AB150- Let's Fix It! Write your Sacramento electeds, now.
View More DetailsIf there is one thing that likely we have realized is that AB150, the passthrough entity tax SALT workaround, has multiple unintended factors in it. The strict reading of AB150 likely is not what our elected officials thought would be the result of this SALT workaround. We as a tax pro/CPA/EA community need to provide our elected officials in the CA Assembly and Senate our boots on the ground expertise/feedback and urge them to promptly make corrections to AB150. PLEASE JOIN ME IN CONTACTING OUR LOCAL ELECTED OFFICIALS. We as a tax community often just sit back and roll with the punches because we are trying to interpret it all but we should really be helping to educate our elected officials so they can best represent their residents and businesses (our clients). To find your local Senator and Assembly member enter your address here: https://findyourrep.legislature.ca.gov/ Please, now is the time to email or call them and offer your professional expertise. This is important and we can make a difference. Some elected officials truly want help from the professional tax community- they are not trained in this stuff like we are. I truly believe that they did not fully understand the limitations that are imposed by this bill...state AMT/TMT limitation issues, strict tax rate and non-refundability, carryforward applications, disparity in AB 150 benefit based on income differences between middle/lower class compared to the super higher income, etc...it is time to not only know the facts about AB150 but also to try to make changes.
Comments
Great idea. This is what I just sent.
Re: AB150 Fix Needed
Dear XXXX,
This last summer the CA legislature passed AB 150 which included the new California Pass Through Entity Elective Tax. The purpose of this tax was to provide *Federal tax relief* to CA taxpayers.
Unfortunately, there was a significant oversight in this new law. The offsetting CA tax credit that made this new tax “neutral” for CA tax purposes was not exempted from the CA Tentative Minimum Tax. Because of this oversight, this bill is not delivering the intended relief to CA taxpayers.
Time is of the essence. The deadline for participating in this new program is 3/15/2022. Can you please share this with the proper committee and ask them to make this an urgent matter.
Thank you,
Here is a sample...not exactly what I sent but close to it. I already have a mtg scheduled for 10am on Monday with a legislative aid to one of my representatives...I do not have pie in the sky illusions that it will be easy or even have any change made, but I do think our tax professional community needs to provide our expertise here. We can't just digest what was passed but instead use that knowledge to make a difference.
Dear Senator/Assemblymember XXX…My name is XXX and I live in your district in the city of Santa Ana. I am also a CPA highly focused on taxes on a daily basis while doing my best to make sure that my clients keep up with their tax compliance obligations. In short, AB150 (recently passed in 2021) is frought with multiple unintended factors which is severely impacting the ability of business owners to reap the benefits that was intended by this legislation and we need your leadership to fix it. I am here to help as much as I can but quick action is needed...our tax community is dealing with many changes but this one is needed (but fast, before tax season is too far along).
In 2021, Sacramento passed AB150 which was the CA State and Local Tax (SALT) workaround to the federal $10K limitation on deductions for CA income and property taxes paid. AB150 establishes a Passthrough Entity Tax workaround allowing certain passthrough entities to pay its owners’ CA income tax while deducting those state tax payments for federal purposes in a manner that appears to be blessed by the IRS.
Many of your local residents and business owners have been severely impacted by this $10K SALT limitation, so AB150 at first glance was welcome relief to prior federal tax changes. However, as our tax professional community dug further into AB150, multiple items came up that all we can determine was that they likely unintended results associated with AB150 which only quick legislative action appears to be able to fix. We need urgent action on this and as such, I hope that I can speak with your office regarding this matter ASAP. The legislative calendar is quickly getting filled up and our professional tax community as well as business owners need prompt action right now. I believe that hearing from someone who is living this on a daily basis will help.
More specifically, I believe that some of AB150’s unintended results include: 1) severe inability to utilize the AB150 withholding payments due to AMT limitations, 2) severe inability for all but the highest earning business owners (i.e. the super super wealthy) to actually utilize the entire AB150 CA tax payments, 3) the fact that this AB150 will be a revenue generator for the state while it was intended to simply shift the method of payment of CA tax while reducing federal tax obligations, 4) multiple still to be determined unknowns regarding carryover and ordering provisions.
