Commission considers changes for CA's tax code

September 14, 2009 7:18:01 PM PDT
It's taken eight months and some of California's brightest minds. But there are recommendations on the table to overhaul the state's tax code. The so-called commission on "The 21st Century Economy" met in Berkeley to put the finishing touches on the plan.

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There are 14 men and women on that commission, seven appointed by the governor, and seven by the legislature.

Of all the recommendations in that plan, the one that probable sticks out is the "Business Net Receipts Tax." It would be new to California, but not new elsewhere. This kind of tax has been around in Europe for some time, it's called the value added tax or VAT.

Modernizing our tax laws may put some to sleep, still did you know California is about to change how the state collects money?

Governor Schwarzenegger says our current revenue system is outdated.

"As we move through the business cycle, we have booms and busts in revenue which lead to the kind of terrible cuts in services that we are experiencing right now," said Commissioner Christopher Edley Jr.

The commission believes it has a better way of dealing with all that volatility.

Here's how: the state will receive less from the personal income tax and sales tax; those will shrink, while the corporate tax will go away relying instead on something entirely new -- the "Business Net Receipts Tax" - known as the BNRT.

"The base, that is to say the number of firms that would be included in it would be very broad not just people who sell goods, but also people who sell services," Edley Jr.

That means everyone doing business in California including doctors, lawyers will be subject to a 4 percent BNRT. Currently businesses that sell goods are taxed anywhere from seven to 9 percent.

Small business owners claim the BNRT would hurt them.

Another proposed change is to our personal income tax. The number of tax brackets would go down from six to only two --more like a flat tax. Those making less than $28,000 will be taxed 2.7 percent.

Anyone making more than $28,000 will be taxed 6.5 percent and under the plan only three itemized deductions would be allowed.

"Interest on your mortgage, property taxes and charitable contributions," said Chairman Gerald Parsky.

While adjustments to proposition 13 had been recommended, the commission decided it would not be included in the plan. And a new fuel tax is only now being considered.

"I'm a business person I just want to run a small business in California," said a small business owner.

The commission has until this Sunday to finalize its proposal. Then the legislature will eventually vote on these recommendations. The main concern remain will the plan raise enough revenue for California.

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