California Internet shoppers, beware of the tax collector

California Internet shoppers this holiday season better hang on to their sales receipts in case the tax collector comes calling.

The state's sales tax collection agency, the Franchise Tax Board, and a coalition of California retailers, the Alliance for Main Street Fairness, warned Tuesday that shoppers could wind up with a tax-due bill if they get audited for Internet purchases.

"Many web sites do not collect sales taxes, but that doesn't mean it is not owed," the alliance said in a "Holiday Shopping Tips" news release.

The agency stressed that if the seller doesn't collect a base 8.25% sales tax on an Internet purchase, then the buyer legally is required to pay a "use tax" at the same rate for the goods.

The release lays out what it calls "five easy steps for complying with sales tax requirements" that -- in reading -- don't seem easy at all.

Step one is check and see if you might be paying the tax. If so, there's nothing more for the buyer to do.

Step two is keep all paper and electronic receipts.

Step three is go online to calculate your local and state use tax rate.

Step four is go back online to get a Use Tax Return form.

Step five is pay your taxes. The easiest way to make the payment is through the annual state income tax return.

What the news release doesn't say is that fewer than 1% of individual Internet shoppers pay the use tax, and that the state doesn't attempt to collect the money on most transactions.

For that reason, California recently passed a new law that would require Internet sales giant Amazon.com and many other e-sellers to start collecting sales taxes and remit them to the state. Amazon has agreed to start doing so in September of next year.

The law, though, does not cover many out-of-state Internet sellers that do not have any bricks-and-mortar or sales affiliation links to California.

To close that loophole, California and other states are lobbying the U.S. Congress to pass a national law that would set uniform rules for all states to collect sales taxes from Internet sellers. A number of bills with bipartisan support are being considered by the U.S. Senate and House of Representatives.

The Board of Equalization estimates that the state loses more than $1.1 billion a year in unpaid use-tax revenue.

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Millionaires group to lobby for higher taxes -- on themselves

As the deadline nears for the congressional “super committee” to come up with a deficit-slashing plan, a group of people who have made $1 million a year or more is pressing lawmakers to raise tax rates on the nation’s highest income earners.

Patriotic Millionaires for Fiscal Strength, an organization formed in 2010, said it’s sending a delegation of 21 members to Washington on Wednesday to seek meetings with super committee senators and representatives.

The group’s message: “Any super committee deal that does not include higher taxes for millionaires should be killed.”

Among those in the group heading to Washington for the lobbying effort: Leo Hindery Jr., former chief executive of AT&T Broadband; Frank Jernigan, a former senior software engineer for Google Inc.; and Garrett Gruener, founder of Ask.com.

Republicans and Democrats have been far apart on the issue of boosting tax revenue as part of any deal to pare the deficit. The super committee faces a Nov. 23 deadline to reach agreement on how to cut $1.5 trillion from deficits over the next decade.

Patriotic Millionaires was formed a year ago as Congress debated whether to extend the personal income tax cuts that took effect during President George W. Bush’s first term. Ultimately, Congress and President Obama agreed on a two-year extension of the cuts.

But Obama in September called for a new tax on millionaires as a way to raise revenue.

At a minimum, the millionaires group wants the top tax rate for the highest earners to return to 39.6%, from the current 35%, according to Erica Payne, a spokeswoman for the organization.

“Many would like the tax rate to be higher” than 39.6%, she said. The higher rate should apply to anyone grossing more than $1 million in income, she said. IRS data show that 235,000 households reported adjusted gross income of at least $1 million in 2009.

The group says it has about 200 members in all, including more than a dozen current and former Google employees, actress Edie Falco and economist Nouriel Roubini.

The delegation heading to Washington also will meet with anti-tax activist Grover Norquist, the father of the “no tax increases” pledge that most Republicans in Congress have signed.

"They asked to meet. I said, ‘sure,’” Norquist told the Associated Press. “I suppose somebody told them the only thing standing in the way of their wonderful act of charity is me.”

Norquist has an alternative revenue-raising plan: He says those making $1 million a year or more who want to pay higher taxes are free to make direct contributions to the U.S. Treasury, over and above whatever taxes they owe.

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Corporate taxes: Many top U.S. firms paid none, report says

Many of the nation's most profitable companies are paying far less than the 35% corporate income tax rate, with dozens paying none at all, according to a new report.

Advocacy and research groups Citizens for Tax Justice and the Institute on Taxation and Economic Policy examined 280 companies and concluded that they paid an average 18.5% rate from 2008 through 2010 -- about half the official rate.

Companies lashed out at the findings.

GE accused the report of being “inaccurate and distorted” and said that it expects to pay a 30% overall tax rate this year. Verizon said the study was “union-orchestrated” as well as being “deceptive and politically motivated,” adding that the company paid out $1.8 billion in taxes over the three-year period.

