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    "ocrText": "Ronald Reagan Presidential Library\nDigital Library Collections\nThis is a PDF of a folder from our textual collections.\nCollection: Reagan, Ronald: Gubernatorial Papers,\n1966-74: Press Unit\nFolder Title: Issues - Withholding\nBox: P32\nTo see more digitized collections visit:\nhttps://reaganlibrary.gov/archives/digital-library\nTo see all Ronald Reagan Presidential Library inventories visit:\nhttps://reaganlibrary.gov/document-collection\nContact a reference archivist at: [email protected]\nCitation Guidelines: https://reaganlibrary.gov/citing\nNational Archives Catalogue: https://catalog.archives.gov/\nleithholding\nHEARINGS\nbefore the\nASSEMBLY COMMITTEE ON REVENUE AND TAXATION\nAssembly of the State of California\no00o\nPersonal Income Tax and Bank and Corporation Taxes\n1. A Personal Income Tax Withholding and Estimates Plan\n2. The 1967 Personal Income Tax Prepayment Plan\n3. State Conformity with Recent Changes in the U. S.\nInternal Revenue Code\n4. Proposed Federal Legislation Regarding the Taxation\nof Interstate Commerce\nStatement by:\nMartin Huff\nExecutive Officer\nFranchise Tax Board\nJanuary 5, 1968\nSan Francisco, California\n1. A PERSONAL INCOME TAX WITHHOLDING AND ESTIMATES PLAN\nAssumptions\nIn order to quantify the additional revenue to be expected from a\nPersonal Income Tax Withholding and Estimates Plan, it is necessary\nto make a number of assumptions as to specific provisions. For the\npurposes of this report we have assumed that the withholding and\nestimates provisions of A.B. 484 (1967 regular session) would be enacted\nwith the effective dates set forward one year.\nThe key features of such a plan are:\n(1) There would be no forgiveness.\n(2) Payroll withholding would start October 1, 1968.\n(3) Monthly withholding by employers would be paid over to\nthe State by the fifteenth of the following month if\nmore than $50.00, except that the payment for the final\nmonth of each quarter would not be due until the last day\nof the month following the close of the quarter.\n(4) Quarterly estimates would start April 15, 1969, with\nsucceeding payment dates to be June 15, September 15 and\nJanuary 15.\n(5) The present Prepayment Plan would be continued through\nDecember 31, 1968, and then repealed.\nFiscal Effect\nUsing the above assumptions for fiscal year 1968-69, the estimated one-\ntime revenue would be $407,000,000 and the ongoing revenue would be\n$15,000,000. (See Exhibit A)\nFor 1969-70 the estimated one-time revenue would be $38,000,000 and the\nongoing revenue would be $84,000,000. (See Exhibit B)\n-1-\n1/5/68\nFor 1970-71 the estimated ongoing revenue would be $89,000,000. (See\nExhibit C)\nThese data are based on the same economic assumptions that were developed\nfor the 1967 legislative session. When the Department of Finance releases\nmore current data, revisions will be necessary.\nAdministrative Costs\nThe administrative costs of a Withholding and Estimates Plan were studied\nin the spring of 1967 and the following cost projections were made:\n(Millions)\n1967-68\n$4.1\n1968-69\n5.8\n1969-70\n4.6\nA number of adjustments to these projections would be necessary:\n(a) They must all be set forward one year.\n(b) Changes in salary levels and price changes for equipment\nand supplies must be taken into account.\n(c) Offsets to the costs arise from the fact that the department's\nbudget for 1968-69 will include the costs of the present\nPrepayment Plan.\n(d) Changes in both the Personal Income Tax Law and the Bank and\nCorporation Tax Law for 1967 made it necessary to expand the\ncapacity of the department's electronic data processing system.\nAs a result, the incremental cost of adopting withholding\nwould be significantly less than previous projections.\nCosts would vary to some extent depending on the specific provisions of\nany legislation. For this reason we have not attempted to refine the\nprevious projections at this time. However, we believe they do give some\nindication of the general magnitude of the costs to be expected.\nFTB 1/5/68\n-2-\nThe full administrative cost of the tax legislation enacted in 1967 will\nnot be accurately measurable for several years. A sharp rise in \"no\nremittance\" and collection cases could easily result in higher incremental\ncosts for the 1967 legislation than for a withholding plan.\nEmployer Compliance Burden\nHow long an employer would have the use of tax withheld monies depends on\nthe pay period of the particular employer.\nVery large employers using sophisticated accounting and payroll systems\nwould probably make effective use of the funds for the short term retained.