Tax: the hot topic: tax talk hits everything from high-income earners to services.

• Author: Allen, Bruce C.
• Position: Government relations

With budget issues making headlines daily in California, it's no surprise that changing the tax code--read, increasing revenue to the state--is one of the hottest topics in the state capitol.

Last year, Gov. Schwarzenegger made it clear that he was not inclined to sign any bills that would constitute a tax increase. While there are no indications that the governor has changed his mind, legislators are referring to tax increases as "closing loopholes in the tax code."

Translated, the effect is the same: increased tax payments to the state.

It is too soon to tell whether or not the governor is going to allow closing loopholes in the tax code. CalCPA has spotted dozens of bills that would increase existing taxes, create new taxes or capture taxes that should have been paid, but were not.

High-income Tax Increase

Democratic leaders are publicly talking about increasing the tax rates for California's wealthy, high-income earners--an approach that was tried for five years under former Gov. Pete Wilson. AB 6 (Chan) has been introduced to accomplish this.

Single taxpayers with incomes around $142,582 to $285,164 would pay 10 percent, and taxpayers with incomes at or above $285,164 would pay 11 percent. Income limits are essentially doubled for couples.

At this point the incomes are being estimated based on inflation applied to the limits that were used in 1991.

The bill is on the Senate Revenue and Taxation Committee's suspense list, but this issue is rumored to be a critical part of the budget negotiations that are taking place between the governor and legislative leadership.

It is estimated that such a change would increase state revenue by $2 billion annually.

The bill's author notes that high-income individuals would be in a better position to absorb an increase that would be more than offset by recent federal tax decreases.

Other legislators are talking about starting the surcharge at a higher income level--$400,000 for single taxpayers and $800,000 for married.

Sales Tax on Services

AB 9 (Coto) proposes a 5 percent sales tax on selected services including accounting, legal, consulting, engineering and others. The tax generated by the proposal would be used to increase funding for education.

CalCPA actively opposed AB 9, which also was held on the suspense calendar of the Assembly Revenue and Taxation Committee.

Even though the bill was held in committee, insiders are predicting that the topic of expanding sales tax to services will be a part...