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California Tax

FULL List to California Tax Forms

Individual Income Tax Forms

Form 540 California Resident Income Tax Return

Form 540 2EZ California Income Tax Return

Form 540NR California Nonresident or Part-Year Resident Income Tax Return

From 540NR California Nonresident or Part-Year Resident Income Tax Return Long

Corporate Income Tax Forms

Form 100 California Corporation Franchise or Income Tax Return

Form 100S California S Corporation Franchise or Income Tax Return

Form 100X Amended Corporation Franchise or Income Tax Return

Sales Tax Forms

Exemption Form

Form BOE401 EZ Sales and Use Tax Return (Short Form)

Property Tax Forms

Form 540 California Resident Income Tax Return

Form Schedule D-1 Sales of Business Property

Form 3567 Installment Agreement Request

Form 3561 Installment Agreement Financial Statement

Form 3557E Application for Certificate of Revivor

Primary Concerns:

The most pertinent issue facing California in terms of its deficit is the state’s absolutely staggering budget deficit, which as of early 2010 was estimated to be about half of a trillion dollars.  The cause of California’s budget problems are based on a multitude of factors, but many have been driven by the diverse, and highly unstable, California economy and issues of government taxation and spending.

California, as the third largest state and extended over much of the west coast of the United States, is a geographically extended region, conversely containing some of the most economically prosperous and financially depressed regions in the entire country.

Much of the state’s economy, which is the tenth largest in the world, is based on agriculture, which has been highly unstable industry despite its dramatic growth in the last few decades, and whose work force employs a number of very underpaid workers unable to contribute heavily in income taxes.

A large portion of this work force also consists of number illegal alien workers who pay no taxes to the state at all.  Simultaneously, to maintain its business and technological sectors, California implemented a number of systematic tax incentives to keep businesses operating in state and employing resident Californians, which again limited the amount of tax revenue the state was able to collect.

Much of California’s tax rates are also set through the process of voter referendum, where a state electorate decides some legislative matters through popular vote, taking them out of the hands of legislative government.

This lack of revenue, despite California boasting some of the highest rates of taxation in the country, combined with a state that dramatically spent far beyond its means, proved to be a recipe for what became an economic crisis

Currently California’s economic crisis has been so bad that the state is nearly insolvent, unable to finance its basic services within its budget, with its credit so poor it is unable to borrow to make up the difference.  As a result, California has been forced to try to slash the state budget by 25%, which has led to furloughs of state employees (which mean lost tax income).

The role that taxation will play in trying to solve this crisis remains to be seen, but for many who are concerned about deficit spending, California remains a cautionary case of what can happen when a state spends more than it can take in.  Depending on how much one believes the mantra, “Where California goes, America follows…,” the implications of this crisis can be severe indeed.

Income Tax:

Anyone residing in California full of part time and who earns income generated from within the state is required to pay income taxes.  California’s income tax rates are some of the highest in the country, requiring a flat tax in addition to a percentage of income over the given tax bracket threshold.

For a single or married individual filing separately, with incomes between zero and $7060, the tax is zero plus 2.25% of all amounts of the base of zero.  Between $7,060 and $16,739 the tax is $88.25 plus 2.25% rate of all amounts over the base $7,060.

When the income is between $16,739 and $26,419 the tax is $306.03 plus 4.25% over the base.  For incomes between $26,419 and $36,675, the tax is $717.43 plus 6.25% over the base.  Between $36,675 and $46,349, the tax is $1,358.43 plus 8.25% over the base.  And finally, incomes of $46,349 have a tax of $2,156.54 plus 9.55% rate on all income over that level.

In married couples filing jointly and qualifying widows and widowers with dependent child or children, everything but the tax rates over the base is doubled.  For instance, the first tax bracket is between zero and $14,120 instead of zero and $7,060.  The next level is between $14,120 and $33,478 with a tax of 176.50 (double $88.25) with 2.25% above the base of $14,120.

For heads of household, incomes between zero and $14,130 have zero base tax plus 1.25% above the base of zero.  Between $14,130 and $33,479 the tax is $176.63 plus 2.25% above the base.

The tax and rate above the base for incomes between $33,479 and $43,157 is $611.98 plus 4.25%.  Between $43,157 and $53,412 the tax is $1,023.30 plus 6.25% above the base, and between $53,412 and $63,089 the tax is $1664.24 with 8.25% above the base.  Any income $63,089 and over has a tax of $2,462.59 plus 9.55%.

While California has some of the highest income taxes in the nation, they also feature some of the most progressive in terms of their graduation of tax and rates.  Nevertheless, for a state that contains the most millionaires of any state (a population that numbers well into the hundreds of thousands), there are some that feel that the rates are simply not progressive enough.

