California's remaining unserved areas. Zachery Katz, the recently appointed
Chief Counsel to FCC Chairman Julius Genachowski, presented an overview of the FCC order, and Roxanne Scott from the CPUC made a presentation focusing on state implementation issues. Several interested parties, including representatives of the wireless association, small telephone providers, the California Telehealth program and non profits focused on getting broadband to rural areas, also provided comment. The discussion was strictly informational.
LEGISLATION
AB 832 (Ammiano) Embedded Software. As proposed, AB 832 would codify a portion of the State Board of Equalizations (BOE) regulations relating to property taxation of "embedded" computer programs and impose a higher evidentiary standard on taxpayers seeking to prove that the "single price" paid for the computer or equipment included charges for nontaxable software programs or services.
AB 832 is sponsored by the California Assessors' Association (CAA) and is opposed by CalTax, the California Chamber of Commerce and a number of high tech firms. After heavy opposition to the measure, the CAA withdrew the measure pending further negotiations. Working through the BOE, CAA is working with industry opposition to develop an agreeable compromise for taxing embedded software. As such, CAA has indicated that it would amend AB 832, deleting the current language and adding language stating it is "the intent of the Legislature to adopt legislation to codify a standard for the fair and reasonable taxation of software embedded in business personal property resulting from an interested parties process lead by the State Board of Equalization and that includes the business community and county assessors." CalTax is asking the CAA to amend the proposed language to drop the reference to "taxation" and replace it with "valuation." The final amended should be made next week on the Assembly Floor.
The link below will allow you to view the bills which CCTA are currently tracking:
State Legislative - Week of October 21, 2011
The California Legislature has adjourned for Interim Study Recess and will reconvene January 4, 2012.
Governor Signs Legislation Giving Added Authority to the California Energy Commission. Governor Brown has signed Senate Bill 454 (Pavely) that, among other things, gives the California Energy Commission (CEC) new authority to impose fines on manufacturers that do not meet the state's energy efficiency standards. They may impose fines up to $2,500 per violation. SB 454 was aggressively opposed by the California Manufacturers and Technology Association who also strongly and unsuccessfully urged the Governor to veto the bill. While the legislation fines manufacturers of devices that do not meet state efficiency standards, it underscores the weight with which energy efficiency standards are regarded in California. This is important in the context of the ongoing proceeding at the CEC to apply energy efficiency standards to a new list of appliances, including set top boxes. CCTA has recently filed comments as well as supplemental comments testified before the CEC to reinforce the fact that the CEC remains federally preempted from adopting energy efficiency standards for set top boxes. SB 454 will go into effect January 1, 2012.
BOE Hearing on Spilt Roll Tax and Embedded Software. The state Board of Equalization (BOE) held its "Annual Board Meeting with County Assessors" this week in Sacramento. There were two discussion items on the agenda that the county assessors wanted the BOE to consider. The first issue focused on the implications and considerations of changing the California property tax system (split roll tax). The county assessors argued that the current property tax law provides an unfair economic advantage to businesses at the expense of new businesses and residential property owners. Businesses responded that California businesses did not support the 1975 proposition that created the current property tax system (Proposition 13) but noted that it did bring stability and predictability of property taxes that Californians were seeking. The discussion ended with a disagreement that there was a problem. BOE did not take any action but will work to gather data to better define the issue.
The second discussion item focused on the problems with the assessment of embedded software and the possible solutions. All parties, more or less, agreed that when the 1972 legislation exempting computer software from property taxation was enacted, no one realized how pervasive its use would become in business. The assessors stated that this exemption was only provided at the time to help jump start the software industry. The assessors continue to support legislation requiring taxpayers to provide "clear and convincing evidence with regard to the value of embedded software in order to be exempted" as is currently proposed in AB 832 (Ammiano). David Doerr from CalTax disputed that the software exemption was merely to help an infant industry. According to Mr. Doerr, the exemption was provided because software is an intangible good and the BOE needs to maintain this principal.
Everyone agreed that calculating the value of the embedded software was a difficult task. A suggestion was made that the BOE amend its Rule 152 to categories equipment into roughly eight different categories and then assign "percentages of presumed exemptions" for each category. The assessor or taxpayer could challenge the percentage but would have to provide sufficient evidence to support their position. The BOE concluded the discussion with a commitment to reach out to all stakeholders to discuss the possibility of developing a methodology for the valuation of nontaxable embedded software.
State Legislative - Week of October 14, 2011