But according to the study, only a quarter of companies paid close to 35% of their U.S. profits, while another quarter paid less than 10%.

The report also found that 78 paid zero -- or had a negative tax rate -- for at least one year due to nearly $223 billion in tax subsidies, 17% of which went to the financial services industry. Thirty companies went tax free for all three years, researchers found.

Wells Fargo alone took in nearly $18 billion in tax breaks over the last three years, followed by around $14 billion for AT&T and $12 billion for Verizon, researchers found.

Over the period, the tax rate of energy company Pepco Holdings averaged out to negative 57.6%, according to the report. General Electric’s was negative 45.3%.

The study, the 10th since 1984, culled from firms listed among the Fortune 500 who were profitable for each of the last three years.  Amid a backdrop of calls from Republican presidential candidates Herman Cain and Rick Perry to lower the existing corporate tax rate, report authors said their findings were not mean to be “anti-business.”

Corporations are also on the hook for state and local corporate income taxes as well as sales, property and payroll taxes, said Will McBride, an economist with the nonpartisan Tax Foundation research group. From 1994 through 2008, he said, corporations paid out more in taxes than they pulled in through after-tax profits for all but three years.

This week, the congressional Joint Committee on Taxation said that in order for the government to bring in a consistent amount of revenue, the corporate tax rate should drop no lower than 28%.

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California lifts suspension of green energy tax credit

Members of a state commission unanimously voted to lift a month-long suspension of an alternative energy-related tax credit that had been imposed following the bankruptcy of Solyndra, a politically connected California solar panel company.

The California Alternative Energy and Advanced Transportation Financing Authority, after reviewing its operations and the granting of $25.1 million in sales tax credits to Solyndra, concluded it could tighten the way it handles applications.

Joe DeAnda, a spokesman for the commission's chairman, state Treasurer Bill Lockyer, called the program "transparent and accountable." But he noted that "we can improve the way we evaluate applicants."

Solyndra, which used a $535-million federal loan guarantee to open a factory in Fremont, Calif., filed for bankruptcy protection Sept. 6. The announcement set off a political controversy in Washington, with allegations that the Obama administration pressured U.S. Department of Energy officials to approve the assistance despite warning signs that the company was in trouble.

California's support for Solyndra was much smaller than the federal government's. Solyndra was one of 26 companies that have participated in the California program.

State Sen. Alex Padilla (D-Pacoima), who held a hearing on the Solyndra case as chairman of the Energy, Utilities and Communications Committee, said he supported the state commission's decision to restart the tax credit. At last week's hearing, a number of executives from solar panel manufacturing companies praised the tax credit for making it possible for them to build and operate plants in California.

"The facts provided at the hearing show that the program is working as intended," said Padilla. "California-based green jobs are being created."

The state Legislature will act to improve oversight of the alternative energy tax credit, Padilla said, "but we must not let the failure of one company deter us."

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Individual investors' orders stay light in California bond sale

Demand from individual investors remained on the light side Tuesday as California wrapped up the second day of a large bond offering to fund infrastructure projects.

Treasurer Bill Lockyer said the state’s brokerage network took in an additional $137 million in orders from individuals for the offering of $1.8 billion in tax-free muni bonds. On Monday the state got $250 million in orders. The two-day total of $387 million was about 21.5% of the total deal.

That was significantly less than the $655 million that individual investors ordered at the state’s last bond offering, on Sept. 20. That total was almost 28% of the $2.37-billion deal.

Lockyer got a better response to an offering of $200 million in shorter-term taxable bonds Tuesday. Individual investors ordered about 43% of those issues.

The state will complete the bond sale Wednesday, when institutional investors such as mutual funds will bid for the remaining securities and final yields on the bonds will be set.

The tax-free bonds -- the interest paid is exempt from state and federal income tax for California residents -- got a lukewarm reception from individual investors even though the state was offering higher interest rates than at the September sale.

As bond yields in general have rebounded over the last month, the state was offering a preliminary yield of 2.10% on the five-year bonds in its latest sale, up from 1.61% in the September deal. The 10-year bonds in this sale were offered at a preliminary yield of 3.51%, up from 3.17% at the last sale.

The bonds, known as general obligation issues, are being sold in maturities of three to 30 years. The tax exemption means the yields on the bonds can be worth substantially more than similar fully taxable yields, depending on an investor’s tax bracket.

California always prefers to get substantial orders from individual investors in debt deals. That lessens the chance that institutional investors will be able to use their clout to demand higher yields when they bid for whatever’s left. (Individual investors get whatever the final yields turn out to be.)

Some muni bond market analysts say individual investors are unhappy with the relatively low interest rates on tax-free bonds, even though yields have risen over the last few weeks.