\nSmall employers with a single payroll clerk would incur some cost because\nthey would absorb it as an extension of one person's activities.\nEmployers using the services of bookkeeping companies would probably\nexperience increased costs; however, this would be partially offset by\ntheir use of the money.\nFederal Estimates Plan vs California Prepayment Plan\nIf a Withholding Plan were to be adopted, we believe serious consideration\nshould be given to integrating the present Prepayment Plan into it, rather\nthan adopting the Federal estimates plan. One of the main reasons for the\nsuccess of the Prepayment Plan was the issuance of bills.\nIf the billing feature is retained, however, it would not be possible to\nhave a quarterly estimate plan, as bills could not be issued in time\nfor the first or second payments. A three-payment plan, with the first\npayment on October 15, the second payment on January 15 and a final payment\nwith the return on April 15 would be feasible.\nIf a quarterly estimate plan were adopted, it would still be possible to\nFTB 1/5/68\n-3-\nbase the estimate requirement on the prior year's tax which is another\nimportant feature of the present Prepayment Plan. It could be required,\nfor example, that every individual owing tax of $100.00 in excess of that\ncovered by withholding file an estimate.\nThe Federal Government and many states have serious problems with their\nestimates programs. The present Prepayment Plan avoids most of these\nproblems. We feel that every attempt should be made to retain the good\nfeatures of the present plan.\nPresent Withholding Program\nThe department's present withholding program is a very limited one.\nTaxes are withheld from nonresidents who are entertainers, winners\nof horse races, and individuals with similar types of income. The total\ntax collected for the year 1966 was $1,042,731 from 308 withholding agents'\naccounts and involving approximately 2,500 taxpayers.\nWithholding - Other States\nThirty-six states (including Washington, D. C.) have personal income tax\nlaws. All of these have withholding except California, Mississippi and\nNorth Dakota.\n\"TB 1/5/68\n-4-\n2. THE 1967 PERSONAL INCOME TAX PREPAYMENT PLAN\nThe payments made under the Prepayment Plan provided by S.B. 556 (1967\nregular session) are deductible for Federal income tax purposes in the\nyear of payment as are the estimate payments made under the provisions\nof the laws of other states.\nOur opinion is supported by a specific Federal ruling in respect to\nMaryland (Revenue Ruling 56-24, Cumulative Bulletin 56-1, page 27) and\nNews Releases issued by the Los Angeles and San Francisco District\nDirectors of Internal Revenue as to the California provisions.\nThrough November 1967, the Prepayment Plan produced cash receipts of\n$130,540,000. Further comparatively small sums were received during\nDecember and are being received currently.\nForty-seven percent of the revenue was received from taxpayers whose\nprepayment liability was under $600. Twenty-one percent was received\nfrom those whose liability was under $200. The under $200 cases\nconstituted 57% of the total number of items billed. (See Exhibit F)\nOf the 375,000 items billed, 4.6% were non response cases. In the under\n$200 class, the non responses were slightly higher than the over-all\naverage and amounted to 5.4% (See Exhibit G)\nThose paying estimates rather than one-half of last year's tax represented\n2.75% of those billed. Ten thousand three hundred taxpayers were billed\nfor $14,000,000 and paid $4,000,000. Eleven thousand five hundred\nindividuals, or 3.1%, paid more than the amount billed. In this group,\nthe amount billed was $5,500,000 and the amount paid was $12,000,000.\nThese two categories tend to offset one another. The State received within\nFTB 1/5/68\n-5-\n$3,500,000 of the amount billed on a combined basis. (See Exhibits H and I)\nSome individuals did have difficulty understanding the estimate provisions\nand we received a number of letters, telephone calls and visits at the\ncounter. In several hundred cases individuals thought they were being\nbilled for 1966 taxes which they had already paid. While we did receive\nseveral thousand inquiries, the total was small compared with the number\nbilled.\nThe procedure in handling estimates to date has involved the identification\nof those required to file estimates, issuance of bills, and the handling of\nthe remittances and correspondence. Through November, the direct costs of\nthis operation were approximately $211,000.\nFuture processing procedures, involving verification of credits claimed,\nwill run about an additional $245,000 in direct costs.