California fears it might lose $ 1 billion in taxes to outgoing residents and companies

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California Controller Betty Yee on June 28, 2016 (AP Photo/Rich Pedroncelli, File)

The California Tax Bureau has determined that more than $ 1 billion a year in income tax alone is at stake as people and businesses are likely to move out of the state due to the high cost of doing business and property prices.

With so much at stake, the agency that manages the tax revenue from these transactions has started studying the impact of population migration. Sometimes research can raise more questions than answers.

California controller Betty Yee released a report last month with 2019 data entitled “The Impact of Migration on California Income Tax Revenues.” The agency suspected it was too early to say whether those who left the state during a pandemic year may have upset the government budget balance, even with a steady stream of migrants moving in.

From 2015 to 2018, the data showed a net decrease in tax receipts from incoming travelers compared to residents who leave the country, down 0.2% of California’s personal income tax receipts. The state will gain or lose at least $ 1 billion in personal income tax revenue from residents in the river as outgoing residents pay last year and migrants transfer payments the year after they arrive, the controller’s office reported. In this respect, the postponement is a burden for the state treasury.

State income tax ranges from 1% to 12.3% – with an additional 1% surcharge on taxable income greater than $ 1 million.

When a business moves

Ever since California first introduced a corporation tax in 1929 and an income tax six years later, financial actors have claimed that high tax rates would crush the state’s economy.

Nevada took this opportunity in 1937 by mailing pamphlets to thousands of millionaires across the country suggesting moving to low-tax Nevada. The Silver State boasted no corporate, state income, or inheritance taxes.

A top-of-mind problem with rising costs that led many to flee California. According to CNBC, there were a total of 18,000 companies that left the state between 2008 and 2016.

“We are not aware of any popular reports on the number of companies moving to California, so it is not clear what net corporate movements are,” the report said.

The coming and going of companies out of the state is difficult to measure from tax data because a company may simply cease to exist and therefore not pay. The subject becomes more complicated when only part of the company moves. There, the state defines the tax invoice as “individual sales distribution”, which represents the percentage of sales made in this state.

Another aspect of resident and business migration is a lesser-known feature of California tax law known as “withholding tax.” California charges tax bills on all state business income, regardless of where the owner lives. So if an owner escapes the state but continues to run a business in California, income will still be taxed.

What happens if property tax revenues are reduced during a state exodus or a home sale – especially since many local governments have allowed residents to postpone tax bills due to COVID-19 hardship?

“It’s too early to say that,” said Barbara Green, who works as director of change of ownership for the Sonoma County Assessor’s Office. At this point, the local government’s tax administration department is too busy to make this assessment as a large number of requests for tax transfers from one property to another within state lines for the subgroup are over 55 years old, she said.

The basis for Proposition 19, which was approved by voters last fall and comes into effect at the end of the year, can lead to a massive reduction in property tax revenues for any jurisdiction, especially if a resident immigrates from a more convenient location.

For Napa County Assessor John Tuteur, migration might depend on the generation that moves.

“It depends on what age we’re talking about. If we are talking about (age) over 55, they take advantage of the tax transfers. But I would guess that more than half of homebuyers are under 55, ”said Tuteur. “The intra-state migration that we had helped.”