A sweeping tax restructuring plan unveiled by a state panel today offered potentially good and bad news for lawyers.
The good news? The majority proposal (.pdf) by the Commission on the 21st Century Economy would scrap the 8.84 percent corporate tax as well as the state’s 5 percent sales tax.
The bad news? The plan would replace those taxes with the controversial business net receipts tax, a 4 percent levy on companies selling goods or services. Yes, lawyers, that means you.
The commission, chaired by Aurora Capital Group partner Gerald Parsky, says California’s current tax system is too volatile, too dependent on a small group of rich folks and too prone to producing boom-and-bust cycles. A business net receipts tax, or BNRT, would expand the tax-paying base, he said, while generally lowering the amount businesses pay.
Broadly stated, the BNRT would take a business’s gross receipts, subtract all the purchases it makes from other firms, and slap the net amount with a 4 percent levy. Companies with gross annual receipts of less than $500,000 would be exempt. The new system would be phased in over five years starting in 2012.
At a Capitol press conference today, Parsky called the plan “a true bipartisan compromise” with “big ideas that deserve full and fair consideration by the Legislature.” The plan got the support of nine of the 14 commissioners, including Boalt Hall Dean Christopher Edley Jr.
But five other commissioners, including Richard Pomp, a law professor at the University of Connecticut, refused to sign on. Most are critics of the BNRT and the proposal to drop the corporate tax.
And those critics have been joined by an odd-couple coalition of organized labor, business groups, anti-tax advocates, Democrats and Republicans. And yes, lawyers.
“The State Bar has consistently raised concerns about proposals that would tax legal services,” said Bar lobbyist Anthony Williams. “Many people are already unable to afford access to legal services … This would simply exacerbate that problem.”
Business interest and anti-tax groups say there are just too many questions about how — and whether — the BNRT would work. Republicans say California should be eliminating taxes, not replacing them. And Democrats and labor unions want changes that generate more tax revenues.
The governor, who said today that he would sign the tax commission’s plan, has called a special session for legislators to take up the recommendations. And while legislative leaders promised to scrutinize the proposal, the widespread opposition means that no one expects the main provisions to ever make it into the tax code.
— Cheryl Miller