"Given overall market conditions we're satisfied with the outcome," said Tom Dresslar, a spokesman for Lockyer in Sacramento.

Proceeds from the securities will finance a backlog of voter-approved infrastructure projects.

This week’s sale will be California’s last general-obligation bond offering of 2011.

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California bond sale draws relatively light demand on first day

Individual investors on Monday placed orders for about 14% of a $1.8-billion sale of tax-free bonds by California, a relatively low turnout for a state debt sale.

Treasurer Bill Lockyer said the state’s brokerage network took in $250 million in orders on the first day of a two-day retail sale period, when the state gives preference to individuals over institutions.

By contrast, Lockyer had $459 million in orders on the first day of last month’s bond sale. That was about 18% of the total offering of $2.5 billion in securities.

The state took in a lower level of orders this time around despite offering significantly higher interest rates on the bonds than at last month’s sale, which was the first offering of 2011.

As bond yields in general have rebounded over the last month, the state was offering a preliminary yield of 2.10% on the five-year bonds in its latest sale, up from 1.61% in the September deal.

The 10-year bonds in the latest sale were offered at a preliminary yield of 3.51%, up from 3.17% at the last sale.

The bonds, known as general obligation issues, are being sold in maturities of three to 30 years.  Interest on the securities is exempt from state and federal income tax for California residents, so the returns can be worth substantially more than similar fully taxable yields, depending on an investor’s tax bracket.

 “We’ve got another day to go. Let’s see where we’re at when it’s all over,” said Tom Dresslar, a spokesman for Lockyer, when asked about Monday’s order level.

California has the lowest credit rating of any state, reflecting the weak economy and the state’s history of budget struggles, but that has been the case for years. The bonds are rated A1 by Moody’s Investors Service and A- by Standard & Poor’s. Those ratings are considered “upper medium grade.”

Proceeds from the bonds will finance a backlog of voter-approved infrastructure projects.

Individual investors can submit orders for the bonds through Tuesday. Orders must be placed with brokers; the state doesn’t sell its bonds directly to investors.

Institutional investors will bid for the remaining bonds on Wednesday, which is when the final yields will be set. Individual investors who don’t like the final yields can cancel their orders.

The bonds are sold in minimum blocks of $5,000. For more information on the sale, go to Lockyer’s website, buycaliforniabonds.

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California launches $1.8-billion muni bond offering

California on Monday offered tax-free yields as high as 4.87% on long-term general obligation bonds, hoping to attract substantial demand from individual investors.

The state is trying to raise $1.8 billion in the bond sale, its second offering in less than a month. The proceeds will be used to finance a backlog of voter-approved infrastructure projects.

Treasurer Bill Lockyer set preliminary yields on the bonds at levels above what the state paid in the last sale -- reflecting the rebound in market interest rates in recent weeks as U.S. economic data have pointed to slow growth but not recession. Higher yields are good for investors but more costly for taxpayers.

The bonds are being sold in maturities of three to 30 years. The state is offering 2.10% on the five-year bonds, up from 1.61% in the September deal. Ten-year bonds are offered at 3.51%, up from 3.17% at the last sale; the 30-year issue is offered at 4.87%, up from 4.80%.

The interest on the bonds is exempt from state and federal income tax for California residents, so the returns can be worth substantially more than similar fully taxable yields, depending on an investor’s tax bracket.

California still has the lowest credit rating of any state, reflecting the weak economy and the state’s history of budget struggles. The bonds are rated A1 by Moody’s Investors Service and A- by Standard & Poor’s. Those ratings are considered “upper medium grade.”

Individual investors can submit orders for the bonds Monday and Tuesday. Orders must be placed with brokers; the state doesn’t sell its bonds directly to investors.

Institutional investors will bid for the remaining bonds on Wednesday, which is when the final yields will be set. Individual investors who don’t like the final yields have the option of canceling their orders.

The bonds are sold in minimum blocks of $5,000. For more information on the sale, go to Lockyer’s website, buycaliforniabonds.

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California plans $2-billion bond sale amid rising yields

California will sell $2 billion in bonds next week, and the state probably will have to pay significantly more to borrow than it did three weeks ago.

That may lure more yield-hungry individual investors to the securities.

Treasurer Bill Lockyer plans to offer $1.8 billion in tax-free bonds and $200 million in taxable issues to raise cash for voter-approved infrastructure projects. The general obligation bonds typically are sold in maturities ranging from one year to 30 years.

The state borrowed $2.4 billion via bonds on Sept. 20, its first sale of 2011. That turned out to be near the recent low point for muni bond yields, which had been falling for much of this year in tandem with the decline in yields on other types of bonds, including U.S. Treasury issues.

