TAXES BEATEN BACK, PROPOSITION 13 PROTECTED
By the time you receive this issue of Taxing Times, the Legislature will be back from its summer recess and will be speeding toward the conclusion of the legislative year on September 13. About one thousand bills will ultimately find their way to Governor Gavin Newsom’s desk. As this is his first year as governor, it will be intriguing to see which bills he signs and vetoes, and why. We’ll have a full rundown of the positions important to taxpayers, as well as our annual Legislative Report Card, in the next issue of this newsletter.
For now, however, we have to view the Legislature based on what has occurred during the six months they’ve been in session. As I noted in the last issue, the prognosis of the legislative year was not very encouraging. Democrats had achieved a supermajority in both houses of the Legislature, and without the specter of an upcoming election to hold them accountable, 2019 seemed destined to become the year of the tax increase. However, as legislation began moving through the process this spring, many of the tax increase measures failed to move forward. These included:
- Assembly Bill 18
Places a $25 tax on the sale of a new firearm.
- Assembly Bill 138
Imposes a two-cent-per-fluid-ounce tax on a wide variety of sweetened beverages that extend far beyond traditional soda. While two cents an ounce may not seem like much, if implemented, the tax would take $2 billion annually out of the pockets of consumers.
- Assembly Bill 755
Increases the existing tire fee for the purchase of new tires from $1.75 to $3.25.
- Assembly Bill 1468
Imposes a $100 million tax on opioid manufacturers to pay for opioid prevention and abuse treatment programs.
- Senate Bill 128
While not a tax increase, this allows local agencies to approve Enhanced Infrastructure Financing District bonds, long-term debt lasting up to 45 years, without a vote of the people. While not a tax increase, this allows local agencies to approve Enhanced Infrastructure Financing District bonds, long-term debt lasting up to 45 years, without a vote of the people.
- Senate Bill 246
Imposes an oil severance tax (taxing oil as it comes out of the ground) at a rate of 10 percent. This oil is already subject to property taxes and fees when it’s in the ground, and California doesn’t currently have an oil severance tax. The only state with a higher tax is Alaska, which doesn’t have state income or corporate taxes.
- Senate Bill 378
Imposes an up to 40 percent California estate tax on estates of $3.5 million to $11.4 million (double those amounts for married couples). Californians voted to repeal the estate tax in 1982; as such, an additional statewide vote would be required to restore it. The tax increase is estimated to be $1 billion.
- Senate Bill 522
Currently, the sales tax in California applies only to goods and some services. SB 522 would extend the payment of sales tax to almost all business services, resulting in a $10 billion tax increase.
It should be noted that while all these measures are dead for this year, nothing stops them from renewing their journey in 2020 because of the California Legislature’s two-year session.
Two taxes are continuing to move forward, both with Republican legislative support. AB 142, beginning in 2022, imposes an additional $1 point-of-sale tax on the purchase of car batteries, and makes this $2 tax permanent. And Senate Bill 96, already approved by the Legislature as part of the state budget process, imposes a new tax surcharge of up to 80 cents per month on cell phones and other electronic devices capable of calling 911. This tax already existed for landlines but not other devices. The funds would go toward upgrading California’s emergency service 911 system. Given recent fires and mudslides in the state, HJTA was not opposed to extending this surcharge to cell phones out of fairness. However, 80 cents per month and $400 million a year, on a permanent basis, is far more money than required to upgrade the system and is a way to use a crisis to get more money from taxpayers.
HJTA was also at the forefront of a victory on the dreaded “water tax.” While there have been many iterations of this bill during the last three years, the central theme included a $1 per month tax on nearly all residential water users. There are a million people in California without access to clean water, but a tax is not an appropriate funding solution given the state’s record $130 billion General Fund budget. Also, administrative costs for local water agencies to forward the funds to Sacramento would have been in the tens of millions of dollars a year. Thankfully, the Legislature agreed with HJTA’s position and decided to fund the necessary water infrastructure improvements through a combination of General Fund and cap-and-trade fund dollars, without further increasing taxes.
Finally, as noted elsewhere in this newsletter, Proposition 13 remains under constant attack. As of June 30, Assembly Constitutional Amendment 1 was the only active bill targeting Proposition 13 awaiting a vote of the full State Assembly. ACA 1 makes it easier to increase property taxes by billions of dollars statewide by lowering the vote needed for approval of local bonds, sales taxes and parcel taxes from two-thirds of the electorate to only 55 percent. It is important to remember that while everyone gets to vote on these property taxes, only property owners ultimately pay. Another attack on Proposition 13, Senate Constitutional Amendment 5, which lowers the threshold for education parcel taxes from two-thirds to 55 percent, is on the inactive file and likely dead for the year.
As always, continue to watch your e-mail for HJTA alerts, or go to www.hjta.org/legislation/legislative-updates for a full list of the bills we’ve taken positions on. If you’d like more information about what’s going on in the Capitol, I can be reached by e-mail at email@example.com. It is always an honor to represent you in the hallways of the State Capitol.