Corporate Income Tax:

Corporate tax rates in California are fairly specialized between general corporations and financial and banking institutions.  The corporate tax rate is 8.84%, while for financial institutions it is 10.84%.  The alternative minimum tax for corporations are 6.65%, which many criticize is too low in comparison to the other two since it nearly always guarantees that the other two rates will be higher.

For S corporations and bank and financial institutions, which are protected from double taxation, meaning the taxes are passed on the shareholders only instead of shareholders and company, the rates are much, much lower: 1.5% for regular S corporations, and 3.5% for banks and financial institutions.

Property Tax:

In California, unless a certain form of property has been exempted, nearly all forms of property are subject to taxation.  Property taxes in California generally fall into one of two categories, secured and unsecured. Secured properties are those that become a lien if the taxes are not paid to the government, and mainly consist of real estate, including a home, business, residential complexes such as apartment buildings, vacant property, and so on.  Improvements to a property also fall under the category of secured property, and can include landscape additions such as fruit trees, ornamental vines, and concrete based structures (agricultural crops are generally NOT covered as secured property).

Unsecured property is property that does not have tax lien placed against it, usually those used in a business, such as portable machinery, including farm machinery, industrial tools, and office equipment, as well as some high end transport vehicles, such as boats and planes.

Property tax is based on the assessed value of a property, as performed by a county assessor, and will generally be limited to one percent of the property’s assessed worth.  However, additions in the form of levies and special assessments may be added to property taxes by local counties, in the interest of paying off voter approved tax bonds or other remarkable cases of indebtedness.  These levies can be contested with the county tax collector, but until a determination has been made, they still must be paid or risk violating the tax law.

Sales Tax:

California has the highest sales and use tax rate in the country, at 8.25%. However, depending on what city a consumer makes a purchase in the rate could be far higher, as individual taxing districts can add their own sales tax on top of existing sales tax.  Some districts choose to do so, but many commonly add at least add an extra 0.25%, and some areas add substantially more.  Los Angeles, for instance, the largest city in California and the second largest in the entire United States, has a combined sales tax of 9.75%.  The highest sales taxes are in the cities of South Gate and Pico Rivera, both in the L.A. Metropolitan area, which have combined tax rates of 10.75%.

In breaking down the California sales tax: 5.00% goes to the California State general fund, 1.00% goes to the Uniform Local Tax, 0.25% goes to State’s Fiscal recover fund, 0.50% goes to the Local Revenue Fund, another 0.50% goes to Local Public Safety funds, and the final 1.00% is divided up for the local city or county, with 0.75% going to operational funds and the last 0.25% going to the local transportation fund.

All taxes are passed either locally or statewide, through California’s policy of voter referendum.

California sales taxes are also not do not apply to most groceries and prescription drug sales.

Tax Forms:

California tax forms are some of the most comprehensive and extensive in the country, and as a result there are literally dozens of forms for individual taxpayers, with many more for businesses.

Most individual state tax returns are variations on the 540 return, which is the California Resident Income Tax Return, which comes in as the 540 2EZ form (which is a short form of the 540), the 540 ES form (for estimated taxes), and the 540NR (which is for nonresidents or part time residents).  Most of these forms are available online, and there is a considerable industry in California built around the intricacies of California income tax preparation.


California Tax: An Overview of State and Local Taxes Across the Golden State

When it comes to taxes, Californians are well aware that they pay some of the highest rates in the country. From income taxes to sales taxes to property taxes, the state and local governments have a variety of taxes that they use to fund their operations. In this article, we will provide an overview of California taxes, including recent changes to tax laws and policy, and how these taxes impact individuals and businesses.

State Income Tax

California has some of the highest income tax rates in the country, with a progressive tax system that ranges from 1% to 13.3% for the highest earners. In 2020, the state collected over $91 billion in personal income taxes, making it the largest revenue source for California’s state budget. However, this revenue source has declined significantly in 2020 due to the COVID-19 pandemic and the resulting economic recession. The state has faced a budget shortfall of over $54 billion, and Governor Newsom has proposed a variety of measures to address the gap, including reducing spending and increasing taxes on those with higher incomes.

In early 2021, California lawmakers introduced a proposal to increase taxes on the wealthiest residents of the state. Under the proposal, people with incomes above $1 million would pay an additional 1% in state taxes. This would raise an estimated $6.8 billion per year in revenue, which would be used to fund education and other state programs. However, this proposal faces significant opposition from business groups and some legislators, who argue that it would drive away high earners and stifle economic growth.