But the rush into Treasury bonds as a haven has ebbed since mid-September, as worries about Europe’s debt crisis have eased somewhat and as U.S. economic data have pointed to slow growth but not recession.

The result: Treasury bond yields have rebounded, pulling other interest rates up as well.

California sold five-year bonds at a tax-free yield of 1.61% in the Sept. 20 sale. Now the market yield on five-year California debt is about 2.08%, said Joe Lee, a muni trader at De La Rosa & Co. in Los Angeles. Ten-year California bonds are yielding around 3.5%, up from 3.17% at the Sept. 20 sale.

California winemakers hail South Korean trade agreement

California grape growers and vintners are excited about ratification by Congress of a free-trade agreement with South Korea.

The treaty calls for the immediate removal of a 15% Korean tariff on California wine and 45% import duty on grape juice concentrate. Korean excise, value-added and other taxes on California wines also will be lowered, making the products more attractive and affordable to Korean consumers.

California accounts for 90% of all U.S. wine exports to South Korea, which totaled 500,000 cases worth $11.2 million last year.

Korea has a significant wine-drinking culture, with import consumption growing 177% in the last decade, said Robert P. "Bobby" Koch, president of the Wine Institute, a trade group based in San Francisco.

California long had been the second biggest exporter of wine to Korea, behind France. However, Chile surpassed the Golden State in 2005 after the South American nation signed a trade agreement with Korea that sharply lowered import duties. The European Union signed its own treaty with Korea, which became effective on July 1, boosting the likelihood of increased wine sales.

The U.S. action Wednesday is expected to make California wines more competitive in the growing Korean market.

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Amazon invites its fired California associates to come back

 
Now that Amazon.com has settled a summer-long dispute with the state of California over collecting sales taxes on Internet purchases, the world's biggest e-retailer wants to hook up again with 10,000 operators of affiliated websites that it fired in late June.

On Tuesday, Amazon e-mailed its "California associates," telling them it's ready again to start paying them commissions for any sales made to customers who "clicked through" to Amazon's shopping site.

"As you may have heard, California Gov. Jerry Brown has signed legislation repealing the law that had forced us to terminate our California Associates," Amazon said. "We are pleased to invite all California Associates whose accounts were closed due to the prior legislation to re-enroll in the Associates program."

As part of the deal with Brown, lawmakers and bricks-and-mortar retailers, such as Wal-Mart Stores Inc. and Target Corp., Amazon agreed to start collecting sales taxes in September 2012 and work with California and other states to ask Congress to pass a national Internet sales tax collection law.

While the agreement is good news for many Amazon affiliates, ranging from single-person bloggers to Internet businesses with dozens of employees, it comes too late for some operators, who had already gone out of business or fled the state when their Amazon-related revenues started disappearing.

"I liked California while it lasted, but I was losing my entire family's income," said Ken Rockwell. He quickly moved from San Diego back to his native New York City after Amazon cut him off.

"Why would I come back?

Rockwell said he can run his photography website from anywhere he has an Internet connection.

"I'm looking forward to this thing being worked out on a national scale," he said, "but that's going to take some years."

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Reagan was the real father of the Buffett Rule, liberal groups say

 

Years before President Obama's call for millionaires to pay the same tax rate as middle-class earners -- a principle he's dubbed the Buffett rule -- another president made the same argument.

Conservative icon Ronald Reagan.

Think Progress, a liberal blog, released an online video Monday juxtaposing comments by then-President Reagan about some wealthy people not paying their "fair share" with Obama's recent statements along the same lines. Obama's proposal is named after billionaire investor Warren Buffett, who has argued that "extraordinary tax breaks" allow him to pay a lower rate than anybody in his office.

The group noted the irony of Obama being slammed by Republicans as inciting class warfare for an idea that Reagan championed when pushing for the 1986 overhaul of the tax code.

In a 1985 speech at an Atlanta high school, Reagan complained about tax loopholes for the wealthy.

"We’re going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share," Reagan said. "In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10% of his salary, and that’s crazy."

Reagan then asked the crowd, "Do you think the millionaire ought to pay more in taxes than the bus driver or less?" The crowd roared "More!" in response, causing Reagan to flash a broad smile.

Comments like that led the liberal Center for American Progress, which is affiliated with Think Progress, to declare Reagan the true "father of the Buffett rule." They also cited another 1985 speech by Reagan in which he conjured up the same image of secretaries paying less than their bosses that Buffett has used to argue that taxes should be raised on the very wealthy.

Reagan told an Illinois crowd about a letter he received from a business executive "earning in six figures."

"He wrote me in support of the tax plan because he said, 'I am legally able to take advantage of the present tax code -- nothing dishonest, doing what the law prescribes -- and wind up paying ... a smaller tax than my secretary pays.' '' Reagan said.

He didn't name the executive, so it's not known if it was Buffett.

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