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halifax
08-12-2009, 6:46 AM
CA is considering a new tax scheme that would shift the sales tax to a business tax. All CA businesses would be taxed on gross revenues and the state sales tax would be dropped (but not any local/district sales taxes). Services and labor will now be taxed via the businesses. This is usually called a Value Added Tax (VAT).


California Commission on the 21st Century Economy (http://www.calbuzz.com/tag/california-commission-on-the-21st-century-economy/page/2/)

The commission has already assembled three basic packages, with three elements common to all: a) simplifying, flattening and reducing income tax rates; b) cutting business taxes; c) transforming the sales tax into a business net receipts tax.

The third item is the key to the whole deal. The tax, which has been put into effect in Michigan, Ohio and Texas in recent years, is similar to the “value added” tax widely used in Europe and elsewhere.

Basically, the net receipts tax would be paid by every business in the state as a percentage of its gross revenue – minus the cost of goods and services that it purchases from other companies. Although consumers would not pay the tax directly, as they do at the register with sales tax, they would pay more to purchase goods and services because businesses would roll the tax, along with other costs, into its pricing.

The state would collect the tax on a “unitary” basis, meaning companies that operate both inside and outside of California would be assessed on a portion of their total sales volumes, not just the business they do within the state. Also, the tax would be levied on all types of business – not only on goods, but also on services, like doctors, lawyers and accountants, for example.

Here is an example of how the tax would work, as described by the California Manufacturing and Technology Association:

“The standard way to implement a NRT is to say a business owes some percentage on the price of the product minus all taxes previously paid on the goods. If NRT rates were 10 percent, a computer manufacturer would pay 10 percent of the $50 per unit price ($5) minus taxes previously paid by the semiconductor, software and peripheral manufacturers (say $2). In this example, the computer manufacturer would have a $3 tax liability…

“(The tax) is different from the conventional system of sales tax, because (it) is charged at every stage of value addition – whereas sales tax is imposed on the final value of a transaction only.”


I'm not numbers guy but wouldn't this just drive CA businesses that currently must compete with online businesses further into obscurity?

How is this going to work for or against your your gun shop?

:confused:

PatriotnMore
08-12-2009, 7:27 AM
I bet VAT tax is looking very appealing to CA.

cackinthebox
08-24-2009, 9:53 PM
wouldn't dropping the sales tax increase the likely hood of someone buying something in state? but i guess that would only work if the VAT was applied to all states.

but aside from that, with no sales tax, i be much more likely to buy something in state from a brick and mortar store than buy on the internet out of state to avoid the tax, especially guns, sales tax usually being the tipping point that draws me to an out of state transfer.

cackinthebox
08-24-2009, 9:57 PM
so the way it is now...lets say i pay a mechanic $5000 to rebuilt my engine (parts aside), the state gets nothing for $5000 worth of labor?

why can't we just have casinos

pat038536
08-24-2009, 10:09 PM
The state would collect the tax on a “unitary” basis, meaning companies that operate both inside and outside of California would be assessed on a portion of their total sales volumes, not just the business they do within the state.

Somehow I don't see a company like... Microsoft giving up any portion of its total sales volume for anything sold outside of CA. Its just not the state's business how much a company earns outside its borders.

tenpercentfirearms
08-25-2009, 6:36 AM
If they just charge me for VAT, then I will just raise my prices and pass it on to you.

halifax
08-25-2009, 6:42 AM
If they just charge me for VAT, then I will just raise my prices and pass it on to you.

Would you be adding VAT to out-of-state transfers?

Rule .308
08-25-2009, 7:03 AM
"I'm from the government and I am here to help you" yeah right! This will not bode well for anybody in this state except the politicians. In light of todays current state of the economy you don't really think they are looking for ways to ease your tax burden do you? I own and operate an auto repair shop, my income is split 50/50 between parts and labor and now they want to tax labor too, my sales tax will double and just as 10% Wes pointed out, I am going to pass it along to you, I have to if I want to stay in business.

blackberg
08-26-2009, 11:35 AM
so the way it is now...lets say i pay a mechanic $5000 to rebuilt my engine (parts aside), the state gets nothing for $5000 worth of labor?

why can't we just have casinos

state income tax...
-bb

yzernie
08-29-2009, 9:56 AM
If they just charge me for VAT, then I will just raise my prices and pass it on to you.
Based on my understanding of the proposal, Wes is absolutely correct. Any of us who own a business would have to do that to remain in business. It would depend on what the percentages they charge the business but in all honesty, I don't foresee the bottom line to the customer changing. It is just the states different way of saying the word TAX.

yzernie
08-29-2009, 10:01 AM
Would you be adding VAT to out-of-state transfers?
I would think that is dependant on the wording of the proposal. If they are going to charge a Cali business a VAT "tax" based only on profits then I would say it would need to be added to any sale.

FK300
08-31-2009, 11:23 AM
California does a lot of illegal things like attempting or even proposing a VAT tax. They can try and people will pay it until someone takes them to court and it will be shown as being unconstitutional.

For example, anybody that operates an LLC in California knows that you pay a tax on your gross receipts...regardless if your net profits at the end of the day is zero. California calls it a "Gross Receipts Fee", well a judge told the state...to paraphrase, "I don't agree with the notion that calling something a fee, doesn't make it a tax".

The VAT tax, in my opinion is simular and won't fly. Here is an article that is on the web dealing with California and their "Unconsititutional Fees".

California Appellate Court Finds, Again, LLC Fee Unconstitutional Private Equity, Hedge Fund, Mutual Fund Industry Tax Development

Publish date: Monday, August 18, 2008

On August 11, 2008, the California Court of Appeals in Ventas Finance I LLC (taxpayer) v. California Franchise Tax Board (FTB) affirmed, for the second time, that the California LLC gross receipts fee was unconstitutional. The court affirmed that the fee did not provide a reasonable apportionment methodology and therefore violated the Commerce Clause. Unlike the first case, Northwest Energetic Services, LLC (NES) v. FTB, all of taxpayer’s income was not earned outside of California. The court determined that taxpayer is entitled to a partial refund equal to the amounts remitted in prior years that exceeded the amounts taxpayer would have been assessed, had a method of fair apportionment been in place.

On August 13, 2008, taxpayer announced that it will appeal the state appellate court ruling, which reversed the trial court’s findings that it was entitled to a refund for the full amount of the fee. The appellate justices agreed with the trial court that the fee was unconstitutional and that the illegal statute cannot be reformed through a judicial ruling. Taxpayer will argue that since the appellate court agreed the statute could not be judicially reformed, it is inconsistent to then rule that taxpayer is due only a partial refund.

The outcome of this appeal will impact another lawsuit currently pending in state trial court, Bakersfield Mall LLC (Bakersfield) v. FTB. Despite having activities solely in California, Bakersfield is arguing it is due a refund for the entire amount of the fee paid because the fee is unconstitutional on its face. The attorneys for the taxpayer also represent Bakersfield, and the two cases are certainly linked.

If a protective claim has not already been filed based on NES, clients with open years that paid the California gross receipts tax should consider filing a protective claim for refund.

Last updated Monday, May 11, 2009

Another court case that the Franchise Tax Board lost was:

http://taxprof.typepad.com/taxprof_blog/files/northwest_energetic_services_llc.pdf

These cases are based on "FEES" instead of a tax on profits and the state has lost in court and in appeals.