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Daily Tax Report: State

Bills Aimed At College Scandal, Tax Breaks Move in California

May 31, 2019, 1:53 PM

A bill to prevent parents convicted in the college admissions scandal from using California tax breaks for bribes made in the scheme is one of several tax policy measures advancing in the state Legislature.

Parents in the scheme allegedly disguised the bribes as charitable contributions—bribes were paid to entrance exam administrators, surrogate test-takers, and athletics coaches. A bill A.B. 136 by Assemblywoman Sharon Quirk-Silva (D) would disallow deductions for those payments as well as business expenses related to the scandal on state income tax returns back to Jan. 1, 2014. Several of the more than 30 parents charged in federal court so far in the scandal are from California, including actress Lori Loughlin and her husband, fashion designer Mossimo Giannulli.

“We can’t look the other way and we need to take action,” Quirk-Silva said before the Assembly approved the bill 76-0 May 29.

Lawmakers also advanced bills through their first chamber to boost oversight of tax breaks, allow deductions for cannabis business expenses, and expand credits for low-income housing creation in time to meet a May 31 deadline.

Quirk-Silva said the parents would be required to amend their past tax returns if they had claimed the tax breaks. The bill also directs the Franchise Tax Board to investigate the parents’ tax filings and issue tax assessments to them.

Halfway There

Several of the tax bills surviving to the halfway point of the session have been introduced in previous years and either didn’t pass or were vetoed by former Gov. Jerry Brown (D). Gov. Gavin Newsom (D) hasn’t taken a position on them.

The bills now move to the opposite house, where lawmakers have until Sept. 13 to debate and amend them, and decide whether to send them to Newsom. They include:

  • A.B. 10 by Assemblyman David Chiu (D) to increase state funding for a state credit for construction of low-income housing and farmworkers from $500,000 to $25 million passed the Assembly 77-0 May 22. A similar bill didn’t advance in the 2018 session.
  • A.B. 37 by Assemblyman Reggie Jones-Sawyer (D) to allow cannabis businesses to deduct expenses on their state tax returns passed the Assembly 69-1 May 23. Brown vetoed a similar bill in 2018.
  • A.B. 263 by Assemblywoman Autumn Burke (D) to extend past Jan. 1, 2020, an existing requirement that new personal income or corporate tax breaks must include goals, performance indicators, and data collection that would enable the Legislature to determine if they are meeting their goals, passed the Assembly 71-1 May 23.
  • A.B. 1296 by Assemblywoman Lorena Gonzalez (D) to create a Tax Recovery in the Underground Economy Criminal Enforcement Program in the Department of Justice to enforce workplace and tax laws passed the Assembly 77-0 May 29. Brown vetoed a similar bill in 2018.
  • S.B. 468 by Sen. Hannah-Beth Jackson (D) to create a Tax Expenditure Review Board to evaluate whether major corporate breaks such as the water’s edge election, research and development credit, and like-kind exchanges should continue passed the Senate 27-9 May 28.

Not advancing are bills to tax oil and gas extraction, tax handguns and semi-automatic weapons, create a state tax on services, and create state-level estate tax.

Debate is taking place separately about conformity to federal tax law changes including opportunity zones, a state-level health insurance coverage mandate that would carry a tax penalty, sales tax exemptions for menstrual products and diapers, and renewal of a tax on managed care organizations.

The budget conference committee met for the first time May 30, and lawmakers have until June 15 to send a budget to Newsom for the fiscal year that begins July 1.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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