“Do or Die” Moment for Foes of Retroactive Tax in California

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pre-Cutler 50 percent. This 62 percent figure is a lot better than the 100 percent Overstreet’s group once feared; it means that the retroactive tax bills, if they do go out, will only be about a quarter as big as they would have been without Lieu’s bill.

But Overstreet and his allies aren’t happy with SB 209 in its current form. Overstreet says the whole idea of a retroactive tax still rankles him. And he doesn’t like the idea of having to pay for other people’s tax refunds in order to make up for the legislature’s original constitutional goof.

“At the end of the day, sure, I’d rather pay less, but the principle flies completely out the window,” Overstreet says. “If you do it this way, you are still assessing a retroactive tax. It’s a partial solution but it’s an imperfect one, and one that nobody is really happy with.”

It’s over the next few days, as Gatto’s committee hears the bill, that “the rubber is going to meet the road in terms of crafting some kind of re-amendment of the bill that gets us, hopefully, back to where we want to be,” Overstreet says. But any amendments that Assembly members make would have to go back to the Senate to be confirmed. “So there is a lot of activity going on in the background, trying to sort out what a final deal is going to look like.”

Lawmakers in both houses generally support the idea of relieving taxpayers caught up in the Cutler ruling, Overstreet says. “A lot of people in Sacramento don’t want to be seen as assessing a retroactive tax. That’s why we’re hopeful that this will get recrafted.”

But if the 38 percent exclusion doesn’t get pushed back up to 50 percent, or if the bill dies before the legislative session ends on October 15, then things could get ugly, Overstreet warns.

“As a product of our successful lobbying effort in the spring, when we asked FTB to hold off on sending bills, a lot of people never got notified that they owed money,” he says. “So if this goes through in some fashion that is not 100 percent relief, you are going to have 2,500 people getting tax bills who are going to be very upset. In that case, I am certainly not going to get in the way of people who want to put together a class, hire a lawyer, and sue the state.”

Defending against that action could ultimately cost the state more than the $30 million that the Senate Appropriations Committee hoped to save by amending Lieu’s bill. “That has to be part of the mental math they do this week,” says Overstreet.

Update, September 4, 2013: The Assembly Appropriations Committee voted on August 30 to send SB 209 to the Assembly floor for a vote, without restoring the allowable exclusion to the original 50 percent level. If the full Assembly passes the bill in its current form, it will go back to the Senate, and then to the desk of Governor Jerry Brown, who must sign or veto it by October 15.

“We are pleased that the Assembly Appropriations Committee voted to move SB 209 forward, but are disappointed that they failed to take the opportunity to provide full relief to affected taxpayers,” Overstreet said in a statement. “While the current bill reduces the retroactive tax liability from approximately $120 million to approximately $30 million and eliminates retroactive taxes and penalties, we continue to believe that individual taxpayers should not be held liable for the mistakes of the California legislature. We will continue to work to attain the best possible outcome for affected taxpayers.”

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Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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2 responses to ““Do or Die” Moment for Foes of Retroactive Tax in California”

  1. David says:

    Brian Overstreet is a Hero! Thank you Brian!

    • Brian OverstreetBrian Overstreet says:

      David – thanks for the sentiment and support, but the only hero I’ve heard of in the last couple of days is Staff Sgt. Ty Carter – on.wsj.com/1791Hkg