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TAX NEWS - DECEMber 2009

California tax: Legislative Wrap-up 2009

Here is our annual summary of tax-related legislation enacted this session.

Assembly Bills

AB 5 (Evans, Stats. 2009, Ch. 5): Expands existing discovery procedures for a demand for inspection to include copying, testing, or sampling documents or electronically-stored information.

AB 11 (De Leon, Stats. 2009, Ch. 401): Provides that IRS Notice 2008-83, (2008-42 I.R.B. 905), issued October 20, 2008, shall not be applicable for California tax law purposes with respect to any ownership change occurring at any time.

AB 94 (Evans, Stats. 2009, Ch. 220): Does the following:
- Reactivates the Natural Heritage Preservation Tax Credit Act within the Public Resources Code and reestablishes the related tax credits within the Revenue and Taxation Code (R&TC).
- Allows the Wildlife Conservation Board to award the Natural Heritage Preservation tax credit without monetary limit, as specified.

AB 129 (Ma, Stats. 2009, Ch. 411): Provides a taxpayer the same protections of confidentiality with respect to the tax advice given by any "federally authorized tax practitioner" as the taxpayer would have if the advising individual were an attorney for any noncriminal matter before the State Board of Equalization or us.

AB 292 (Yamada, Stats. 2009, Ch. 232): Extends the repeal date of the Alzheimer's Disease and Related Disorders Research voluntary contribution check-off fund from January 1, 2010, to January 1, 2015.

AB 404 (Eng, Stats. 2009, Ch. 504): Eliminates requirements for certain tax exempt entities that are granted federal group exemption to apply separately for state tax exemption.

AB 563 (Cook, Stats. 2009, Ch. 451): Makes changes to the California Military Family Relief Fund related to the allocation of the funds and revises the minimum contribution amount required for calendar year 2009 to remain on the personal income tax return.

AB 1046 (Anderson, et al., Stats. 2009, Ch. 499): Does the following:
- Requires the Judicial Council to calculate the amount of homestead exemption increases.
- Requires the Legislature's approval on the increased amounts.
- Increases the homestead exemption amounts by $25,000.

AB 1164 (Tran, Stats. 2009, Ch. 140): Makes numerous technical, non-substantive changes, including punctuation, grammar, and reference corrections, as a matter of code maintenance, to various California codes, including the R&TC.

AB 1175 (Torlakson, Stats. 2009, Ch. 515): Allows debts owed for nonpayment of bridge tolls or high occupancy toll lane fees to be referred for collection through the Interagency Offset Program that we administer on behalf of the State Controller's Office (SCO).

AB 1494 (Eng, Stats. 2009, Ch. 150): Prohibits a majority of members of a state body from using a series of communications, except during an authorized meeting, to discuss, deliberate, or take action on any item of business that is within the subject matter of that state body.

AB 1546 (Assembly Revenue & Taxation Committee, Stats. 2009, Ch. 544): Does the following:
- Requires a canceled domestic limited partnership to pay outstanding fees, to file missing tax returns, and to pay a service fee for expedited revival requests, in addition to the current requirements to revive.
- Cleans up provisions from the recently enacted budget provisions in ABX3 3 (Evans, Stats. 2009, Third Extraordinary Session, Ch. 18) and SBX3 15 (Calderon, Stats. 2009, Third Extraordinary Session, Ch. 17).

AB 1568 (Salas, Stats. 2009, Ch. 299): Allows disaster loss treatment for losses sustained as a result of the wildfires that occurred during October and November 2008, and May 2009, in specified counties.

ABX3 3 (Assembly Budget Committee, Stats. 2009, Ch. 18): Addresses the fiscal emergency declared by the Governor on December 19, 2008, by doing the following:
- Increasing the Personal Income Tax rate by 0.25 percent for taxable years 2009 and 2010.
- Increasing the Alternative Minimum Tax rate.
- Decreasing the Dependent Exemption Credit from $309 to $98.

