How the Prop 8 Ruling Threatens Prop 13 (and other future tax reforms)

California's ballot initiative process is vital to Californians and helps ensure that the will of the people is expressed, even when California politicians are uncooperative.  Over the years, ballot initiatives have been proposed and passed that have advanced both liberal and conservative causes.  In each of these cases, the initiative process was the only way to advance these issues as the legislature would not, or could not, pass effective legislation. 

While the recent Supreme Court case on Proposition 8 may have advanced gay marriage, its unintended consequence is to put into question the sustainability and power of future ballot initiatives.  Justice Scalia ruled, in essence, that the defenders of the Prop 8 initiative did not have standing to sue because only the State of California had standing to defend Prop 8 from attacks.  While Gov. Brown and Kamala Harris, the State A.G., put up a begrudging defense of Prop 8 at the trial level, they opted not to appeal the trial court decision finding Prop 8 unconstitutional.  Defenders of Prop 8 then stepped in and decided to appeal.  The California Supreme Court held that clearly, the Prop 8 defenders had standing and could appeal the decision and were essentially representing the interests of the State. 

Unfortunately, Justice Scalia's holding now weakens almost any ballot initiative--especially those that the Governor and Attorney General personally dislike. Consider the following hypothetical.  A homeowner sues alleging that Prop 13 violates their equal protection because their neighbor who bought their home 50 years ago pays much less than they do for their new home, despite the fact the homes are identical and have the same value.  Although merit less, the Governor and state AG could opt to not defend the suit.  All of a sudden, an injunction is issued finding Prop 13 to be unconstitutional.  The State decides it won't pursue an appeal and the defenders of Prop 13 have no standing in federal court to pursue an appeal either.

In a single opinion, Justice Scalia was able to do something many California politicians have been trying to do for year--weaken the initiative process. 

Income Earned by Tribal Members on Reservations Now CA Tax-Exempt

The Franchise Tax Board has recently announced that tribal members who live on reservations and who receive income from reservation sources are not subject to California state income tax on that income.  This position came as a response to several recent court cases where courts had to determine whether "reservation source income" should be interpreted broadly as income earned by a tribal member living and working on the reservation or more narrowly limited to income earned on the reservation and paid only by the tribe.

Thus, if a tribal member lives and works on the reservation, income earned by the tribal member, whether paid by the tribe or any other third party, is California tax-exempt. 

If tribal members have been paying California taxes on this income, they are entitled to refunds going back approximately four years.  

High-Speed Boondoggle? $800 Million to Save 10 Minutes

Admit it.  When the federal government talks of investing huge sums of money into high-speed rail you picture aerodynamic bullet trains humming along at 220 miles per hour. 

So when the government proclaims that it has invested $12 billion into "high-speed rail" you presume that those funds will be used to fund actual high-speed rail projects.  Not so says CNN's Drew Griffin who has released another expose on where these funds are actually going.

To sum up Drew's report, the $12 billion dollars is being used to make conventional freight trains a wee bit faster.  In essence, while the public was sold on bullet trains, the monies are really just being used to improve conventional rail lines. 

The cornerstone of Drew's report is the fact that $800 million in taxpayer "high-speed rail" funds were used to improve conventional rail track between Seattle and Portland.  The big pay-off?  Shaving 10 minutes off the travel time.

The CNN video report can be seen here.

The "Jock Tax" Payback: How Pro Athletes Are Cashing in on CA Worker's Comp

Many readers may be familiar with the fact that most states have their own version of the "Jock Tax".  Essentially, if a pro-athlete and resident of  a neighboring state plays a game your state, your state will be owed an amount of income tax from that athlete since the athlete is essentially conducting business in your state.  Although the average citizen would see this as a blatant maneuver to fill state coffers from wealthy pros, almost all states have enacted their own version of a Jock Tax.

Now it appears the Jocks have a way to fight back--filing worker's comp claims.

Consider this:  A professional football player and resident of Colorado, in the course of his 88 game career ends up playing just 9 games in California.  After retiring he gets awarded a $199,000 injury settlement from the California workers compensation court for his football injuries.  The player.  Terrel Davis, former Super Bowl MVP and Denver Broncos running back.

A recent article in the LA Times gives the details:

Over the last three decades, California's workers' compensation system has awarded millions of dollars in benefits for job-related injuries to thousands of professional athletes. The vast majority worked for out-of-state teams; some played as little as one game in the Golden State.

All states allow professional athletes to claim workers' compensation payments for specific job-related injuries — such as a busted knee, torn tendon or ruptured spinal disc — that happened within their borders. But California is one of the few that provides additional payments for the cumulative effect of injuries that occur over years of playing.

A growing roster of athletes are using this provision in California law to claim benefits. Since the early 1980s, an estimated $747 million has been paid out to about 4,500 players, according to an August study commissioned by major professional sports leagues.

California Out of Funds to Disarm 19,700 Felons and Mentally Ill People

I was surprised to find out that California already has laws in place that enable it to confiscate weapons from the mentally ill in addition to convicted felons.  Unfortunately, the State does not apparently have the funds to actually go out and seize the weapons.

From the LA Times:

SACRAMENTO — California authorities are empowered to seize weapons owned by convicted felons and people with mental illness, but staff shortages and funding cuts have left a backlog of more than 19,700 people to disarm, a law enforcement official said Tuesday.

Those gun owners have roughly 39,000 firearms, said Stephen Lindley, chief of the Bureau of Firearms for the state Department of Justice, testifying at a joint legislative hearing. His office lacks enough staff to confiscate all the weapons, which are recorded in the state's Armed Prohibited Persons database, he said.

The gun owners typically acquired the firearms legally, before being convicted of a felony or diagnosed with mental illness. Each year, the state investigates and seizes the guns of about 2,000 people on the Armed Prohibited Persons list, Lindley said, but each year about 3,000 names are added to the list.

