tax watch Major Taxes and Fees Introduced in the California Legislature

Transcription

1 tax watch Major Taxes and Fees Introduced in the California Legislature Vol. V, No. I March 20, 2018

2 $269 Billion California lawmakers introduced 33 proposals that cumulatively would cost taxpayers more than $269 billion annually in higher taxes and fees. INTRODUCTION California lawmakers introduced 33 bills and constitutional amendments that, if enacted, would increase taxes and fees by more than $269 billion annually more than doubling the amount of state taxes and fees already paid is the second year of a two-year legislative session, and already the Legislature is on track to introduce more taxes and fees than in prior years. Despite an expected state budget reserve of $13.5 billion, lawmakers continue to propose higher taxes and fees. The governor s January budget forecasts that state revenue is growing, and that the state will collect approximately $ billion in revenue for the fiscal year about $8.1 billion more than in the prior fiscal year. 1

3 METHODOLOGY This report identifies higher taxes, fees, assessments, and charges proposed by lawmakers, including active proposals introduced in the first year of the current legislative session and proposals introduced between January 1 and March 2, During the period we reviewed, lawmakers introduced 2,219 bills and constitutional amendments. Including the active tax and fee proposals from last year, we found 33 bills and constitutional amendments that contain higher costs (13 that could not be quantified). As the legislative year continues, the total will likely increase as lawmakers introduce additional taxes and fees by amending legislation or using the state budget process. Under Proposition 26, a tax is defined as any levy or exaction that results in a taxpayer paying a higher tax, including any unreasonable or excessive fee. This report includes any bill that imposes or authorizes higher taxes or tax-like fees, as well as any bill that increases a regulatory and/or license fee, user charge, or other cost charged for receiving a specific government service or benefit. Legislation imposing fines, penalties and other costs for violating state or local laws has been excluded. This report also excludes legislation estimated to generate less than $1 million per year in net revenue. Revenue estimates were taken from legislative committee and floor analyses, and analyses from the state tax agencies. When an estimate had not been prepared for a bill, the California Tax Foundation used recent data from prior legislative or agency analyses of similar legislation. When estimates provided a revenue range, the lowest figure was used to calculate a revenue total. Bills imposing identical taxes or fees are included in this report, but were counted only once for purposes of calculating a revenue total. Despite an expected state budget reserve of $13.5 billion, lawmakers continue to propose higher taxes and fees. A corridor in the state Capitol. 2

4 findings More than $269 billion in higher tax and fee proposals are before the Legislature in This cumulative total is more than the amount considered by lawmakers in most years. Lawmakers introduced higher taxes and fees totaling $373.4 billion in 2017, $143.2 billion in 2016 and $132 billion in Year 2018 * $$$$$$$$$$$$$$$$$ 2017 $$$$$$$$$$$$$$$$$$$$$$$ 2016 $$$$$$$$$ 2015 $$$$$$$$$ $375 $350 $325 $300 $275 $250 $5 $200 $175 $150 $125 $100 $75 $50 $25 $0 ANNUAL COST OF TAXES AND FEES PROPOSED IN BILLIONS OF DOLLARS *Revenue for 2018 includes all two-year active legislation remaining for the session, and new legislation proposed between January 1 and March 2, Proposals by Spending Area 39% 27% 12% 9% 39 percent of the proposals seek to impose business regulatory fees. 27 percent of the proposals seek to provide funding for environmental programs. 12 percent of the proposals seek to increase taxes to fund local government. 9 percent of the proposals seek to overhaul and reform California s tax structure. 3

5 FINDINGS 1 $269 billion in higher taxes and fees each year. 4 Proposals regulating businesses were the most common type of tax or fee. Lawmakers have proposed increasing taxes and fees by more than $269 billion annually. Of the 33 bills and constitutional amendments introduced, this report does not include the cost of 13 bills that could not be quantified at this time. If all of the proposals identified in this report were enacted, the amount of revenue collected by state government would increase more than 140 percent, from $ billion to $ billion annually in taxes and fees taxes and fees would impose more costs to taxpayers than in most years. 13 of the 33 bills in this year s Tax Watch would impose greater costs on businesses through higher regulatory costs. 5 Efforts to reform California s revenue system would increase taxes. No single subject has received as much attention in 2018 as tax reform a term that has a different meaning depending on who is using it. Three proposed reforms (, SB 993 and SB 1398) would cost taxpayers an additional $63.8 billion in higher taxes. The cumulative cost of proposals introduced during the two year legislative session is more than the amount introduced during past sessions. 6 Proposals would give California the highest business tax rate in the U.S. 3 A government-run healthcare system is the most costly legislative proposal. SB 562 (Lara) continues to be the most expensive bill introduced by lawmakers. The bill seeks to establish a government-run health care system that would require more than $200 billion in new taxes each year. and SB 1398 seek to increase California s corporate income and franchise tax rates to offset federal rate reductions enacted in The rate increase from each bill would make California s tax on business income the highest rate in the United States, far exceeding any of California s neighboring states. In some cases, these bills would require taxpayers doing business in California to pay a tax rate that is higher than the worldwide average corporate income tax rate of.96 percent. 4

