California lawmakers passed several tax policy bills during the final days of the 2019 legislative session, which adjourned September 14.
One of those bills, A.B. 1296, would expand a multi-agency effort to counter illicit businesses and establish the Tax Recovery in the Underground Economy (TRUE) criminal enforcement program. This is based on the Tax Recovery and Criminal Enforcement (TRaCE) task force pilot program, which was created to pursue underground businesses and recover taxes they owe to the state.
A.B. 1296 “builds on the success of a state pilot program by permanently establishing [TRUE] law enforcement teams in Sacramento and Los Angeles,” according to a September 14 release by the office of Assembly member Lorena Gonzalez (D), the bill's author. “Since the beginning of the pilot program, investigative teams have identified $482 million in unreported gross receipts and $60 million in associated tax loss to the state. Additionally, through its criminal enforcement actions, the pilot program has recovered over $25 million in lost tax revenue, victim restitution, and investigation costs.”
In the State Assembly's September 13 floor analysis of the bill, Attorney General Xavier Becerra (D), a backer of the legislation, cited a report that found the underground economy generates between $60 billion to $140 billion annually, and an “estimated $8.5 billion in corporate, personal, [and] sales and use taxes go uncollected each year.”
The bill “is an important measure that would substantially strengthen the state's efforts to combat and deter underground economic crimes in California,” according to Becerra's remarks in the analysis.
A.B. 1296 was passed with amendments by a unanimous State Senate September 13, and the Assembly concurred 78 to 0 with those changes September 14. It now heads to Gov. Gavin Newsom (D). Notably, a bill to permanently establish the TRaCE task force, S.B. 1272, was vetoed in 2018 by then-Gov. Jerry Brown.
Another bill approved by the State Legislature, S.B. 268, would amend recent law regarding local tax measures placed on the ballot. Under that law, the descriptive statements on ballot measures seeking local tax increases are required to contain information on the rates and duration of the taxes and the revenue they would raise. S.B. 268 would exempt from that rule measures to create or increase local taxes with more than one rate, or to approve the issuance of local bonds. Instead, the bill would allow the statements on those measures to include the words, “See voter guide for tax rate information.”
According to a September 12 Senate floor analysis, Sen. Scott Wiener (D), the bill's author, argued that the existing rule is reasonable in the context of flat-rate taxes. But given the brevity of ballot descriptions and the difficulty of predicting some future revenues, measures proposing bonds or complicated taxes with multiple tiers need the option of describing a measure's tax implications separately.
The proposal was criticized by tax watchdogs, including the California Taxpayers Association, which claimed that placing tax information in lengthy voter guides would make the information less accessible to voters.
S.B. 268 was passed with amendments on a 45–25 vote by the Assembly September 9, and the Senate concurred 25 to 12 on September 13.
A.B. 48 would authorize the placement of a $15 billion bond measure on the March 2020 ballot to fund construction and modernization projects at public schools and colleges. It was approved with amendments 35 to 4 in the Senate September 13, and the Assembly concurred 78 to 1 September 14.
A.B. 115 would modify and extend the managed care organization tax, which expired in July after it was revised in 2016 to meet new federal requirements. The tax is necessary for the state to receive federal matching funds for its Medicaid program. The bill would extend the tax through December 31, 2022. It was amended and approved by the Senate 29 to 11 on September 12 and the Assembly concurred 55 to 13 the same day.
The Legislature also passed A.B. 133, which would modify a law that allows qualifying homeowners — those who are over 62, blind, or disabled, and with annual income of less than $35,500 — to postpone paying property taxes until they sell their homes. Until then, the state controller pays the property tax; total taxes due, plus interest, are repaid to the state when the home is sold or refinanced. The bill would increase the maximum income of eligible participants to $45,000, index it to inflation, and reduce the interest on the tax liability from 7 percent to 5 percent, beginning July 1, 2020.
According to the bill's proponents, the changes would make the program more accessible to its intended beneficiaries. The legislation was amended and approved 40 to 0 by a unanimous Senate on September 9 and the Assembly concurred 78 to 0 on September 10.
Other approved bills include S.B. 63. This would expand an income tax exemption for canceled student debts to ensure that students whose debts were canceled between January 1, 2019, and January 1, 2024, as a result of the closure of The Art Institute of California or Brightwood College wouldn’t have to pay state income taxes on that debt forgiveness. The legislation was amended and approved by the Assembly 79 to 0 on September 9, and the Senate concurred unanimously September 10.
A.B. 136 — given final approval by a unanimous Senate on September 3 and by a 77–0 vote in the Assembly on September 5 — would retroactively prohibit people found guilty in the 2019 “Varsity Blues” college admissions bribery scandal from being able to benefit from tax breaks linked to “scheme-related charitable contributions or business expense deductions,” according to a September 4 Assembly floor analysis of the bill.
The Legislature also approved A.B. 885, which would clarify the applicability of an existing property tax break for reconstruction after a disaster; S.B. 468, a bill to create the California Tax Expenditure Review Board to review state tax incentives and make recommendations to the legislature; A.B. 176, which would modify the job creation requirements for a state sales and use tax exclusion provided to developers of green technology; and A.B. 211, which would allow taxpayers an above-the-line deduction for contributions to section 529 plans — up to $5,000 for an individual and $10,000 for joint filers — to encourage more families to set aside savings for education.
Meanwhile, several tax-related legislative efforts didn't pass, including a late, revised proposal by Newsom to create a modified, state-level Opportunity Zones incentive to encourage investment in affordable housing and renewable energy. Also dead are bills to tax guns and ammunition sales (A.B. 18) and opioid medication sales (A.B. 1468) and legislation to disallow a state income tax deduction for gambling losses (A.B. 1606).