"Despite our best efforts, the bureau does not have the funding or resources to keep up with this annual influx," he told the 15 assembled lawmakers.

Will Fresno's High Speed Rail Look Like Vermont's "Higher" Speed Rail?

CNN's Drew Griffin did an excellent report examining Federal high speed rail funds that were paid to Vermont in order to fund a "high speed rail" project through the State.  The only problem . . . the funds in Vermont weren't used for "high speed rail", but were instead used to turn a "slow speed" rail line into a slightly faster rail line.  In all, the new line shaved a minuscule 28 minutes off the commute time with the "higher" speed trains occasionally reaching max speeds as fast as 79 mph.

Mr. Griffin's report is a must see:


The Unintended Consequences of Plastic Bag Bans: An Armful of Designer Clothes and Ecoli

Recently, I was visiting with my sister and her family who told me of San Louis Obispo County's "plastic bag ban".  I had heard of other counties and cities implementing such bans but always assumed that these bans only applied to plastic grocery bags and not any other vendors.  To my surprise, the SLO County ban applied to virtually all types of plastic bags provided by retailers to customers in which to carry purchased items.  So not only did it apply to grocery stores, but it also applied to clothing stores.  Of course, while most people had gotten used to bringing their own cloth tote bags into grocery stores--they were not accustomed to carrying their own bags into other stores.

My sister hilariously told me how shortly after the ban was implemented they visited a large mall.  Hundreds of mall shoppers were walking around the mall with their arms full clothes and other items because they did not bring their own cloth tote bags.  It looked like the shoppers had ransacked and looted the place, walking off with as much as they could carry. 

This unintended consequence, however, is a mere inconvenience when compared to the health concerns. As reason magazine points out, a recent study by my Alma Mater shows that in jurisdictions where plastic bags were banned, ER visits increased by about 25% compared with neighboring counties where the bags remained legal.  Essentially, people were carrying leaky packages of meat and other foods in their canvas tote bags, then wadding up the bags in the trunk of their cars for awhile, leaving bacteria to grow until the next trip, when they would fill the contaminated bags with fruit and vegetables.  

Sacramento Man Hit With 17 Year-Old Tax Bill

Bill Elkins, a 66-year-old man from Sacramento was recently hit with a $6,166.39 tax bill from the Franchise Tax Board involving a tax debt from 1995.  The state says he never paid it.  Mr. Elkins claims he did.

Unfortunately for Mr. Elkins, his bank records don't go back that far to prove he ever made that payment and the CPA who prepared the return has passed away.  While the IRS can collect on 10 year-old assessments, the Franchise Tax Board can collect on 20 year-old assessments.  Local news video below. 

Amazon Sales Tax Loophole? When your purchase will NOT have sales tax withheld

On Saturday, September 15th, pursuant to an agreement reached with the Board of Equalization and State politicians, will begin to collect CA sales tax on items it sells to CA residents. 

But, not every item sold through to a CA resident will have sales tax withheld.  From CNET:

...Amazon will continue to not collect taxes on hundreds of thousands of items that it lists for sale on its Web site, stores in its warehouses, and packages for quick shipment to California residents. Those orders -- called "fulfilled" by Amazon -- amount to a tax loophole that has left Sacramento tax collectors a tad unhappy....

A representative of the State Board of Equalization, which collects California sales taxes, told CNET today that whether Amazon can be required to collect taxes on "fulfilled" orders is a tricky question. "It's difficult for us to comment on the way Amazon is set up within its family of companies (and) whether there there would be a consignment relation," the representative said.

Amazon says the law is clearly on its side. Spokesman Scott Stanzel said that for fulfillment sales, "sales tax collection depends on the tax obligations of the seller," not Amazon itself.

Roughly one-fifth to one-quarter of the items that Amazon offers to ship are "fulfilled by" products. It's a staggering selection, including everything from Calphalon non-stick pans, iced tea, stereo speakers, video games, and even the PetZoom Pet Park Indoor Pet Potty

  Of course, even if Amazon does not withhold sales tax on the purchase, the CA resident is supposed to pay a "use" tax on the item in CA equal to what the sales tax would have been.  In reality, this use tax is often not reported or paid by CA consumers, which can be a significant sum as tax rate can top out at 9.75%.   

Homeowners See Jump in Property Taxes--what happened to prop 13?

Many California homeowners, while owning properties worth less than what they paid for, are at least getting some benefit by paying lower property taxes.

While many homeowners are familiar with Proposition 13 (which caps the tax assessed value on properties to a growth rate of no greater than 2%) they are most likely unfamiliar with Proposition 8 (the other one).  When Proposition 13 was passed in 1978, Proposition 8 was also passed. 

When your property declines in value, it is actually Proposition 8 which kicks in and allows you to claim a lower taxed assessed value on your property.  The tricky part is that once the housing market rebounds, the cap on Proposition 13 doesn't kick in until you reach a value essentially equal to your purchase price of the home.  In other words, if values rebound over night, the property's tax assessed value will be allowed to increase at more than the 2% rate until the purchase price value is met.  So surging home values could mean surging property taxes as well. 

While most homeowners are faced with depressed values, there are a few counties where property values are increasing and homeowners are getting assessed additional property taxes. For instance, some 37,000 residents in Santa Clara County received notice that their property taxes were increasing this year as a result of rebounding housing values:

"It's a double-edged sword,'' said Kreshel, a senior manager at eBay. "The value is going up and so are my property taxes, even though it's still below what I had to pay for it,'' she noted with a sigh. "It's part of being a homeowner.''

It is really only a matter of time before home values start to recover state-wide and homeowners realize that the property taxes will increase dramatically as result.