6 PROPOSAL ESTIMATED ANNUAL COST TO TAXPAYERS STATUS Government-Run Healthcare Tax SB 562 (Lara) $200,000,000,000 Sales Tax on Services SB 993 (Hertzberg) $49,051,573,542 New Tax on California Businesses (McCarty / Ting) $14,400,000,000 Higher Local Taxes 4 (Aguiar-Curry) $2,000,000,000 Local Transportation Tax Increase SCA 6 (Wiener) $1,900,000,000 Sales and Use Tax Increase 11 (Caballero) $1,500,000,000 Business Tax Based on Employee Pay SB 1398 (Skinner) $350,000,000 Tax on Service Contracts With Prisons AB 2303 (Thurmond) $150,000,000 Water, Milk and Fertilizer Tax SB 623 (Monning) $109,100,000 Property Tax Increase for Libraries SCA 3 (Dodd) $100,000,000 Tire Recycling Fee Expansion AB 509 (Frazier) $38,000,000 Tax-Like Fee on Tires AB 2908 (Berman) $38,000,000 Lead Acid Battery Fees AB 1663 (Cristina Garcia) $16,000,000 Athletic Conference Fees AB 1435 (Gonzalez-Fletcher) $4,000,000 Dental Anesthesia Fee AB 4 (Thurmond) / SB 501 (Glazer)* $3,600,000 Mussel Fee AB 1587 (Levine) $2,500,000 Vehicle Emission Testing Fee AB 582 (Cristina Garcia) $1,420,000 Edible Marijuana Packaging Fee AB 175 (Chau) $1,200,000 Tax Increase on Punitive Damages SB 66 (Hill) $1,200,000 Key * Similar or identical versions of this proposal were introduced. For purposes of calculating a revenue total, the revenue effect was counted only once. The bill is actively moving through the Legislature. The bill was introduced in 2017, passed its house of origin and is eligible to be acted upon in The bill is on the inactive file in one of the houses of the Legislature. 5

7 MOST EXPENSIVE BILLS The five most expensive bills in the Legislature account for more than 95 percent of all tax and fee proposals: SB 562 GOVERNMENT-RUN HEALTHCARE TAX $200 billion tax to establish a healthcare system where state government pays for all costs. SB 993 SALES TAX ON SERVICES $49 billion tax on the purchase of services by businesses in California, except health care, education, child care services, and insurance. NEW TAX ON CALIFORNIA BUSINESSES $14.4 billion tax on businesses with net income of $1 million or more through a new 10 percent add-on rate to fund schools, housing and low-income programs. 4 HIGHER LOCAL TAXES Increases taxes by billions annually to fund affordable housing and infrastructure such as open space and public broadband. SCA 6 LOCAL TRANSPORTATION TAX INCREASE $1.9 billion tax to fund local transportation taxes by reducing the vote threshold needed to pass local special taxes. 6

