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Monday, January 28, 2013

California conformity problems and opportunities

California tax law does not completely nor timely conform to the federal tax law. This can sometimes be a good thing and sometimes a source of complexity.  For example, California depreciation rules are different from the federal rules requiring businesses to keep yet one more set of depreciation records (a source of complexity).

After voters passed Prop 26 in 2010 requiring any bill that might cause even one person to have a tax increase, any conformity bill needs a 2/3 vote of the legislature. That is not easy to get because a good number of Republican legislators have signed the no tax increase pledge. However, this year, there is a 2/3 majority of Democrats in the Assembly and Senate so a conformity bill is more achievable.

Prop 26 also required that any bill passed in 2010 that would have needed a 2/3 vote be re-voted within the year. That likely included California's last conformity bill (SB 401) that was enacted with a simple majority in April 2010. That bill, which conformed much of California tax law to the Internal Revenue Code at 1/1/09, was not re-voted.  Did it need to be?

BNA Bloomberg asked me some questions about that for a guest post on their State Tax Blog recently. In digging into the precise language change to the Constitution by Prop 26, I found that the answer is not that clear.  You can read more on that in their 1/22/13 post - here.

What do you think?  Is SB 401 still in effect?  What would be a better way for conformity without running a risk that federal changes would bust the California budget? 

3 comments:

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