Sales and Use Taxes

California has a state sales tax rate of 7.25%, which is higher than the national average of 5.86%. In addition to the state sales tax, counties and cities in California can also levy their own sales taxes, which can raise the overall rate to as high as 10.25%. These local taxes are typically used to fund local infrastructure and services, such as transportation and public safety.

The state also has a use tax, which is applied to purchases made outside of California but used within the state. For example, if a California resident buys a car in Oregon and brings it back to their home state, they would owe use tax on the purchase price. Use tax rates are the same as the sales tax rates, which means that Californians effectively pay the same amount of tax whether they purchase goods in-state or out-of-state.

Property Tax

California’s property tax system is unique and complex, thanks to Proposition 13, which was passed by voters in 1978. Under Proposition 13, property taxes are limited to 1% of the assessed value of a property, with the value only adjusted when the property is sold or undergoes major improvements. This means that homeowners who purchased their homes many years ago can pay significantly lower taxes than new homeowners who purchase homes at the current market value.

In addition to the 1% limit on property taxes, Proposition 13 also requires a two-thirds vote of the legislature to increase most taxes, including local property taxes. This has made it difficult for local governments to raise revenue, leading to underfunded schools and other services in some areas of the state.

However, there are a few exceptions to the Proposition 13 limits. For example, local governments can levy bonds for specific purposes, such as school construction or road repairs, which can increase property taxes. Additionally, properties that experience major damage or are destroyed can be reassessed at market value, which can lead to higher taxes for homeowners in affected areas.

Other Taxes

In addition to the major taxes mentioned above, there are a variety of other taxes that Californians may encounter. For example, California has a corporate income tax, which is applied to the profits of businesses operating in the state. California’s corporate income tax rate is currently 8.84%, which is higher than the national average of 6.87%.

The state also has excise taxes, which are applied to specific goods and services. For example, California levies an excise tax on gasoline, which is currently $0.50 per gallon. This tax revenue is used to fund transportation infrastructure projects, such as highway construction and public transit.

How Taxes Impact Californians

Taxes have a significant impact on the lives of Californians, both as individuals and as members of various groups. Here are a few examples of how taxes affect different groups of people:

High-income earners: As we mentioned earlier, high-income earners in California pay some of the highest income tax rates in the country. This means that they have a smaller percentage of their income available to spend or save as compared to residents of other states. Additionally, they may be subject to additional taxes, such as the proposed millionaire’s tax, which could further increase their tax burden.

Low-income earners: While low-income earners in California may benefit from some state programs that are funded by taxes, such as Medi-Cal and CalFresh, they may also struggle to afford California’s high cost of living. California’s sales tax, for example, can make it more difficult for low-income families to afford essential goods and services.

Homeowners: Homeowners in California may be subject to property taxes that can vary widely based on their location and the age of their home. This can make it difficult for some homeowners to afford their monthly mortgage payments. Additionally, homeowners in areas that are prone to natural disasters, such as wildfires or earthquakes, may face higher taxes if their property is damaged or destroyed.

Renters: Renters in California are indirectly impacted by property taxes, as landlords may pass the cost of property taxes on to their tenants in the form of higher rents. Additionally, renters may also be subject to sales taxes, which can impact their ability to afford basic necessities.

Recent Changes to California Tax Policy

California’s tax landscape is constantly evolving, with legislators introducing new bills and proposals every year to address changing economic conditions and priorities. Here are a few recent changes to California tax policy that are worth noting:

COVID-19 Relief: In response to the COVID-19 pandemic, California has implemented several measures to provide relief to individuals and businesses. For example, the state has delayed the deadlines for filing and paying income taxes and sales taxes for many Californians. Additionally, the state has provided grants and loans to small businesses that have been impacted by the pandemic.

Online Sales Tax: In April 2019, California began requiring out-of-state retailers to collect and remit sales tax on purchases made by California residents. This change was made in response to a Supreme Court decision in 2018 that allowed states to collect sales tax from out-of-state retailers.

Split Roll Property Tax: In November 2020, California voters approved a ballot measure that would change some aspects of Proposition 13 related to commercial and industrial properties. Under the new law, which goes into effect in 2022, these properties will be reassessed at market value every three years, rather than only when they are sold or undergo major improvements. This is expected to generate billions of dollars in additional revenue for schools and local governments.

Conclusion

California taxes are a complex and ever-changing topic, with a variety of taxes at the state and local level that impact individuals and businesses in different ways. Understanding the basics of California tax policy is important for anyone who lives or does business in the state, as taxes play a major role in funding public services, supporting the economy, and shaping the daily lives of Californians. As the state navigates the challenges of the COVID-19 pandemic and other economic uncertainties, it is likely that taxes will continue to be a hot topic for debate and discussion among policymakers, business leaders, and residents alike.