STUMP » Articles » Taxing Tuesday: California Wants All the Money, Chicago Needs All the Money » 29 October 2019, 05:34

Where Stu & MP spout off about everything.

Taxing Tuesday: California Wants All the Money, Chicago Needs All the Money  

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29 October 2019, 05:34

To be sure, California needs the money, too.

FWIW, I am having a surgical procedure today, will be going to an industry conference next week, and I’m just plumb tired. I’m skipping next Taxing Tuesday (and yeah, I know it’s also an election day.) I may just need to take the whole month of November off. There will be no warning – I just won’t post.

Sorry. I’m beat. Something has got to give, and the hobby is it. I need to sleep.

CALIFORNIA GRABBIN

California Finds a New Way to Hurt Entrepreneurs (Besides AB5)

California says it has the right to tax income from the state, even if an individual or company hasn’t stepped foot there and did the work in another state.
…..
As Forbes.com contributor Robert Wood wrote (disclosure: I also write there), California has taken to assessing taxes on people outside the state. As in people who do business with California clients but who don’t work or live in the state.

The matter is Blair S. Bindley, OTA Case No. 18032402 (May 30, 2019). Bindley is a screenwriter who received, according to the California Office of Tax Appeals (OTA) record, $40,000 for writing two screenplays for two different companies. The Franchise Tax Board (FTB)—the state’s tax revenue collector—was able to match the income to the Arizona-based Blair and demand he file a California return for that year or explain why he needn’t.

Blair replied that he undertook all the work in Arizona, so didn’t have income from California. The FTB disagreed and said that being paid by California companies constituted income from the state. As the OTA noted, “California imposes a tax on the entire taxable income of a nonresident, such as appellant, to the extent it is derived from sources within this state.” Also, “‘Taxable income of a nonresident’ is broadly defined as ‘gross income and deductions derived from sources within this state.’”

Let’s go to the Forbes piece for better detail.

Now, California Can Assess Taxes No Matter Where You Live…Really

California’s tough Franchise Tax Board (FTB) polices the line between residents and non-residents, and does so rigorously. If you leave, California is likely to probe how and when you stopped being a resident. For that reason, even if you think your facts are not controversial, be careful. California is known to chase people who leave, and to disagree about whether they really are non-residents. After all, California’s 13.3% tax on capital gains inspires plenty of tax moves.

Better not to move there in the first place. Stay far, far away. They obviously don’t want you.

The state’s Franchise Tax Board is the state income tax collector, and it has a fearsome reputation. Most tax lawyers will tell you that they would much rather fight the IRS than California’s FTB any day of the week. Savvy taxpayers know this too. You can skate for much longer with IRS problems, and you can more easily defeat or compromise IRS bills. But can you truly be outside of California and still face California taxes? A recent decision says you can.

Now, check out California Office of Tax Appeals decision In the Matter of Blair S. Bindley, OTA Case No. 18032402 (May 30, 2019). There, a nonresident sole proprietor performed all of his services outside of California. However, some of his customers were located in California. Is that enough for the poor guy to attract California tax liability? The California taxing authorities said he was operating a “unitary” business. Therefore, his tiny business was subject to California’s apportionment rules. The state’s Office of Tax Appeals said this case has precedential effect, so it is clear the Golden State can go after other non-Californians too.

…..
Does this screenwriter’s unfortunate tax flap mean other little businesses that happen to sell into in California could face tax troubles? Yes, it sure seems that way. California can now push even on sole proprietors who might have California customers. They might have to file California returns and pay California taxes. This is so even if all the services are performed outside of California, and even if the sole proprietor has no connection to California.

It’s probably best not to sell a damn thing to anybody in California. Perhaps we can allow the state to secede. It would make everything easier for everybody.

CHICAGO NEEDS THE MONEY BECAUSE APPETITES ARE ENDLESS

Someone is learning that ideology doesn’t make a magic money tree come into being. Someone is learning that ideology doesn’t help make a city run.

From Woke to Broke

“The fact is there is no more money. Period,” says Chicago mayor Lori Lightfoot.

