California Annual Minimum Franchise Tax Repeal Proposed

A bipartisan commission appointed by Governor Schwarzenegger has recently proposed sweeping overhauls of California's tax laws, including reduction of personal income tax rates, the elimination of the corporate tax, and the elimination of the $800 per yaer minimum annual franchise tax levied on corporations, LLCs, and LLPs doing business in the state. The committee did, however, propose a 4% business net profits tax, exempting small businesses with less than $500,000 in revenues.

The recommendations are only that, and must be acted upon by the legislature and governor in order to become law.

For more information see:

Commission on the 21st Centuray Economy Press Release dated September 29, 2009

Home Loan Modification Advance Fees Now Illegal in California

As of October 11, 2009, advance fees for home loan modification services are illegal in California, even if charged by licensed attorneys. For more information, see California Department of Real Estate Announcement [PDF]

California FTB LLC Fee Refunds and Case Updates

Claims are due this summer for certain claims for refunds of LLC fees (above the $800 per year minimum franchise tax) paid to the California Franchise Tax Board (FTB) for tax years prior to January 1, 2007, for LLCs that had operations in multiple states. This is related to several lawsuits contending the LLC fee is unconstutional, two of which have been resolved, in favor of the limited liability company-taxpayers (Ventas Finance I, LLC v. Franchise Tax Board and Northwest Energetic Services, LLC v. Franchise Tax Board). In Ventas, the court found that Revenue & Taxation Code Section 17942 was unconstitutional as applied to an LLC which derived revenues from inside and outside of California, without apportioning the fee to account for in-state versus out-of-state source revenues. In Northwest, the court of appeals found unconstitutional California's LLC fee as applied to an LLC that registered with the state but never did any business in California (preumably, it had intended to, but circumstances changes, or it hadn't yet got around to doing business here).

The third case, Bakersfield Mall, LLC v. Franchise Tax Board, challenges the right of the FTB to levy the LLC fee on LLC's that do business entirely in California. Those with potential claims should review this notice and speak with their accountant about filing an appropriate and timely claim, or filing a protective claim:

FTB Notice 2009-04 dated 5/22/2009

California Sales Tax Rate Increase

Effective April 1, 2009, but unfortunately not an April Fool's Day joke is a 1% rate increase to California's sales tax, for a new total of 8.25%. In addition, certain cities and localities may add an additional surcharge of up to 2.0%, for a grand total not to exceed 10.25%, among the highest sales tax rates in the nation. Los Angeles County's rate is now 9.25%.

More detailed information is provided in this notice issued by California's sales tax authority, the Board of Equalization (CA "BOE").

See also:

California Legislature Plans to Increase Taxes Amid Recession

California Secretary of State and FTB To Introduce LLC Suspension Program in 2009

Happy new year. And with the new year comes changes to various state and federal laws. Among others:

The new cell phone law prohibits text messaging or reading or writing emails while driving.

Covered employers will be affected by changes to the federal Family and Medical Leave Act (FMLA) and should have their employee manuals reviewed and revised accordingly. A new workplace poster is available here: 2009 FMLA poster

The definition of a disability under the Americans with Disability Act (ADA) has been broadened.

The time limits for filing a discrimination claim under the Civil Rights Act of 1964 and the Age Discrimination in Employment Act were extended.

In 2009, the California Franchise Tax Board (FTB) and Secretary of State (SOS) will be allowed to suspend limited liability companies (LLCs) that do not comply with various FTB and SOS filing and tax payment requirements. The FTB and SOS already do this for corporations, but up until now, the law had prohibited them from doing so with LLCs. This changes makes proper business entity maintenance, already crucial for ensuring maximum tax and limited liability advantages, all the more important. LLCs that are not being used should be dissolved while still in active status.

See also: 2009, Time To Incorporate?

2009 California Employer Payroll Tax Rates

The base payroll tax rates for 2009 for California employers have been announced by the Employment Development Department (EDD), and are as follows:

Unemployment Insurance (UI): 3.4% of the first $7,000 of wages per employee, per year (however, an emergency surcharge is also in effect);

Employment Training Fund (ETT): 0.1% of the first $7,000 of wages per employee, per year;

State Disability Insurance (SDI): 1.1% of the first $90,669 of wages per employee, per year (up from $86,698, and up from 0.8% in 2008 and 0.6% in 2007)

Established employers may have a higher or lower UI rate, based on various factors. An emergency UI fund surcharge is in effect for the year.

If you are an employer or prospective employer unsure whether your current or prospective worker is properly classified as an employee or an independent contractor, you should hire an employment law attorney to advise you (I offer these services). Improper classification can lead to costly penalties and interest, as well as the assessment of back taxes.

Additionally, there are a host of legal hoops to jump through - which usually aren't, exposing employers to liability - when hiring a California employee (or an independent contractor). In either case, the relationship should generally be documented in a custom-drafted written employment or independent contractor agreement.

This article, written by a former director of EDD, is a few years old, but provides some general advice for employers on keeping their UI rates as low as possible.