\nIt is possible for an individual to prepay more than the 1967 tax liability.\nIf this occurs, the taxpayer will normally claim the credit on his 1967\nreturn. A refund will be made as soon as the verification of the payment\nis made and the necessary formal steps involved in making refunds are com-\npleted.\nIt is, also, possible for the State to derive some revenue from unclaimed\nrefunds but this is somewhat unlikely. All payments received which are\nnot matched against returns will be audited. Thus, if a taxpayer pays\n$500 on an estimate and fails to claim it on his return, this will come\nto our attention and a refund will be initiated by the department.\nThere may be a few cases where estimated payments are made, no return is\nfiled, and the taxpayer cannot be located. In such cases the State would\nretain the payment. It is unlikely there will be any significant number\nFTB 1/5/68\n-6-\nof such cases.\nBased on Finance Department revenue projections made some time ago, and on\nour 1967 experience with this new program, we anticipate the Prepayment Plan\nwill realize $241,000,000 in October and November 1968 receipts.\nFTR 1/5/68\n-7-\n3. STATE CONFORMITY WITH RECENT CHANGES IN THE U. S. INTERNAL REVENUE CODE\nThe first session of the 90th Congress has produced only one amendment\nto the Internal Revenue Code which affects the laws administered by the\nFranchise Tax Board. Public Law 90-78 amended Section 152 of the Internal\nRevenue Code. This is equivalent to Sections 17056 through 17059\nof the Personal Income Tax Law and relates to the $600 deduction for\ndependents with respect to the children of divorced or separated parents.\nThe determination of which parent is entitled to the deduction has been\na troublesome administrative problem. Public Law 90-78 provides rules\ndesigned to facilitate the determination of which parent is entitled to\nthe deduction in these cases.\nIt is our recommendation that we conform our law to the Federal law,\nsince we also have numerous problems in this area. Conformity here\nwould result in a negligible revenue loss. This is because the California\nlaw now provides for an exemption credit of $8.00 for a dependent rather\nthan a $600 deduction which under prior law could be deductible at the\nmaximum rate of tax.\nWe have prepared the draft of a bill to accomplish this.\nFTR 1/5/68\n-8-\n4. PROPOSED FEDERAL LEGISLATION REGARDING THE TAXATION OF INTERSTATE\nCOMMERCE\nThis is my third report to the Committee upon the status of Federal\nlegislation which would limit the right of the states to impose taxes\nupon corporations engaged in interstate commerce. H.R. 2158 is the bill\npresently before Congress. It is known as \"The Interstate Taxation Act\"\nor, more popularly, \"The Willis Bill\" after its author, Congressman Willis\nof Louisiana. It is the third bill to bear these titles.\nAttempted Federal intervention in the field of taxation of interstate\ncommerce stemmed from two decisions of the United States Supreme Court\nrendered in 1959. These were Northwestern States Portland Cement Co. V.\nMinnesota and Williams V. Stockham Valves & Fittings, Inc. These decisions\nmerely reaffirmed the right of a state to impose an apportioned income tax\nupon a corporation whose only activities in a state were interstate commerce\nactivities. This was not a new holding. The California corporation income\ntax, enacted in 1937, and similarly taxing corporations engaged in inter-\nstate commerce, had been upheld by both our state courts and by the United\nStates Supreme Court.\nHowever, much publicity was given to the 1959 decisions, and it was contended\nby the business world that interstate corporations would be unduly burdened\nif all of the states enacted income taxes of the type upheld. Congress\nreacted by enacting for the first time legislation which restricted a state's\nright to impose a tax. After very limited hearings, Congress hastily enacted\nPublic Law 86-272.\nThis law provided that a corporation could not be subjected to a state income\ntax if its activities within the state were confined to soliciting sales.\nFTB 1/5/68\n-9-\nThis law was stop gap legislation. The act contained a time limitation\nand it directed that a study be made by Congress of state taxation of inter-\nstate commerce to serve as a basis for future legislation.\nThis study was made by a Special Subcommittee on State Taxation of Interstate\nCommerce of the Committee on the Judiciary of the House of Representatives.\nAfter four years a report was made and a Subcommittee bill, H.R. 11798,\nwas introduced by Subcommittee Chairman Willis.