With the deadline for introducing new bills for the 2019 Legislative Session having passed, the California Legislature will embark on considering hundreds of tax-related measures until they adjourn in mid-September. There are over 350 tax related bills that were introduced, many without substantive language yet, with about 65 tax credit measures and half a dozen possible tax increase bills.
Will there be an appetite to raise taxes this year? With a large budget surplus and a significant budget reserve, many Capitol observers wondered whether we would see many tax increase proposals. And, of course, would legislative Democrats take advantage of their super-majority status to pass tax increases?
So far, there are only a handful of potential revenue-raising measures that may be considered this year, including:
Carbon tax? SB 43 (Allen) would require CAR to submit a report to the Legislature on the results of a study to propose, and to determine the feasibility and practicality of, a system to replace the tax imposed pursuant to the Sales and Use Tax Law with an assessment on retail products sold or used in the state based on the carbon intensity of the product to encourage the use of less carbon-intensive products.
Water tax? SB 200 (Monning) is only an intent bill so far, but expresses that it is in the interest of all Californians to establish a fund with a stable source of revenue to provide financial support, particularly for operation and maintenance, necessary to secure access to safe drinking water for all Californians, while also ensuring the long-term sustainability of drinking water service and infrastructure.
Services tax? SB 522 (Hertzberg) is only an intent bill so far, but could be a legislative vehicle for “tax reform” or to extend the sales tax to services. This bill would make legislative findings regarding the need for further efforts to modernize and restructure the state’s tax system and would state the intent of the Legislature to enact legislation that would accomplish specified purposes, including realigning the state’s outdated tax code with the realities of California’s 21st century economy.
Soda tax? AB 138 (Bloom) is only an intent bill so far, but expresses the intent of the Legislature to establish the California Community Health Fund in the State Treasury, and would require moneys in the fund to be used to diminish the human and economic costs of diabetes, obesity, and heart and dental disease in California.
Firearms tax? AB 18 (Levine) is only an intent bill so far, but expresses the intent of the Legislature to enact legislation that imposes an excise tax on the sales of handguns and semiautomatic rifles and would require the revenue collected from that tax to be used to fund grants through the CalVIP program.
The following measures have been flagged as tax increases by Legislative Counsel pursuant to Article 13A, Section 3 of the California Constitution:
Oil severance tax: SB 246 (Wieckowski) This bill would impose an oil and gas severance tax upon any operator for the privilege of severing oil or gas from the earth or water in this state at specified rates.
Mandated attorney fee: AB 1060 (Gray) This bill would make the $40 fee increase mandatory and would remove the requirement that the fee invoice provide the option of deducting $40.
Opioid tax: AB 1468 (McCarty) The bill would, commencing with the 2021–22 fiscal year, require DPH, in consultation with the Pharmacy Board, to calculate the ratable share of a manufacturer or wholesaler, which is the individual portion of the collective sum of $100,000,000 to be paid by the manufacturers and wholesalers, based on the information reported.
Tax credit limitation: AB 1783 (R. Rivas) This bill, under the law governing the taxation of insurers, the Personal Income Tax Law, and the Corporation Tax Law, would prohibit tax credits for any farmworker housing used to comply with the federal law requirement to furnish housing to H-2A workers.
On the other hand, there are a number of measures that would create new tax incentives, such as those for job creation and training. Those include the following bills:
SB 422 (Hueso) This bill would, under both laws for taxable years beginning on or after January 1, 2020, and before January 1, 2022, allow a credit against the tax in an amount equal to 20% of qualified wages paid by a qualified taxpayer, as defined, to qualified full-time employees, defined to mean, among other things, that the person is between 18 and 25 years of age who complete a work readiness program, not to exceed $15,000 per qualified taxpayer per taxable year.
AB 1726 (Arambula) This bill, for each taxable year beginning on or after January 1, 2020, and before January 1, 2025, would allow a credit against the taxes imposed under both laws to a qualified employer, as defined, in an amount equal to that allowed under the federal Work Opportunity Tax Credit, as modified.
Another high-profile measure is AB 147 (Burke) which deals with the U.S. Supreme Court’s Wayfair decision. This bill would specify that, on and after April 1, 2019, a retailer engaged in business in this state includes any retailer that, in the preceding calendar year or the current calendar year, has a cumulative sales price from the sale of tangible personal property for delivery in this state that exceeds $500,000. The bill would allow the department to grant relief to certain retailers engaged in business in this state for specified interest or penalties imposed on use tax liabilities due and payable for tax reporting periods beginning April 1, 2019 and ending December 31, 2022.
Is there a desire for significant tax reform this year? Governor Newsom has called it “profoundly difficult.” Yet, he has stated a desire to revise the state’s tax structure. And certainly, a number of legislators, led by Senate Majority Leader Bob Hertzberg, has expressed a similar desire. We will have to see whether there is the political will to tackle such a difficult policy area.
Chris Micheli is an attorney and legislative advocate for the Sacramento governmental relations firm of Aprea & Micheli, Inc.