8 AB 175 EDIBLE MARIJUANA PACKAGING FEE $1.2 MILLION Version Reviewed: Amended 7/19/2017 AB 175 (Chau) requires a manufacturer of an edible marijuana product to submit the product to state regulators for review of labeling and packaging, before the product is brought to market. Manufacturers will be charged a fee totaling approximately $1.2 million annually to cover regulatory costs, beginning in AB 4 DENTAL ANESTHESIA FEE $3.6 MILLION Version Reviewed: Amended 5/30/2017 AB 4 (Thurmond) requires a dentist who administers or orders pediatric minimal sedation to submit an application and an application fee to produce evidence that he or she has successfully completed training in pediatric minimal sedation programs. This bill will increase state regulatory costs by $3.6 million, which will be covered by application fees. Revenue Estimate: Department of Finance. Revenue Estimate: Assembly Appropriations Committee. AB 509 TIRE RECYCLING FEE EXPANSION $38 MILLION Version Reviewed: Amended 6//2017 AB 509 (Frazier) imposes a new fee, not to exceed $1 per new tire, on waste tire generators who also are retail sellers of new tires. This bill will cost taxpayers $18.5 million in the first fiscal year, and $38 million annually, once fully implemented. Revenue Estimate: State Board of Equalization. AB 582 VEHICLE EMISSION TESTING FEE $1.42 MILLION Version Reviewed: Amended 8/21/2017 AB 582 (Cristina Garcia) authorizes a new fee to cover program costs for vehicle emission surveillance, and allows the California Air Resources Board to enter into agreements with non-state entities to conduct testing or develop new testing methods. This bill is proposed to ensure that automakers emissions reports are accurate. This bill will cost taxpayers $1.42 million annually, if ARB implements a new fee to cover program costs. Revenue Estimate: State Board of Equalization. 7

9 AB 1435 ATHLETIC CONFERENCE FEES $4 MILLION Version Reviewed: Amended 5/30/2017 AB 1435 (Gonzalez Fletcher) creates the Athlete Protection Commission and requires the agency to collect regulatory fees from college athletic conferences. This bill will cost members of the NCAA up to $4 million annually. Revenue Estimate: State Board of Equalization. AB 1587 MUSSEL FEE $2.5 MILLION Version Reviewed: Amended 6/29/2017 AB 1587 (Levine) imposes a quagga and zebra mussel infestation prevention fee in an amount not to exceed $50 on non-resident owners of vessels to be placed in state waterways. The Department of Finance estimates that this bill will cost taxpayers $2.5 million to $5 million annually, assuming the fee is set at $50. Revenue Estimate: Department of Finance. AB 1663 BATTERY MANUFACTURER FEE $16 MILLION Version Reviewed: Amended 1//2018 AB 1663 (Cristina Garcia) expands the definition of manufacturers required to pay the $1 battery manufacturer fee to include out-of-state lead battery manufacturers who currently voluntarily pay the fee. This bill will cost taxpayers $16 million annually. Revenue Estimate: Assembly Environmental Safety and Toxic Materials Committee. AB 2303 TAX ON PRISON SERVICE CONTRACTS $150 MILLION Version Reviewed: Introduced 2/13/2018 AB 2303 (Thurmond) imposes a tax on the privilege of contracting to provide a state prison with goods and services. The tax would be based on a percentage of the value of the final contract. Revenue would pay for services to prevent people from being incarcerated and for early intervention programs. The bill, which prohibits the tax from being passed through to the state via higher prices for goods or services, would cost service providers $150 million annually. Revenue Estimate: Assembly Appropriations Committee analysis of AB 43. 8

10 AB 2908 TAX-LIKE FEE ON TIRES $38 MILLION Version Reviewed: Introduced 2/16/2018 AB 2908 (Berman) authorizes of a tax-like fee on tires up to $1 per tire, with revenue allocated to local government for projects that utilize recycled tires, and to encourage manufacturers to recycle tires. The fee would be authorized until January 1, 2024, and would cost taxpayers approximately $38 million annually. Revenue Estimate: Assembly Appropriations Committee analysis of AB HIGHER LOCAL TAXES $2 BILLION Version Reviewed: Introduced 2/17/ (Aguiar-Curry) allows local governments to increase special taxes (including sales taxes and parcel taxes) and pass bonds by a 55 percent vote instead of a two-thirds vote, if the tax or bond funds affordable housing or public infrastructure (including water projects, parks, open space, hospitals, transportation and broadband Internet). The cost to taxpayers could reach into the billions of dollars annually. Revenue Estimate: CalTax Foundation. 11 SALES AND USE TAX INCREASE $1.5 BILLION Version Reviewed: Introduced 3/20/ (Caballero) imposes a statewide 0.25 percent sales and use tax to fund affordable housing and homeless shelter programs. In 2015, the State Board of Equalization reported $633.9 billion in taxable transactions in California, so a 0.25 percent tax would generate $1.5 billion annually. Revenue Estimate: CalTax Foundation estimate based on state data. NEW TAX ON CALIFORNIA BUSINESSES $14.4 BILLION Version Reviewed: Introduced 1/18/2018 (McCarty, Ting) imposes a 10 percent tax on net business income above $1 million to fund a variety of programs, including public schools, housing projects, and an expansion of the state s earned income tax credit. Based on data from the Franchise Tax Board, this additional tax on business income would cost taxpayers more than $14 billion annually. Revenue Estimate: CalTax Foundation estimate from Franchise Tax Board data. 9

