NewsTax Increases Could be on the Horizon
Despite California voters adopting multi-billion tax increases in November through the passage of Proposition 55 (12-year extension of the Prop. 30 personal income tax increases), Proposition 56 ($2 tax imposed on each pack of cigarettes), and Proposition 64 (which includes several tax increases on marijuana and marijuana products), the Legislature continues to propose new tax measures.
As introduced, SB 567 (Lara) contains four significant tax increase provisions. First, for tax years beginning January 1, 2018, the measure would require charitable remainder trusts (CRTs) to be at least 40% of the initial fair market value of all of the property placed in trust. Second, for persons who died on or after January 1, 2018, SB 567 would revise the law so that no adjustment is allowed where the person who acquires the property has an adjusted gross income or net income over a specified amount. Third, it would retroactively to January 1, 2017 eliminate the deduction for compensation paid to CEOs for pay based on commission or on meeting certain performance goals. Lastly, SB 567 would retroactively to January 1, 2017 remove the water’s-edge election and specify that all existing electors would be unable to file using the water’s-edge method for tax years beginning on or after January 1, 2023, thereby forcing all corporations to file on a worldwide unitary basis.
Because the bill makes multiple changes in state statutes that would result in a taxpayer paying a higher tax, it requires a 2/3 vote of the Legislature in order to pass. Of note, the November election resulted in Democratic supermajority victories in both houses, which – in theory – could provide the opportunity to pass such tax increases without Republican votes. It remains to be seen, however, if every Democrat will support the measure.
For more information, please see http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201720180SB567.