BILL ANALYSIS
SB 858
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SENATE THIRD READING
SB 858 (Budget and Fiscal Review Committee)
As Amended October 7, 2010
2/3 vote. Urgency
SENATE VOTE :Vote not relevant
SUMMARY : Makes various changes to state laws to implement
revenue provisions of the 2010-11 Budget Agreement.
Specifically, this bill :
1)Suspends the net operating loss (NOL) deduction under the
personal income tax (PIT) and the corporation tax (CT) for the
2010 and 2011 tax years. The NOL was last suspended for tax
years 2008 and 2009. Taxpayers with NOLs incurred prior to
January 1, 2008, will still have a full ten years during which
to utilize their NOL deductions. Thus, for taxpayers with NOLs
incurred prior to January 1, 2008, their carry forward period
will be tolled for the years of suspension and allow for the
full remainder of their NOL deduction. This provision delays
the authorization of NOL carrybacks, and applies carrybacks
for NOLs incurred during tax years beginning on and after
January 1, 2013, which shall not be applied to tax years
beginning prior to January 1, 2011. Thus, the carryback will
be available to offset taxable income in each of the prior two
tax years. The carryback provision will phase-in, with 50% of
any 2013 NOLs available for carryback, 75% of any 2014 NOLs,
and full carryback for NOLs in subsequent years. The
suspension would not apply to CT taxpayers with $300,000 or
less of pre-apportioned income (net business and nonbusiness
income before apportionment and allocation) and PIT taxpayers
with $300,000 or less of modified adjusted gross income (AGI).
This provision is expected to result in additional revenues of
$1.2 billion in 2010-11 and $410 million in 2011-12.
2)Allows for an exemption from the application of the Large
Corporate Understatement Penalty (LCUP) for corporation
taxpayers whose understatement is below a specified percentage
threshold of their total tax liability. In addition to the
current requirement that the tax liability understatement
exceed $1 million for the LCUP to apply, this provision would
require the understatement to exceed 20% of their total tax
liability for the penalty to apply. Under this safe harbor
provision taxpayers whose understatement is less than 20% of
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their total tax liability would not be subject to the penalty.
The LCUP would thus apply to corporations whose understatement
of tax is in excess of 20% of their total tax liability and
exceeds $1 million. The LCUP would be applied to the total
amount of the understatement. The provision is estimated to
result in reduced revenues of $105 million in 2010-11 and $105
million in 2011-12.
3)Provides that taxpayers who do not elect or are not eligible
to elect single sales factor under the corporation tax for
purposes of income apportionment would use cost of performance
in the assignment of sales of other than tangible personal
property. Under this provision, corporations which remain on
the three-factor or four-factor income apportionment method
would assign sales of other than tangible personal property to
California if the income-producing activity is performed in
this state or, in cases where the income-producing activity
occurs both in and outside this state, if a greater proportion
of the income-producing activity is performed in this state
than in any other state, based on costs of performance. This
provision is estimated to result in reduced revenues of $28
million in 2010-11 and $95 million in 2011-12. If single
sales factor election is not available to any taxpayer, due to
the passage of Proposition 24 in November, the 2010-11 revenue
reduction would be approximately $10 million, with annual
losses of approximately $30 million thereafter.
4)Provides that persons that are required to report and remit
the use tax on the purchase of tangible personal property may
elect to report and remit the tax on an acceptable tax return.
This provision continues the inclusion of a use tax line on
income tax returns and allows taxpayers of income taxes to
fill-in the amount due in use tax on their return. Any amounts
due may be remitted together with the income tax remittance.
This provision is estimated to result in increased revenues
due to tax compliance with existing law of $10 million in
2010-11 and 2011-12.
5)Establishes that the Board of Equalization (BOE) shall assess
a collection cost recovery fee for their costs associated with
collecting various fees and taxes from business and
individuals who have been non-compliant. The collection cost
fee will be imposed only if the BOE has mailed its demand
notice that advises that continued failure to pay the amount
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due may result in collection action, including the imposition
of a collection cost recovery fee. The amount of the fee will
be determined by the BOE and may not exceed the actual costs
associated with any collection efforts engaged in by the
agency. The fee is expected to result in fee revenues of $4.8
million in 2010-11 and $18 million in 2011-12.
6)Declares this bill take effect immediately as an urgency
statute.
FISCAL EFFECT: The total combined fiscal impact of all the
provisions noted above would result in additional revenues of
$1.2 billion in 2010-11 and $240 million in 2011-12.
Analysis Prepared by : Mark Ibele / BUDGET / 916-319-2099
FN: 0007193