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California Budget tax changes – New budget signed

Posted on by TaxMama

Courtesy of Spidell Publishing Inc – www.caltax.com

Spidell’s Flash E-mail #2008-23

September 23, 2008

After a threatened veto of the original budget and related tax bills, the governor and the legislature have come to an agreement. The new budget, which the governor signed today, does not contain an increase in withholding taxes or a general tax amnesty.

Here is a list of tax-related changes. Provisions that are different or not contained in the original set of budget bills say New.

  • The LLC fee is accelerated, and calendar-year LLCs must pay their 2008 fee on April 15, 2009, and estimated 2009 fee on June 15, 2009.

  • Business credits are limited to 50% of tax liability for 2008 and 2009, with an exception for small businesses.

  • The 12-month rule for use tax on vehicles, vessels, and aircraft purchased outside of California is back, effective the date of enactment.

  • The NOL deduction is suspended for 2008 and 2009, with an exception for small businesses. However, for taxable years beginning on or after January 1, 2008, NOLs may be carried forward for 20 years; NOLs may be carried back for two years for losses generated in taxable years beginning on or after January 1, 2011.

  • New – For taxable years beginning on or after July 1, 2008, affiliated corporations may share credits.

  • Beginning January 1, 2009, the first two estimated payments for individuals and corporations are increased from 25% to 30%, and the last two are reduced to 20%.

  • Individual taxpayers with income over $1 million may no longer use the 110% of prior-year tax as a safe harbor for years beginning in 2009.

  • New – The 1% mental health surcharge will be imposed on California-source taxable income for any electing nonresident partner or director of a corporation included in a group return if the total income is in excess of $1 million.

  • New – There will be a new corporate penalty equal to 20% of an understatement of tax for corporations with understated tax of more than $1 million.

  • New – Certain individuals are required to make tax payments electronically for payments made on or after January 1, 2009.

Again, there is no conformity to any of the federal provisions under the budget agreement, and we are still waiting to see if the governor will sign SB 1055, a quasi-conformity bill to the federal mortgage relief provisions.

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