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California –Corporate, Personal Income Taxes: Budget Bill Signed; Teacher’s Credit Repealed; Collection Fees Set

Ending a six-week stalemate, California Governor Arnold Schwarzenegger has signed the state’s budget bill (S.B. 77) with no tax increases; however, S.B. 87, a budget trailer bill accompanying the budget bill, repealed the teachers’ credit against personal income tax. In addition, the budget bill set the personal income tax and corporation franchise and income tax collection cost recovery fees for the 2007-2008 fiscal year. S.B. 98, the budget trailer bill passed by the Assembly that contained numerous tax provisions (see TAXDAY, 2007/07/23, S.2), was declared “dead on arrival” in the Senate last month.

The teachers’ credit against personal income taxes is repealed beginning with the 2007 taxable year. The credit allowed teachers who had at least four years of service in qualifying institutions to claim a credit for a portion of their wages. However, the credit had been suspended for the last three taxable years.

The budget bill, S.B. 77, officially sets the California personal income and corporation franchise and income tax collection cost recovery fees and filing enforcement cost recovery fees for the state’s 2007-08 fiscal year. The collection cost recovery fee for an individual, partnership, or limited liability company (LLC) classified as a partnership increases to $155 (formerly, $126), and for a corporation or LLC classified as a corporation increases to $234 (formerly, $168). The filing enforcement cost recovery fee for an individual, partnership, or LLC classified as a partnership decreases to $122 (formerly, $125), and for a corporation or LLC classified as a corporation increases to $305 (formerly, $202). The California Franchise Tax Board had previously issued a public service bulletin that provided the estimated amount of the fees for the 2007-2008 fiscal year.

Property tax and sales and use tax provisions are covered in a separate story. (TAXDAY, 2007/08/28, S. 2)