Posts Tagged ‘California’

Tax Roundup, 2/22/2013: Why California refugees might not choose Iowa. And: to C or not to C?

Friday, February 22nd, 2013 by Joe Kristan


Enjoying a short Des Moines winter commute.

Enjoying a short winter commute in bicycle-friendly Des Moines.

We aren’t scaring them.  Governor Branstad is making a trip to California to poach some businesses from the failing Golden State.  He’s not scaring one Californian:

Iowa’s top state personal income tax rate is 8.98 percent, compared to 13.3 percent in California. Probably not enough of an improvement to lure millionaires from Pacific Palisades to Dubuque. By contrast, Texas offers zero percent.

The top state corporate income tax rate is 12.5 percent in Iowa, 8.84 percent in California and zero percent in Texas.

Earlier this year, Branstad said he would no longer pursue getting rid of Iowa’s corporate and personal income taxes. Instead, he’s going to focus on cutting property taxes.

Well, California’s property taxes already are fairly low thanks to Proposition 13. Although property prices here are triple those in Iowa and most other states because of our severe restrictions on building.

Bottom line: Iowa doesn’t offer enough incentives to attract many businesses and people to leave California. The Hawkeye State is the Golden State with bad weather.

Ouch.  Well, Iowa’s solvent, too, unlike California, which is a fiscal disaster.  We also have short commutes.  Still, he makes a valid point: it’s not enough to compete with a basket case like California.  Golden State refugees have plenty of places to choose from, many of which have better taxes, better weather, or both.  I have no thoughts on fixing the weather, but The Quick and Dirty Iowa Tax Reform Plan would take care of the tax problems.  With no corporate tax and a 4% individual rate, combined with good employees, education and quality of life, we’d see some Californians.


To C or not to C?  The Wall Street Journal reports that taxpayers are revisiting whether to operate businesses as C corporations or pass-through entities.  C corporations face a top rate of 35%, where individuals have top rates over 42% as a result of the ill-concieved fiscal cliff and Obamacare tax increases.  From the article:

“Even though on the surface you’re looking at 35% versus 39.6%, it’s a deceptive comparison,” says Robert W. Wood, a tax lawyer with Wood LLP in San Francisco. “There may be a slight short-term advantage in C-Corporations, but there are a number of negative long-term implications that would outweigh short-term benefit.”

For example, C-Corporation profits can be double-taxed. In addition to the corporate tax on profits, owners also would owe personal taxes on any money they take out of the company as dividends. The double tax kicks in when a business is sold, too.

Another potential problem is that a firm that switches from an S-Corporation generally has to remain a C-Corporation for at least five years. 

At current rates, a switch to C corporation format is probably still unwise, if tempting, because of the double tax issue.  You might have lower tax up front, but getting the money out involves either paying a second tax on the dividends or expensive tax gymnastics, often involving renting to a corporation or potentially “excessive” compensation.  C corporations are the Roach Motels of the tax world: they’re a lot easier to check into than check out of.  But if there is a significant reduction in corporation rates, the current tax savings will be enough to tip the balance for many taxpayers to C corporation status, double tax or no.

Hat tip: TaxProf Blog.


When Will Tax Complexity Cause a Collapse? (Jason Dinesen). 

The tax code, as most everyone knows and acknowledges, is ridiculously complex and getting more complex all the time.

When will the complexity cause the system to collapse? And what, exactly, will collapse?

I think it would require a combination of things to “collapse” the tax law.  If the perception becomes widespread that it is impossible to comply with the tax law without unreasonable effort, or the rates get intolerably high, and technical advances allow for cash transfers and banking that the government can’t trace, then the game is over.

Tax Analysts is having a conference today on whether, after 100 years, the income tax has run its race.

Elizabeth Malm, Holy Smokes! Washington Loses $376 Million to Cigarette Tax Evasion in 2012.  Many states have raised tobacco taxes to a point where smuggling becomes attractive.


Howard Gleckman, Congress May Not Rewrite the Tax Code in 2013, But It Could Make It Simpler (TaxVox).  If you can’t do everything, you might still do something.

Kay Bell, Education tax credit form, already pushed into February, now causing filer confusion and more delays in processing

Peter Reilly,  Bill Romanowski’s Tax Court Loss Not A Typical Horse Case.  We covered it here yesterday.

TaxGrrrl, About Those Leaked Wal-Mart Emails… Is IRS To Blame For Sluggish Sales?  Are tax refund delays stopping consumer spending?

Teaching by bad example, Nebraska-style.  I examine the tax troubles of a prairie-town lawyer.


Jim Maule, How Tax Falsehoods Get Fertilized.  That “70,000-page tax code” really bugs him.

Want to raise the minimum wage?  Then apply it to your interns, Congresscritters. (Donald Boudreaux).

Don’t bug Robert D. Flach with requests for free tax help.