I understand that not every legislation will be perfect upon first passage and I am hopeful that you or your staff will find the time to speak to someone who works in taxes on a daily basis in hopes of fixing AB150 to help our small and medium sized business owners in a manner that everyone who voted for AB150 in 2021 originally intended. Can I count on you to take prompt action on fixing AB150? I am here to help…please reach out to me at XXX or email XXX so we can make a difference.
Great idea. Just sent mine to State Assembly person and State Senator. We should all do this!
You need to consider the bias of your audience receiving this letter. It may be better to refer to "taxpayers" generically rather than the business owners or the wealthy.
Instead of "fixing the fix", why not complain to or lobby the federal government about repealing the temporary SALT cap in the first place.
It's true, AB 150 is only a fix to benefit a small crowd of well off business owners, not the taxpayers of the state.
Thanks Bubba! One by one, we can make a difference!
Thanks for sending off!!!
Thanks for the response Anon...I wholly understand bias and try to consider it in both my own bias as well as the reader. Any specific suggestions is appreciated as I re-read what I posted above (the sample) and open to suggestions. unfortunately, if we use "taxpayers" instead of business owners, that will be misleading as most taxpayer are not impacted because AB150 only impacts business owners in pass through entities. obviously, we all have different representatives across the state also, so yes, please do know your audience. On that note, PLEASE feel free to post your sample language you are sending to your local elected representatives!! The more options folks have, the better!
I believe we are competent enough to try to "fix" this at both the federal and state level. With each passing day, the likelihood of the IRS fixing this diminishes IMO. Further, the AB150 fix would not impact the need to fix this at the federal level...they are in reality independent of each other as it relates to 2021 (outside of a drastic legislative federal change). The AB150 fixes are more technical corrections to what those who voted for the legislation likely thought they were voting for in the first place.
For me personally, I have been trying to get my DC representatives to at a minimum double the $10K for married filing joint taxpayers to limit the marriage penalty, next trying to increase the $10K in general (while doubling it for MFJ), and lastly eliminating it all together. They listen, but making change at the federal level is a beast especially in the current political environment.
Again, efforts related to fixing AB150, for me at least, do not diminish any action taken with my federal electeds. I can try to make change on more than one front at a time as I think most in our profession are used to doing.
Anon here. I wrote the version in #2 above. It's not as comprehensive as yours, but that can get worked out in committee. We just need to get the wheels moving on this.
Awesome...thanks!! Yes, the wheels need to turn- they are big wheels so we need lots of hands to crank this machine. I had a good conversation with one of my representatives this morning as a result of the email poke last week...nothing like trying to explain a complicated situation in easy plain language.
Well, looks like in the Governor's Budget Summary there is recognition of two issues with AB150 which are being proposed for correction: 1) the TMT limit and 2) Single Member LLC/disregarded entity exclusion. See page 72 of the summary found in the alert sent out by Spidell earlier today. This is great news and likely at least brings the result more in line with the expectations when it was passed although IMO they should still "fix" the refundability portion. Time to have our elected officials know that they should support these changes and also allow the AB150 withholding to be refundable. www.ebudget.ca.gov/2022-23/pdf/BudgetSummary/FullBudgetSummary.pdf
Thanks to Tim for your post.
The Tentative minimum tax is the major fix.
The other fix which I pointed out in my letter to my legislative representatives is the fact that a business has to make a decision by June 15 of the following year as to whether they are going to be eligible.
Many businesses have no idea as of June 15 whether the year is going to show a profit for the year.
Other states have done a much taxpayer-friendly job with their workaround rules.
Let's hope our legislators rise to the occasion.
And while we are at it - Why disqualify an entire entity because one partner is a partnership? Just make that partnership-partner a disqualifying taxpayer within that entity.
The 6/15 due date issue can easily be fixed by making that the due date and charging late payments if paid later. Don't make it the red line for electing participation for the year.
