As another election year approaches, California taxpayers will be faced with numerous ballot measures proposing billions of dollars in unnecessary tax increases. But before leaving 2015 behind, taxpayers should stop to celebrate what turned out to be a pretty good year.
Improvements in the economy led to significant increases in tax revenue at the state and local levels under existing tax rates, and allowed the state government to give more money to public schools, pay down debt and beef up the “rainy day” reserve.
Additionally, the Legislature adjourned without enacting any major broad-based tax increases, despite the introduction of bills containing a total of more than $132 billion in tax and fee hikes.
In fact, the biggest tax-related measure to come out of the 2015 legislative session had strong support from the California Taxpayers Association and other taxpayer groups.
Assembly Bill 154 by Assemblyman Phil Ting – which received bipartisan support and was signed by Gov. Jerry Brown in September – brings California’s taxes into greater conformity with federal taxes. This might not sound glamorous, but it has been a longtime priority of ours because it will help working Californians avoid costly tax mistakes and will improve tax compliance and enforcement.
California’s tax laws have been out of sync with federal law since 2009, the year before the last comprehensive conformity proposal was enacted. This meant that to complete state tax returns between 2010 and 2014, taxpayers had to look back to federal law as it read on Jan. 1, 2009.
Having to dig back into obsolete federal law was inconvenient. Nonconformity was also a leading cause of taxpayer errors and noncompliance, reported the independent taxpayers’ rights advocate at the state Franchise Tax Board.
These mistakes typically aren’t discovered until tax returns are audited several years later. By then, any taxes owed may have snowballed to an unmanageable level because of interest and penalties.
Nonconformity also required many businesses to keep multiple sets of records to comply with federal reporting requirements and accommodate the differences in state tax laws. This unnecessarily increased the costs of paying taxes, and distracted business owners from running their companies.
One provision in the new law conforms California to a federal provision that gives businesses that anticipate a net operating loss more time to pay their taxes. This extension allows them to offset losses against current income, which gives businesses access to money to shore up resources and make additional investments.
In addition to providing a benefit for taxpayers, AB 154 helps state tax collectors do their job more efficiently and accurately.
For the Franchise Tax Board, nonconformity meant the agency could not rely on federally audited returns, but instead had to do separate calculation and verification of tax returns.
California’s tax agencies also had to assign more staff to answer questions, conduct separate audits and initiate collections on errors. Conformity reduces the need for many of these activities, saving time and money.
And taxpayers will see the benefit when they file their 2015 tax returns next year.
Teresa Casazza is president and chief executive officer of the California Taxpayers Association, the state’s largest organization representing taxpayers, entering its 90th year. She can be contacted at email@example.com.