BILL ANALYSIS Ó
AB 2771
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Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2771 (Irwin) - As Amended April 11, 2016
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|Policy | Revenue and Taxation |Vote:| 9 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill modifies the rules for determining the amount of
credit allowed, under the Personal Income Tax (PIT) Law, to a
California resident for taxes paid to other states. This bill
provides that for purposes of calculating a credit for the taxes
paid by a California resident to another state, California's
apportionment rules will not apply in lieu of that other state's
apportionment rules.
FISCAL EFFECT:
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Unknown fiscal impact because of the lack of data available on
the number of taxpayers affected by this bill. For every 1% of
taxpayers affected, there would be a GF revenue loss of
approximately $8.8 million.
COMMENTS:
1)Background. California residents are taxed on all income,
including income from sources outside of California. In some
cases, taxpayers are taxed by both California and another
state on the same income. To prevent the income from being
taxed twice, California or the other state will allow a credit
to offset the taxes paid to the other state.
California residents may claim a credit for net income taxes
imposed by and paid to another state only on income which has
a source within the other state. No credit is allowed if the
other state allows California residents credit for net income
taxes paid to California.
For the purposes of calculating the other state's tax credit,
California's sourcing principles apply even though the results
may be contrary to other states' principles. For example: A
California taxpayer may have income from a multistate trade or
business. Some of that income was generated another state, and
so that taxpayer pays the other state's income taxes on that
portion of income. Under California rules, that taxpayer may
claim a credit for those income taxes, but the taxpayer must
recalculate the tax owed for that income under California's
sourcing rules. The greater the difference is between
California's and other state's apportionment and allocation
rules, the more potential there is for double taxation of
income.
2)Purpose. This bill is intended to simplify the tax code and
align it with other state's apportionment rules instead of
AB 2771
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California's rules. The author notes that other states like
New York have implemented similar changes.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081