ABX3 15 (Assembly Budget Committee, Stats. 2009, Ch. 10): Makes the following changes:
- Provides a $3000 tax credit for each additional qualified full-time employee hired by a qualified employer, as defined, limited to a cumulative total credit of $400 million.
- Creates a tax credit for the production of a qualified motion picture in California.
- Allows specific entities to elect to use a sales only formula to apportion income starting January 1, 2011, along with the following implementation rules:
     - Creates a bright-line test for establishing that a taxpayer is doing business in California.
     - Defines gross receipts.
     - Modifies rules for assigning sales of both tangible and intangible personal property to the sales factor.

ABX4 17 (Assembly Budget Committee, Stats. 2009, Ch. 15): Among other things, makes the following changes:
- Increases the withholding rate on wages by 10 percent for wages paid on or after November 1, 2009. This provision also increases the fixed rate of tax withheld from supplemental wages from 6 percent to 6.6 percent, and increases the fixed rate withheld from stock options and bonus payments from 9.3 percent to 10.23 percent for amounts paid on or after November 1, 2009.
- Modifies estimated tax payment percentages from 25 percent per quarter to 30 percent, 30 percent, 20 percent, and 20 percent until January 1, 2010, and then to 30 percent, 40 percent, 0, and 30 percent for taxable years beginning on or after January 1, 2010.

ABX4 18 (Assembly Budget Committee, Stats. 2009, Ch. 16): Makes the following changes:
- Requires the social security number or other taxpayer identification number of the recipient of income to be furnished upon demand by the person paying the income.
- Provides conformity, with modifications, between California tax law and the federal backup withholding regime to require withholding at a rate of 7 percent on reportable payments made on or after January 1, 2010. Interest, dividends, and any release of loan funds made by a financial institution in the normal course of business are specifically excluded from California backup withholding.

Senate Bills

SB 37 (Strickland, Stats. 2009, Ch. 329): Requires electronic distribution of wage and earning statements for state employees who receive direct deposit of wages unless a paper statement was specifically requested by the employee.

SB 40 (Correa, Stats. 2009, Ch. 522): Provides that any document created on or after January 1, 2010, containing more than four digits of a social security number is not entitled to be recorded when presented to a county recorder's office.

SB 91 (Correa, Stats. 2009, Ch. 29): Extends the repeal date of the California Fund for Senior Citizens voluntary contribution check-off from January 1, 2010, to January 1, 2015.

SB 314 (Calderon, Stats. 2009, Ch. 578): Revises the priority for refund offsets, placing the nonpayment of penalties owed to the Restitution Fund in a higher priority than benefit overpayment accounts administered by the Employment Development Department and amounts owed to other state agencies.

SB 556 (Assembly Judiciary Committee, Stats. 2009, Ch. 596): Adds bail as a class of debts that may be referred by a superior court to us for collection.

SBX2 15 (Ashburn, Stats. 2009, Ch. 11): Provides a tax credit to an individual who purchases a qualified principal residence equal to the lesser of 5 percent of the purchase price of the qualified principal residence or $10,000. The credit is operative for purchases of qualified principal residences made on or after March 1, 2009, and before March 1, 2010, and is limited to a cumulative total credit of $100 million.

SBX3 15 (Calderon, Stats. 2009, Ch. 17): Does the following:
- Provides a $3000 tax credit for each additional qualified full-time employee hired by a qualified employer, as defined, limited to a cumulative total credit of $400 million.
- Creates a tax credit for the production of a qualified motion picture in California.
- Allows specific entities to elect a sales only formula to apportion its income subject to franchise or income tax.
- Provides a bright-line test for when an entity is doing business in California.
- Provides a definition for "what is a sale."
- Modifies the rules for assigning certain receipts for inclusion in the sales factor.

SBX4 16 (Ducheny, Stats. 2009, Ch. 23): Does the following:
- Provides a penalty to be imposed on a state agency or the SCO when a state agency or SCO fails to make payment of an undisputed invoice within 45 days.
- Increases the threshold for discharging delinquent accounts receivables to $500 and releases state agencies from the responsibility of collecting amounts owed that are less than $500.
- Authorizes state agencies to assess a collection fee to recover costs of collecting accounts receivables and requires state agencies to submit to SCO an annual report of its accounts receivables and discharged accounts.
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