It’s probably how he meets girls too.  Berlusconi & The Lure of Tax Refunds (Robert Goulder,

CPA exam tip: Calm Down, This CPA Exam Practice Question Isn’t as Dirty as You Think (Going Concern)


Tax Roundup, 7/27/2012: Congressional preening, California refund dreaming; corn squeezers squeezing.

Friday, July 27th, 2012 by Joe Kristan

Flickr Image by Bryan Villegas used under Creative Commons license

Christopher Bergin ponders our congresscritters:

The point is that you could set these folks pants on fire and they still wouldn’t get it. Our tax system is a mess, and we are heading into another recession (yes, I’m “doubling down” on that bet!). And these folks squabble like children.

The tax world is a microcosm of what is going on in Washington. Our political system is completely dysfunctional. Congress, when it manages to pay attention, is totally reactionary. Our lawmakers will do nothing but bicker until catastrophe hits. Bet on it.

But, sincerely, let’s all try to have a nice summer.

Maybe setting their pants on fire wouldn’t help, but it’s worth a try.

 But Political Preening Season is. Middle Class Tax Cuts Not Extended (TaxGrrrl)

Jason Dinesen: Enrolled Agents – The Lichtenstein of the Tax World:

In terms of name recognition, EAs are far, far behind. We may outnumber attorneys but that doesn’t mean our name recognition is better than that of attorneys, and we are light years behind CPAs.

The IRS’s program to “professionalize” unenrolled preparers will help enrolled agents, with their stricter requirements, not at all.

No. Any more questions? Do Higher Education Tax Credits Make Sense? (Kim Reuben, TaxVox). 

Unfortunately, we are flying blind in our efforts to reform these subsidies. There are limited data to help  evaluate the effects of these programs, including  recent expansions.  We know little about what the grants and credits mean for students over time. A key question is whether either or both programs result in higher tuition.

The key answer is almost certainly yes.

California refund claim opportunity? A California court rules that California’s double-weighted sales factor apportionment factor is optional, reports Russ Fox.  The traditional three-factor formula weighs payroll, property and sales equally.  Extra weight on the sales factor punishes out-of-state corporations, which is why Iowa uses only sales.  Brian Strahle has more.  If the decision holds up, taxpayers may want to file amended California returns to use the traditional three-factor formula.

Got Drought? Roger McEowen explains the rules for deferring crop insurance and disaster payments for farmers.

So stop making it. Ethanol Makers are Getting Squeezed (Paul Neiffer)

Kay Bell: Mississippi sales tax holiday begins today.  Iowa’s holiday for clothes is August 3 and 4.

Joining the rest of us:  Senate, House Take Turns Hatin’ On One Another (Anthony Nitti)

Peter Reilly says  Lowell Yoder Has Some Great Tax Posts – Read Them.  And he’s right.

Peter Pappas is posting again: Obamacare Will Cost Taxpayers $1 Trillion Over Next Ten Years

Tax Policy Blog has Updates to Bush Tax Cuts Calculator

TaxTv, Self-Directed IRAs: Prohibited Transactions Can Get You in Trouble

Young Buck’s IRS auction raises $53,000 (, via Going Concern)


Fleeing Paradise

Friday, December 2nd, 2011 by Joe Kristan

Tax blogger and poker player Russ Fox cashes in his chips at Casino California:

My tax bite is roughly 10% to California. For every dollar I make, ten cents goes to Sacramento. (Yes, I get a benefit from that in that state income tax is deductible on federal tax. However, because of the Alternative Minimum Tax even that benefit is capped.) For the past few years I


Government spending has been cut to the bone. Or not.

Tuesday, September 20th, 2011 by Joe Kristan

If you are wondering why the State of California has trouble making ends meet, a Tax Court case yesterday involving a California prison guard offers a hint. From the Tax Court (my emphasis):

Petitioner is employed as a correctional officer by the State of California at San Quentin State Prison (San Quentin) and has held this position since 1982. In 2006 petitioner worked an average of 60 hours per week at San Quentin, earning wages of $178,528

Assuming that he got time-and-a-half for his overtime, that works out to a base salary of about $102,000. Yes, prison guards have a tough job, but probably not that tough. Considering that they can retire at 55 on a pension of 85% of their final year salary, that’s not bad — and well above military pay scales.
The guard was in Tax Court after the IRS disallowed deductions for unreimbursed business expenses and some hobby loss issues — most of which he lost.
Cite: Doris, T.C. Summ. Op. 2011-111


Finally: merit pay for legislators

Wednesday, June 22nd, 2011 by Joe Kristan

No Pay for California Legislators Due to Late Budget, Controller Rules” (Via Tax Policy Blog).
They’re still overpaid.


How easy is it to be taxable in California?

