BILL NUMBER:  SBX8 32
  VETOED	DATE: 03/25/2010




To the Members of the California State Senate:

I am returning Senate Bill X8 32 without my signature.

This bill is similar to legislation I vetoed last fall.  In my veto
message, I expressed disappointment that the multi-year process of
drafting a consensus bill on federal tax conformity was derailed by
the last minute insertion of a provision that was objectionable to
many of the parties involved in the process.  A version of that
provision remains in this bill and as such I cannot support it.  I
have made my objections clear, both publicly and privately, to
legislative leaders on numerous occasions.  This veto should not come
as a surprise to them, as I have told them for weeks that I cannot
support the bill as written and have encouraged them, both publicly
and privately, to act on revised legislation.

Before discussing the provision of the bill I continue to find
objectionable, I would like to express my strong support for two
provisions in the measure.  First, is the provision to extend the law
providing mortgage debt forgiveness to those Californians who have
gone through a "short sale" process.  I signed a law in 2008 that
forgave this debt for two years and I am supportive of extending this
law.  In fact, Assemblyman Niello, a Republican, and Senators
Calderon and Correa, both Democrats, have introduced stand-alone
measures to extend the law.  Given the bipartisan support for
extending this provision, it would have been easy for the Legislature
to pass a bill before adjourning for their spring vacations.
Unfortunately, the Legislature chose not to act.

I also support ensuring that federal economic stimulus grants
received for renewable energy projects are not treated as income for
tax purposes.  California is one of the only states in the nation
that considers the receipt of federal stimulus grants under the
American Recovery and Reinvestment Act as taxable income for
renewable projects.? Renewable companies are currently establishing
the financing to build their California projects.  If California adds
millions of dollars of cost by taxing federal stimulus grants, these
projects will die.? Again, legislation with bi-partisan support is
already introduced on this topic and could have been passed before
the Legislature left Sacramento.

Regarding the objectionable provision of this bill, I do not oppose
appropriate penalties on taxpayers who fail to pay what they owe or
try to manipulate tax law.  As part of the 2008 budget solution,
California added the highest penalty in the nation on companies that
understate their taxes.  The purpose of this penalty was to encourage
companies to err on the side of overpayment, thus accelerating
revenues for the state.  The proposed federal penalty in this bill
impacts the same taxpayers.  The interaction between the two
penalties is unfair.  The state has forced many of these taxpayers to
overestimate their tax payments in order to address our budget
crisis and, under this bill, we would then penalize them if the tax
refund they claimed is too high.  I cannot support this policy.  If
the members of the Legislature want to have a separate discussion
about ways to make the federal penalty operational in California in
conjunction with the state penalty, I am open to that discussion.

For these reasons, I am returning this bill without my signature.  I
encourage the Legislature to immediately pass revised legislation on
the matters addressed above.

Sincerely,



Arnold Schwarzenegger