11 SB 66 TAX INCREASE ON PUNITIVE DAMAGES $1.2 MILLION SB 501 DENTAL ANESTHESIA FEE $3.6 MILLION Version Reviewed: Introduced 1/5/2017 SB 66 (Wieckowski) disallows deductions for punitive damages when determining corporate and personal income tax liability, effective January 1, Disallowing this deduction will cost taxpayers $1.2 million annually, according to the Franchise Tax Board. However, the amount could be significantly higher in some years. Version Reviewed: Amended 4/6/2017 SB 501 (Glazer) requires a dentist who administers or orders pediatric minimal sedation to submit an application and an application fee to produce evidence that he or she has successfully completed training in pediatric minimal sedation programs. This bill will increase state regulatory costs by $3.6 million, which will be covered by application fees. SB 562 GOVERNMENT-RUN HEALTHCARE TAX $200 BILLION Version Reviewed: Amended 5/26/2017 SB 562 (Lara) establishes a government-run healthcare system. The bill would become operative only if it is funded by a new tax, with program costs of $400 billion annually. Assuming the state secures federal funding to offset some of these costs, California would need to increase taxes more than $200 billion annually to pay remaining costs. Under Proposition 98 s funding formula, 40 percent of new tax revenue would be earmarked to K-14 schools, so additional funds would be necessary to fully fund all single-payer costs. SB 623 WATER, MILK AND FERTILIZER TAX $109.1 MILLION Version Reviewed: Amended 8/21/2017 SB 623 (Monning) taxes water, milk and fertilizer products to fund long-term water sustainability programs: Water Meter Tax Imposes a tax on each person or entity purchasing water from a public water system, ranging from 95 cents per month to $10 per month, depending on the size of the customer s water meter; Fertilizer Fee Imposes a license tax-like fee of $0.005 per dollar of fertilizer material sold; Milk Tax Imposes a tax-like fee of $ per hundredweight of milk sold. Revenue Estimate: Franchise Tax Board. Revenue Estimate: Assembly Appropriations Committee. Revenue Estimate: Senate Appropriations Committee. Revenue Estimate: Assembly Appropriations Committee. 10

12 SB 993 SALES TAX ON SERVICES $49 BILLION Version Reviewed: Introduced 2/5/2018 SB 993 (Hertzberg) expands the retail sales tax to the purchase of services by most businesses in California beginning January 1, 2019, at an unspecified rate, except: health care, education, child care services, and interest and insurance payments subject to the gross premiums tax. Extending the sales tax to all services at the current average tax rate would cost taxpayers $120 billion annually. Since about 40 percent of the sales tax base is attributable to business inputs, this bill would cost businesses appoximately $49 billion annually. SB 1398 BUSINESS TAX BASED ON EMPLOYEE PAY $350 MILLION Version Reviewed: Introduced 2/16/2018 SB 1398 (Skinner) imposes a California corporate tax rate ranging from 8.84 percent to 13 percent (10.84 percent to 15 percent for financial institutions), based on each corporation s compensation ratio, beginning with the 2019 tax year. Additional tax rates would be imposed for companies that reduce their workforce in the U.S. This bill will cost taxpayers $350 million annually. SCA 3 PROPERTY TAX INCREASE FOR LIBRARIES MILLIONS Version Reviewed: Amended 3/6/2017 SCA 3 (Dodd) lowers the vote threshold to pass a local general obligation library facilities bond from two-thirds to 55 percent. By doing so, this measure makes it easier for local governments to increase property taxes to fund debt repayments. This constitutional amendment, if approved by voters, would increase property taxes by hundreds of millions of dollars annually. Revenue Estimate: CalTax Foundation, State Board of Equalization, Council on State Taxation. Revenue Estimate: Franchise Tax Board analysis of SB 1372 of Revenue Estimate: CalTax Foundation. SCA 6 LOCAL TRANSPORTATION TAX INCREASE $1.9 BILLION Version Reviewed: Amended 9/5/2017 SCA 6 (Wiener) lowers to 55 percent the vote threshold for local special taxes to fund transportation projects (the current threshold is a two-thirds vote). If a lower vote threshold had been in place during the 2016 election cycle, taxpayers would be paying more than $1.9 billion in higher taxes annually. Revenue Estimate: CalTax Foundation. 11

