Drafting bills that would add, amend, or repeal portions of the California Taxation and Revenue Code (CRTC) require special attention to a number of provisions. Whether technical, mechanical, or substantive in nature, drafting tax laws in California can be complex.
One of the main issues to determine is whether the bill is a tax levy. This is important because tax levies take effect immediately upon the governor’s signature (and upon the issue of the chapter). It goes without saying that the tax levy may continue to have a postponed decisive date for its establishment.
The rule of thumb for determining whether an account qualifies as a tax levy is to ask yourself, “What is the primary purpose of the account? If the main purpose of a bill is to change the basis, rate or burden of a tax, it will be labeled as a tax levy and that determination will be made by the Office of Legislative Counsel. On the other hand, if a bill contains multiple changes to tax laws, the bill cannot be considered a tax levy unless that is the main purpose of the bill.
Generally, a tax bill that raises or lowers taxes or a bill that creates or changes a tax spending program (eg, credit, deduction, exclusion, etc.) is a tax levy. However, the tax levy is not limited to tax increases. Another important point is that a retroactive tax law change (which is allowed with special language) cannot be a tax levy, so it does not take effect immediately.
While the tax levy may take effect immediately, it may also have a delayed effective date. An example of such a provision is contained in the following example: “This Act provides for a tax levy within the meaning of Article IV of the California Constitution and shall take effect immediately. However, the provisions of this Act shall take effect on the first day of the first calendar quarter that begins more than 90 days after the entry into force of this Act.”
For changes to the real estate tax law, the bill must specify to which lien dates the law applies, which always begin on January 1: “The amendments made by the law supplementing this subsection shall apply to lien dates occurring after 1 . 2005.”
The second main issue is whether the bill must comply with section 41 of the CRTC. This section of the Revenue and Taxation Act requires anyone proposing to authorize a new tax expenditure under the Personal Income Tax Act or the Corporation Tax Act, or a sales/use tax exemption, to include three items: specific objective(s) ; detailed performance indicators; and data collection requirements.
As such, a bill that creates a new credit, exemption, exclusion, or deduction for an income, franchise, or sales/use tax must specify the following:
- Specific goals, purposes and objectives to be achieved by the tax expenditure.
- Detailed performance indicators for the legislature to use in measuring whether tax expenditures meet the goals, purposes, and objectives set forth in the bill.
- Data collection requirements to enable lawmakers to determine whether tax expenditures meet, fail, or exceed those specific goals, purposes, and objectives. The requirements include specific data and baseline measurements to be collected and remitted in each year that tax expenditures are in effect so that the legislation can measure change in performance indicators, and specific taxpayers, government agencies, or other required entities. collect and transmit data.
The Legislative Counsel’s Digest will include words such as: “Existing law requires any bill creating a new or expanding an existing tax credit to include, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements.’
The third main problem is that the tax law must meet certain principles of preparation. The following is a brief description of the main principles of the design:
The related clause is always the same, as follows: “…relating to taxation”.
The designation of the tax levy is always indicated at the end of the Head as follows: “…to take effect immediately, tax levy”. In addition, the legislative counsel’s summary always concludes with the following: “This Act would take effect immediately as a tax levy.” Finally, there is always a plus section at the end of the bill that reads: “This Act establishes a tax levy within the meaning of Article IV of the California Constitution and shall enter into effective immediately.”
Regarding sales/use tax invoices, the existing legal section of the Legislative Counsel’s Compendium often begins with the same paragraph, such as the following:
Existing sales and use tax laws impose taxes on retailers measured on the gross receipts from the sale of tangible personal property sold at retail in this state or from the storage, use, or other consumption of tangible personal property purchased from a retailer for storage, use, or other consumption in this state condition measured by selling price. The Sales and Use Tax Act provides various exemptions from these taxes.
In addition, these types of bills will usually include a “disclaimer” that the state will not provide any reimbursement to local agencies. As a result, the Legislative Counsel overview will contain language such as the following:
Existing law requires the state to reimburse counties and cities for revenue losses caused by enacting sales and use tax exemptions.
This bill would provide that, notwithstanding Section 2230 of the Tax and Revenue Code, there shall be no appropriation, and the State shall not reimburse any local authority for sales and use tax revenues lost under that act.
For personal income tax bills, the existing legal section of the Legislative Counsel’s Proceedings often begins with the same paragraph, such as the following:
The Personal Income Tax Act imposes a tax on individual taxpayers measured by the taxpayer’s taxable income for the tax year, but excludes certain items of income from the tax calculation.
A tax document may contain a named act as well as legislative findings and declarations, such as the following examples:
This act will be known and can be cited as a tax credit to protect our restaurants.
The Legislature finds and declares both:
(a) Restaurants have faced significant financial burdens as a result of local ordinances that have closed establishments due to the COVID-19 pandemic.
b) Financial assistance must be provided to reduce the number of restaurants that have to close permanently due to lack of profit and wages earned due to fewer customers.
When a tax law contains language suggesting that it is or is not consistent with the federal tax laws, the specific provision of the Internal Revenue Code is cited, along with whether it applies (or does not apply) to it, or to any other changes made to the federal tax law. for the purposes of the provisions of the state tax law. Below are examples of this type of language:
“Employee” includes self-employed persons within the meaning of Section 401(c)(1) of the Internal Revenue Code. of the Code concerning a self-employed person considered an employee.
Section 127 of the Internal Revenue Code code relating to educational assistance programs, is not used.
Additionally, for laws conforming to federal tax law, the Legislative Counsel Summary will contain wording similar to the following: “The Personal Income Tax Act, as amended to conform to federal law, generally disallows passive activity losses and passive activity credits for any taxable year in computing taxable income .”
Finally, for laws affecting the Personal Income Tax Law (PITL) and the Corporate Tax Law (CTL), the same language is replicated in both areas of these laws. In other words, the same code section language in PITL is found in a code section in CTL and vice versa. This is to ensure that PITL taxpayers are treated the same as CTL taxpayers and vice versa.