BILL ANALYSIS Ó
SB 500
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Date of Hearing: August 3, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
SB 500
(Hertzberg) - As Amended August 1, 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 excludes from the Personal Income Tax (PIT) the gross
income of a nonresident to the extent that the income is "de
minimis," as defined, and received on or after January 1, 2017,
or before January 1, 2021. Specifically, this bill:
1)Defines "de minimis income" as compensation subject to
withholding under the Unemployment Insurance (UI) Code that is
received by a nonresident under the following conditions:
a) The nonresident has no other income sourced to
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California for the taxable year in which the compensation
was received;
b) The nonresident is present in California to perform
employment duties on behalf of an employer and any other
related person for not more than 9 calendar days during the
taxable year in which the compensation is received; and,
c) The nonresident's state of residence either provides a
substantially similar exclusion or does not impose an
individual income tax.
2)Exempts a nonresident from the obligation to file a state
income tax return if the nonresident's income from California
sources is only the de minimis income and that person has no
other tax liability, as specified.
3)Prohibits the provisions of this bill from applying to any
individual who is a professional athlete or member of a
professional athletic team, a professional entertainer who
performs services in the professional performing arts, an
individual of prominence who performs services for
compensation on a per-event basis, or an individual who is
identified as a key employee.
4)Excludes de minimis income of a nonresident from the
definition of gross income for the purposes of withholding
taxes on wages.
FISCAL EFFECT:
1)Annual GF revenue loss of $150,000.
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2)Minor administrative costs to FTB and EDD.
COMMENTS:
1)Background. California imposes PIT on all income from
California sources received by nonresidents. Various sourcing
rules apply to certain items of nonresident income for
retirees, nonresident salespeople's commissions, performances
by athletes and entertainers, professional services like
attorneys and physicians, officers of corporations, and
operators of trucks, trains, and ships. State law also
requires employers who pay employees California-sourced income
to withhold expected income taxes and register with EDD.
Whenever wages are paid to a nonresident employee performing
services in California, the employer must withhold expected
taxes and deposit them quarterly with EDD. The general penalty
for failing to withhold is the greater of $500, or 10% of the
amount withheld, but may be abated upon showing reasonable
cause.
2)The Federal Mobile Workforce State Income Tax Simplification
Act of 2015. Congress has considered legislation in recent
years to limit a state's authority to apply income taxes to
mobile workforce. The Federal Mobile Workforce State Income
Tax Simplification Act of 2015, which is currently pending in
Congress, would preempt state tax authority by limiting
withholding requirements to the employee's state of residence
and those states where the employee works more than 30 days.
The Act would similarly bar states from collecting taxes from
employees working in states less than 30 days per year.
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3)Arguments for and against California's current policy.
Businesses argue that withholding is an excessive burden when
simply sending an employee into a state for only a few days,
especially if withholding requirements differ from state to
state. Similarly, nonresident employees perceive the
California's income tax filing and payment requirements as
burdensome, considering that nonresident employees spend only
a few days of the year working in California.
Opponents to SB 500 such as the Department of Finance (DOF)
argue that the current system is adequate in collecting
revenue and that nonresidents still file despite the perceived
burden of doing so. DOF notes that nonresidents enjoy public
services while working in California and this bill shifts the
burden of paying for public services and infrastructure
further to California taxpayers even though these mobile
workers benefit from them.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081
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