A Proclamation by Our Governor: Where Is This Going?

By Susan Jacobson, CPA

Gov. Schwarzenegger proclaimed that an extraordinary session of congress was to convene to legislate on the following subject:

“To consider and act upon legislation to address and improve the state tax system, including but not limited to the following: establish a tax structure that fits with the state’s 21st century, stabilize state revenues and reduce volatility, promote the long-term economic prosperity of the state and its citizens, improve California’s ability to successfully compete with other states and nations for jobs and investments, reflect principles of sound tax policy, and ensure that the tax structure is fair and equitable.”

The 14-member Commission on the 21st Century Economy, appointed by the governor and the legislature, has proposed:

1. Reduce all personal income tax rates, with the top falling to 6.5 percent
2. Eliminate the corporate income tax, which is currently 8.84 percent
3. Establish a new “Business Net Receipts Tax,” which would apply a tax on the net sales and purchases made by businesses
4. Phase out and eliminate the state’s general state sales tax, which is currently 6 percent
5. Initiate a new “rainy day” reserve fund
6. Institute a tax appeals dispute resolution process to eliminate the State Board of Equalization

For further developments, please see the commission’s website.

If you have never heard of a “business net receipts tax,” you are not alone. There’s nothing exactly like it anywhere in the world today. Michigan has something similar, but at a much lower rate. Businesses would pay this tax based on the value of the goods and services they sell, minus the amount they spend purchasing goods and services from other firms. There would be no deduction for the wages and benefits that are paid to workers to produce, sell, manufacture etc. the goods and services.

There does not appear to be a benefit or incentive to attract jobs for California or allow California to compete with others states or nations.

This entry was posted on Monday, November 2nd, 2009 at 4:29 pm and is filed under President's Message. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.