Monday, March 28th, 2011 by Joe Kristan

This easy, reports Russ Fox:

* It is organized or domiciled in California;
* Its [California] sales exceed the lesser of $500,000 or 25% of total sales;
* Its [California] payroll exceeds the lesser of $50,000 or 25% of its total compensation; or
* Its real and tangible personal property exceed the lesser of $50,000 or 25% of the entity


The Eagles were wrong. You can leave, too.

Wednesday, June 23rd, 2010 by Joe Kristan

20100623-1.jpgIt’s not enough for California to have ridiculously high taxes, or to hit tourists with taxes for just looking around. Now they may make drivers carry advertising on their license plates (“Call 1-555-LAWSUIT!”). They should make sure they do the front plates in mirror-writing, for the benefit of all of the taxpayers who are driving away to more sane states.
More from Peter Pappas.

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Endless Summer Spending

Monday, December 28th, 2009 by Joe Kristan

They can’t all be California girls, but maybe we can all be California taxpayers — at least if Arnold Schwarzenneger gets the Federal bailout he’s begging for to pay for his state’s feckless spending.


Sinking in the West

Thursday, May 21st, 2009 by Joe Kristan

California voters have decided that they don’t care to pay more taxes to bail out their feckless politicians. How feckless? This feckless:
It’s not surprising that Californians feel a bit overtaxed:
Source: The Tax Foundation
Will it get any better? The TaxGrrrl thinks not:

Cuts are inevitable now. So are higher taxes. Just months after California cut billions in spending, raised the state sales tax by a penny, borrowed and yes, begged, from the federal government, the state is expected to once again raise taxes. This time, income taxes are the likely target.

Californian Russ Fox thinks the voters who rejected their tax increases meant what they said:
Voters told Sacramento in no uncertain words it’s time to cut programs, and spend only the money you have. It will be interesting to see if the Democrats in control of both houses of California’s legislature get the message.

Expect variants of the “Washington Monument Ploy,” named after the trick of shutting down the most visible and popular programs to shelter the less visible wasteful spending. Look for Charles Manson to be put up for work release.
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California: knocking on that golden door, but nobody’s answering

Wednesday, May 20th, 2009 by Joe Kristan

Megan McArdle explains:

California is completely, totally, irreparably hosed. And not a little garden hose.

All of the tax increases went down in yesterday’s referendum. The Governator has hit the wall.
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I wish they all could be California grrrls

Tuesday, April 21st, 2009 by Joe Kristan

The TaxGrrrl has reached California in her tour of state tax systems. It’s sobering reading:
– A 2008 top rate of 10.3%, with no deduction for federal taxes (and scheduled to go up more).
– A statewide sales tax rate of 7.25% — higher in many areas.
– The highest gas tax in the country – 45.5 cents per gallon.
TaxGrrrl will be “twitterviewed” at 3:00 p.m. Central time today at @22Twts.


California adds single factor apportionment option

Tuesday, March 10th, 2009 by Joe Kristan

David Brunori of Tax Analysts caught something I missed in the California Budget Frenzy: they enacted optional “single factor” apportionment ($link). Corporations subject to the California income tax will have the option to have their income allocated to California based entirely on where their sales are, rather than based on a combination of sales, payroll and property.
Usually single-factor is a “screw you, stranger!” approach to apportionment. Pioneered in Iowa, single-factor greatly reduces the tax on in-state corporations with multi-state operations, but it clobbers out-of-state corporations that have little in-state activity but sales. It has gained popularity among legislators for the perception of protecting the local guy while sticking it to the (non-voting) out of state company.
California’s approach is optional, so it helps the local guy without really sticking it to the outsiders. Mr. Brunori calls it “A Devastating Blow to the Corporate Income Tax.” Well, maybe something good will come out of the California budget debacle.


Maybe the check from California really is in the mail

Monday, March 9th, 2009 by Joe Kristan

Russ Fox reports that California is finally paying the tax refunds it had been sitting on during the latest iteration of its budget crisis.
Of course, the crisis isn’t over, but they have a budget now. It’s sort of like in the Wizard of Oz, where the scarecrow isn’t any smarter, but he does have a diploma.


California waking up

Monday, February 23rd, 2009 by Joe Kristan

The California dream is dying just a bit more. The Governator has signed a budget agreement that will add 1% to the sales tax rate (the rate will be 8.75% in Orange County, for example) and increase income taxes to a top individual rate of (probably) 10.425% — without federal deductibility. A comparable Iowa rate, with federal deductibility, would be approximately 15.23% (compared to our current 8.98% rate).
The Governator kindly eased the pain for the movie business with targeted breaks – so the non-beautiful people get to make up the difference.
Very strange. Blaming California’s problems on inadequate revenues is like blaming a binge drinkers problems on the high cost of alcohol.
California Approves Budget; Taxes Going Up
More on California’s New Taxes
What’s Next for California