13 LEGISLATION WITH UNKNOWN COSTS

14 LEGISLATION with unknown costs AB 709 AB 747 AB 1013 AB 2114 AB 2588 AB 2757 AB 2921 Sacramento Regional Transit District Taxes and Bonds AB 709 (McCarty) authorizes the Sacramento Regional Transit District to levy transaction and use taxes and appropriate the revenue to the extent required to pay the principal of, and interest on, specified bonds as they become due. Version Reviewed: Amended 3/5/2018 Monterey County Fertilizer Tax AB 747 (Caballero) authorizes Monterey County to impose a special tax on the application for any commercial purpose of fertilizers containing any form or compound of nitrogen. Version Reviewed: Amended 9/8/2017 Chiropractor License Fee AB 1013 (Low) revises the annual chiropractor license fee to be no more than $250. Version Reviewed: Amended 1/3/2018 Cattle Brand Fee AB 2114 (Bigelow) increases the fee for cattle brand inspections and authorizes the state to issue an additional annual permit that would allow cattle to be transported out of state without a brand inspection if the cattle are only moved for exhibition purposes. The permit would not be allowed to exceed $10 per head of cattle. Version Reviewed: Amended 2/8/2018 Mobilehome Park Inspection Fee AB 2588 (Chu) authorizes a $120-per-hour fee for technical inspection of mobilehome parks. Version Reviewed: Introduced 2/15/2018 Court Document Fees AB 2757 (Reyes) increases the fees for original court transcripts and copies purchased at the same time beginning January 1, 2019, and increases the fee for transcription for daily copy services an additional 50 percent. Version Reviewed: Introduced 2/16/2018 Single-Use Food Packaging Charge AB 2921 (Low) requires manufacturers of single-use food packaging made from polystyrene to form a recycling nonprofit organization, which is mandated to impose an unspecified fee on packaging manufacturers. Version Reviewed: Introduced 2/16/

15 LEGISLATION with unknown costs AB 3110 Fees for Athletic Trainer Licenses AB 3110 (Mullin) authorizes an unspecified fee for the issuance and renewal of licenses for athletic trainers. Version Reviewed: Introduced 2/16/2018 SB 254 SB 721 SB 795 SB 973 SB 1416 Alcohol Distribution Fee SB 254 (Portantino) requires the state to regulate alcoholic beverage delivery companies and to charge a reasonable fee to cover department regulatory activities. Version Reviewed: Amended 5/26/2017 Deck Inspection Fee SB 721 (Hill) creates additional criteria for inspecting decks and balconies, and authorizes local agencies to institute new fees to recover enforcement costs associated with the new criteria. Version Reviewed: Amended 1/11/2018 Accountancy Practice Fees SB 795 (Galgiani), extending a law that allows accountants whose principal place of business is not in this state to practice in California without obtaining a certificate or license, if certain conditions are met and would also allow the state to impose a reasonable fee. Version Reviewed: Amended 1/10/2018 Alcohol License Fee SB 973 (Dodd) doubles the annual surcharge for an alcoholic beverage license (from $5 to $10) to fund the California Highway Patrol s designated driver program Version Reviewed: Amended 3/5/2018 Fire Inspection Tax SB 1416 (McGuire) requires local jurisdictions to impose an unspecified additional fee on business license renewals or building permits in jurisdictions that don t offer business licenses for fire inspection services and state consultation on how to comply with state and local fire building codes. Version Reviewed: Introduced Status: Active Vote Required for Passage: Two-Thirds (Tax Increase) 14

16 ABOUT TAX WATCH THE CALIFORNIA TAX FOUNDATION The California Tax Foundation is dedicated to serving the public through education and research. Founded in 1980 by the California Taxpayers Association (CalTax), the Foundation seeks to improve public policy through thoughtful and independent nonpartisan research. The Foundation has been recognized for its research excellence with several national awards. The Foundation is a 501(c)3 not-for-profit organization funded through grants and donations from taxpayers. While established by CalTax, it is a separate entity. It does not take or support positions on any ballot measures or on any local, state, or federal legislation, nor does it endorse, support, or oppose any political parties or candidates for public office. PUBLISHED BY CALIFORNIA TAX FOUNDATION 1215 K STREET, SUITE 1250 SACRAMENTO, CALIFORNIA PHONE: CALIFORNIA TAX FOUNDATION. ALL RIGHTS RESERVED.