She’s talking about the teachers’ strike that has paralyzed her city’s public schools—enrollment 360,000—for the past week. The public employee union is demanding more: more money for salaries (only eight states pay teachers more than Illinois), more support staff (Illinois ranks first in spending on administrators), more teachers per student. Their cause has attracted national attention. Elizabeth Warren joined the picket line.

Which is ironic. Lightfoot is not some stingy Republican. Nor is she a centrist Democrat like her predecessor Rahm Emanuel. She’s as progressive as you can get. But she now finds herself in the same position as many of her political brethren: facing criticism for failing to reconcile the contradictions in the left’s agenda.

Lightfoot has discovered that there is no limit to the appetite of the constituencies generated by government spending. She has learned that the special interests bargaining for higher benefits also desire policies that make such benefits unattainable. I hope she’s taking notes.

Chicago Public Schools has run a deficit for the past seven years. Why? Pensions granted to earlier generations of teachers are expensive. And the cost is growing. A quarter of the school budget is devoted to benefits—money that can’t be spent on classrooms, facilities, and instruction. Expect that number to rise as America goes gray and the bill comes due for the promises we made to ourselves.

I have something to say after a related piece on the teachers strike.

Chicago Mayor Learning that Eventually, You Run Out of Other People’s Money

Chicago Mayor Lori Lightfoot is dealing with a 12-day-old teachers strike that features a contest between the most radical union in the U.S. and one of the nation’s most radical mayors.

It’s not going to end well for her.

When the strike began she told the teachers “there is no more money.” All that did was whet the appetite for battle by the teachers who are now almost certainly going to get almost all of what they want.

Lightfoot is being hit over the head by reality.

Mwa ha ha ha ha.

One of the things I have learned in the decade-or-so of blogging on public pensions is that the public employee unions really do believe in unlimited money.

They think that “BUT YOU PROMISED!” will make a magic money tree sprout the desired funds and more, so all sorts of goodies can be had.

That’s why many are eagerly eating up the story that it’s not a real crisis even once the pension funds run out and the pensions are pay-as-they-go. There’s always some cash to be found… somewhere. Maybe the bond guys will throw some more their way. I mean, some places have negative interest rates!

And there’s always rich folks to be taxed. Right? Right?

Why the Illinois Exodus? The rich get bashed, and off they go…

I mean, somebody will be there in Chicago to be taxed….

People of every age and income group are fleeing Illinois – Wirepoints Original:

Well, I hear tell the Chicago teachers are required to live in the city. They could always be taxed.

ON TAXING THE RICH, ETC.

Last week’s post was pooh-poohing a recent supposed demo of how we are grossly under-taxing high income folks now (it comes across as bullshit to me. Esp. if the definition of income changes over time.)

I am not getting paid to do this, and I don’t feel like doing the work. HOWEVER, perhaps you, gentle reader, do have the time, energy, tenacity, etc. to dig into the following:

I don’t feel like doing any analysis myself, but I did find some stuff interesting to me.

I want you to look at this:

These supposedly, if all were stacked together, would add up to 100%. But the part I want you to see in the labor income is: “Employer fringe benefits and payroll taxes” and the part from capital income: “Income paid to pensions and insurance”.

From about 1944 to 2014, those two elements started out fairly small and have inexorably grown. Interesting, huh?

Anyway, if you want to dig through the numbers — best wishes!

TAX STORIES

That last one has to do with life insurance, actually.

TAX TWEETS

[seriously: because there are more people.]

[and we’re paying out a hell of a lot more now, not just collecting more]

I swear, if I didn’t have a medical procedure to go to right after I post this… I’d have already started drinking.

I’m tired of this bullshit.

Speaking of this bullshit, a great way to end this is to simply make it illegal for the teachers to strike. Just like the firefighters and cops can’t strike. Illinois is among only 12 states allowing public school teachers to strike. It’s illegal in New York, even. Imagine that.

Or you could leave Seattle.

So many assumptions.

Yes. Yes I do. I just grab a bunch of candy from each kid’s bag as they come to my door.

See y’all in December (if not sooner)!


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