The sun rose this morning, the Cubs are not in the World Series, and California’s budget is in crisis. All may not be well with the world, but we can count on some things remaining constant.

Also predictable: renewed positioning for new taxes to solve the budget deficit.

But if the Governor calls the Legislature into special session next month to address the deficit, they should be mindful that this year’s budget was predicated on nearly $6 billion in new or accelerated taxes on California businesses and investors. When it comes to taxing California’s employers, they gave at the office.

What are the tax changes?

• A two-year limit on the ability of businesses to use most business tax credits, including research and development, capping those credits at one-half of the taxpayer’s tax liability, costing businesses about $900 million. This tax credit limitation will result in increased taxes for companies currently relying upon California’s only remaining statewide investment incentive tax credits, research and development and enterprise zone credits.
• Suspends for two years the ability of businesses to deduct net operating losses, costing businesses $1.6 billion over two years. This change will directly affect marginally profitable businesses attempting to emerge from losses.
• Business taxpayers must pay more of their estimated taxes earlier in the year, which will raise about $2.3 billion. This will reduce cash flow for independent contractors and other businesses, small and large, in the first half of the year.
• Limited liability companies (LLC) must pay their annual fees at least six months earlier this year, and will suffer a 10% penalty if they underestimate their fees, costing these companies $360 million. The new fee deadline will result in a double payment of the fee in the early part of 2009, which may pose a hardship for small companies with limited cash flow.
• A new 20% strict liability penalty in addition to all existing penalties, which applies to “understatements” of tax liability of $1 million or more, which is estimated to raise $1.5 billion from businesses. Unlike most existing state and federal penalties, there is no “reasonable cause” exception, which makes this penalty applicable even to reasonable tax payer behavior where there is no culpability. This will force companies to overpay their taxes by May 2009 and subsequent years to include amounts reasonably in dispute, in order to ensure no 20% penalty.

Some offsetting reforms were adopted to mitigate the damage of the tax increases in several years, but for at least the duration of the economic contraction, many companies investing in jobs and operations in California – or who are attempting to emerge from their own contraction – will suffer higher tax bills.