Californian Treasurer Goes On The Offensive Against Tax Loopholes

by Leroy Baker, Tax-News.com, New York

29 April 2004

California’s State Treasurer Phil Angelides on Tuesday declared war on state tax loopholes by announcing a “multi pronged” plan that will initially close off some $386 million worth of corporate tax loopholes.

"It is wrong for the Governor’s budget to propose damaging cuts to higher education, transportation and children's health programs - investments that are vital to the future prosperity of our State's economy - without even attempting to close one corporate tax loophole," Angelides declared at a news conference on Tuesday.

According to the Department of Finance, the Legislature and successive governors have enacted 56 tax loopholes of $5 million or more between 1990 and 2001, with a total annual revenue cost to the state of $2 billion.

The proposal has the support of several state Democrats led by Assembly Budget Committee Chair Darrell Steinberg, who commented:

"Dollars from tax breaks and loopholes should be subjected to the same scrutiny as every other dollar in the budget."

The eight specific corporate tax loopholes that Angelides and lawmakers are targeting for closure include a current provision that allows Californians to avoid paying the sales tax on yachts, aircraft and other vehicles if they purchase them in a state without sales tax and store them there for at least 90 days.

It is claimed that this loophole costs the state $56.2 million a year in lost revenue.

However, the largest loophole targeted by Angelides and the lawmakers will limit Subchapter S filing status, originally intended for small businesses, to firms with gross receipts under $50 million. Firms qualifying under the scheme pay a reduced rate of corporate tax at 1.5% instead of the regular 8.84% Bank and Corporation Tax rate.

It is said this would increase state revenues by $50 million in 2004/2005 and $175 million in 2005/2006, and will affect around 2,000 companies.

Recommended