Sunday, September 18, 2011

Sacramento Bee: State tax Exemption bills conflict with revenue needs

Dan Morain: Don't look too closely at tax bills

Published: Sunday, Sep. 18, 2011 - 12:00 am | Page 1E
© Copyright The Sacramento Bee. All rights reserved.
Tax legislation is never pretty in California, and bills this year dealing with Hollywood, the Internet and, yes, old rugs were ugly in their own special ways.
Final wording didn't become public until the end of the just-concluded legislative session. Lawmakers had no time to hold hearings on late amendments and didn't vote until the last hours of the last night.

Let's start with a fundamental truth: Lawmakers love giving tax breaks to Hollywood glitterati.
Assemblyman Felipe Fuentes, contemplating a run for the Los Angeles City Council, latched onto a bill to extend the movie tax credit, a $100 million-a-year subsidy intended to entice producers into filming movies and television shows here, rather than running away to other states that offer richer tax breaks.

Working with lobbyists for studios and unions that represent actors and movie workers, Fuentes sought to extend the credit for another five years.

The final version extended the subsidy for one year. But Fuentes got other concessions. Some senators had insisted the state study the subsidy to see if it actually helps the state's economy.

The final wording does request that the Legislative Analyst's Office study the tax credits. But late at night, lawmakers cut requirements that California's tax agencies provide the analyst with confidential information to ensure that the study is complete.

The result: The analyst will do a report, based in part on information that the industry deigns to supply. No matter, Democrats and Republicans approved the subsidy 74-1 in the Assembly and 34-2 in the Senate.
Fuentes is working on a sequel to extend the subsidy for more years. Will the new bill require confidential tax data for a study? I don't want to give away the ending, but Hollywood is a place of magic and illusion, even in its accounting offices.

Then there is old carpet. Old carpet is a problem. Californians dump 1.3 million tons of it into landfills each year, not an insignificant amount in a state where landfills are filling up.

Speaker John A. Pérez, whose district includes a carpet recycling company, pushed through a bill last year requiring that carpet be recycled. To fund recycling, his bill tacked a fee onto the cost of new carpet. It amounts to $25 for 1,500 square feet of carpet, and generates about $5 million a year.

At the time, lawmakers could approve such fees by a simple majority. In November, however, voters approved Proposition 26, which requires a supermajority to approve any new fees.

Concerned the carpet fee might violate Proposition 26, Pérez came up with a new bill a week before the Sept. 9 end of the session.

Carpet makers and recyclers supported the bill. Their lobbyists – yes, there are rug lobbyists – buttonholed legislators late into the night.

There was, however, one foe: the anti-tax Howard Jarvis Taxpayers Association. Republicans know better than to cross the Jarvis group, which has an extensive mailing list of conservatives. No Republican dared vote for the bill. Without a two-thirds majority, the bill died.

The year's big tax deal involved Amazon, the world's largest Internet retailer. It attained that status by underselling stores, in part by citing pre-Internet law that it claims permits it to evade sales tax collection laws.

Wal-Mart Stores Inc., which became the world's largest retailer by underselling Main Street shops, complained that Amazon's actions were unfair, and lobbied for legislation aimed at Internet retailers.

Earlier this year, Gov. Jerry Brown signed a bill to force Amazon and other e-retailers to collect sales taxes, believing it would generate $200 million a year.

Amazon responded by spending $5 million to gather signatures to place a referendum on the 2012 ballot to repeal the law. After amassing more than 800,000 signatures, and citing polls suggesting that it'd win the ballot war, Amazon offered to deal. It worked.

Two days before the session ended, Pérez and Senate President Pro Tem Darrell Steinberg went into a room with some of the Capitol's most skilled lobbyists and emerged saying they reached a "classic compromise" and a "win-win."

That's always a red flag. After making sure my wallet was still in my pocket, I read the bill. If Brown signs it, as he probably will, the big guys will get much of what they sought. (For more details, see the Swarm at www.sacbee.com/swarm).

They also granted a special deal to eBay.

The earlier legislation required that Internet vendors who sell $500,000 worth of goods or more must collect taxes. That would have hit eBay sellers hard.

The company's lobbyists circulated an analysis showing that at the $500,000 threshold, eBay's vendors would be on the hook for collecting $33 million in sales taxes.

The company's solution was simple. eBay lobbyists pushed for the eBay amendment, which exempts vendors with sales of $1 million or less from collecting sales taxes. That will lower eBay vendors' exposure to $3.5 million.

The Howard Jarvis Taxpayers Association didn't take a stand on the Amazon deal. Jon Coupal, the association's president, told me he wasn't an expert on the topic.

Really? The Jarvis group knows about a $5 million carpet tax, but not a $200 million Internet sales tax. Right.
With Jarvis on the sidelines, and heavyweights like Amazon and Wal-Mart backing the bill, Republicans and Democrats voted in unison, approving it 36-1 in the Senate and 68-7 in the Assembly.

Don't get me wrong. Amazon should collect sales taxes. In fact, the state should demand back taxes from Amazon. It won't. The legislation grants partial amnesty to Amazon.

That's how tax legislation gets done. High-minded words about encouraging entrepreneurs and protecting taxpayers don't mean much. Companies with fancy lobbyists get breaks and make deals. It's not a pretty sight.

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