California retroactively eliminates capital loss carryforwards- they are making sure nobody can use the losses incurred when the tech stocks collapsed. CLASSIC DEMOCRAT BULLSHIT. If I lived in california, I would move. Now.
(buried about half way through)
gcwf.com
California Tax Law Changes Affecting Businesses
by John P. Chase 1
On September 11, 2002, Governor Gray Davis approved California Assembly Bill 2065 (the "Bill"), a revenue-enhancing tax bill that amends several sections of the California Revenue and Taxation Code ("R&TC"). Several of the amendments have a direct impact on California businesses, including California subsidiaries of non-California companies. This article summarizes three such amendments.
Increased Withholding on Stock Options & Bonus Payments
Employers are required to withhold taxes on all "wages" paid to California residents and nonresidents for services performed in California. "Wages" includes all remuneration for services provided by employees, with certain exceptions for agricultural labor, domestic service and other types of services.
With respect to supplemental wages (such as bonuses, overtime, commissions, sales awards, back pay and reimbursements of nondeductible moving expenses), an employer may either: (1) add such supplemental wages to regular wages and compute withholding on the entire amount; or (2) apply a flat withholding rate to the supplemental wages alone, without allowance for exemptions or credits.
Prior to the enactment of the Bill, California’s flat withholding rate for payments of all supplemental wages was 6%. The Bill amended Revenue & Tax Code ("R&TC") Section 18663 to increase the withholding rate to 9.3% for "stock options and bonus payments that constitute wages paid on or after January 1, 2002 . . ." The withholding rate for other types of supplemental wages remains at 6%.
While the Bill appears to retroactively increase the withholding rate for stock option exercises and bonus payments, pursuant to recently issued guidance from California’s Employment Development Department, employers will not be penalized for failure to withhold at the 9.3% rate on stock option exercises and bonus payments made during the 2002 calendar year. Employers are, however, required to commence withholding on such payments at the higher rate no later than January 1, 2003.
Suspension and Increase of Net Operating Loss Deductions
The Bill amended R&TC Section 17276 to prevent taxpayers from utilizing net operating loss ("NOL") carryforwards when computing taxable income for any taxable year beginning on or after January 1, 2002, and before January 1, 2004 (i.e., for 2002 and 2003 tax years only). The carryforward period for such NOL deductions denied by the Bill was extended to allow taxpayers to have the same number of years to utilize the deductions (generally, 10 years) as they would have had the suspension not been enacted.
For NOLs incurred in taxable years beginning on or after January 1, 2004, R&TC Section 17276 has been amended to allow 100% of such NOLs to be carried forward and deducted in subsequent years. For tax years beginning before January 1, 2000, only 50% of the NOLs incurred may be carried forward. For tax years beginning on or after January 1, 2000, and before January 1, 2002, 55% of the NOLs incurred may be carried forward, and for tax years beginning on or after January 1, 2002, and before January 1, 2004, 60% of NOLs incurred may be carried forward.
Special rules apply to NOLs incurred by new businesses (those that commenced activity on or after January 1, 1994), small businesses (those with total receipts of less than $1 million), bankrupt taxpayers and taxpayers engaged in a trade or business within certain enterprise zones.
Withholding on Purchases of Real Estate From Individuals
R&TC Section 18662 requires the purchaser of California real property to withhold 3.3% of the purchase price if the property was acquired from an individual who is not (or who, after the transfer of the real property, will no longer be) a California resident, or from a corporation, if after the transfer of the real property, the corporation has no permanent place of business in California.
The Bill amended R&TC Section 18662 to require a purchaser of California real property to withhold 3.3% of the purchase price on property acquired from all individuals (including California residents) on or after January 1, 2003. This withholding requirement is subject to a number of exceptions, including for sales of principle residences, property with a sales price of $100,000 or lower, and property acquired as part of a like-kind exchange or involuntary conversion.
Conclusion
The Bill has made several amendments to the R&TC that affect California businesses, including increased withholding on stock options and bonus payments, suspension and increase of NOL deductions and expansion of the withholding requirement on purchases of California real property from individuals. California businesses should consult with their tax advisors to determine the impact that the Bill will have on their operations and establish procedures to comply with the new requirements.
1. John P. Chase is an associate in the tax group of Gray Cary Ware & Freidenrich LLP.
Copyright © 2002 Gray Cary Ware & Freidenrich LLP |