\nAlthough only income taxes were the subject of the Supreme Court decisions\nI have mentioned, H.R. 11798 proposed to regulate most phases of state and\nlocal taxation and further provided for Federal administration of at least\na part of these taxes.\nThe bill was vigorously opposed by industry and by the states. A principal\nreason for the opposition was the danger the bill posed to the continuation\nof our Federal system of government.\nAs a result of the widespread opposition, the Subcommittee dropped H.R. 11798\nshortly after the hearings on the bill were concluded. In its place, a sub-\nstitute bill, H.R. 16491 was introduced.\nH.R. 16491 eliminated some of the more objectionable features of the original\nbill, including the provisions for Federal administration of state taxes.\nNo hearings were held upon this bill. It was voted out of the House Judiciary\nCommittee but was held in the Rules Committee. It did not reach the House\nfloor during the 89th Session of Congress.\nIn early 1967, shortly after the 90th Congress convened, Congressman Willis\nintroduced a new bill, H.R. 2158. This bill was identical to the old H.R.\n16491. Before voting this bill out, the Special Subcommittee amended the\n10\nbill to extend the power of states to tax corporations engaged in interstate\nbusiness beyond the severe restrictions contained in the earlier bills. These\namendments represented substantial improvements in the bill. These changes\nhad been suggested by California to the California delegation and to Congress-\nman Willis.\nArguments for the bill are that while state taxes are not now a burden\nupon interstate business, they might become so if state tax compliance\nis vigorously enforced. Some groups of small businesses argue that diverse\nstate taxing methods and requirements cause inconvenience and unreasonable\ncompliance expenses.\nArguments against the bill are: (1) it is an unwarranted Federal invasion\nin the state tax field, (2) it places many California businesses at a\nsubstantial competitive disadvantage with out-of-state business (5% on gross\nsales and 7% of net income under the new rates), (3) it deprives California\nof revenues at a time when revenue needs are most acute, and (4) it would\nrequire Californians to incur an additional tax burden because they would\nbe forced to subsidize multistate businesses not based in California, which\nare taking advantage of our markets.\nIn February of this year, the Judiciary Committee voted the bill out, as\namended, after a skirmish in the Committee whereby it was sought to delete\nall income tax provisions, except for jurisdictional standards. The motion\nto do this was lost by a 14-14 tie vote.\nThe bill was sent to the Rules Committee in March of last year. In July,\nit passed out of the Rules Commitee under an open rule which would permit\namendment on the floor of the House. To date it has not been called up for\nconsideration. We understand that the rule given the bill is still good\nfor the session of Congress that will start ten days from now. Our best\n1/5/68\n-11-\ninformation is that the bill was not brought up at the last session because\nthe Speaker of the House didn't feel there were enough votes for passage. At\nthis point in time, we don't know what the prospects for 1968 are.\nProblems do exist in the area of interstate taxation. The states, including\nCalifornia, are working on these problems and considerable progress has been\nmade. One major problem has been the diverse methods used by the states to\napportion income of multistate businesses. There are 39 states which impose\na tax on or measured by income. To date, 21 of these, including California,\nhave enacted the Uniform Act for apportioning such income. This Act is\nunder consideration by 11 more of the states. It is felt that the states\ncan best solve these problems and should be given time to do SO. We feel\nthat H.R. 2158 in its present form is unacceptable.\nThis unacceptability is spelled out in detail in Assembly Joint Resolution\nNo. 25, passed by the Legislature in the 1967 session.\nFTB 1/5/68\n-12-\nHEARINGS\nbefore the\nASSEMBLY COMMITTEE ON REVENUE AND TAXATION\nAssembly of the State of California\n0000\nAPPENDIX\nto\nStatement by Martin Huff, Executive Officer, Franchise Tax Board\nJanuary 5, 1968 San Francisco, California\nPersonal Income Tax\nEXHIBIT A - A WITHHOLDING AND ESTIMATES PLAN\nRevenue Sources - 1968-69 Fiscal Year\nEXHIBIT B - A WITHHOLDING AND ESTIMATES PLAN\nRevenue Sources - 1969-70 Fiscal Year\nEXHIBIT C - A WITHHOLDING AND ESTIMATES PLAN\nRevenue Sources - 1970-71 Fiscal Year\nEXHIBIT D - A WITHHOLDING AND ESTIMATES PLAN\nEstimated Cash Flow - By Source of Revenue\nEXHIBIT E - A WITHHOLDING AND ESTIMATES PLAN\nForgiveness\nEXHIBIT F - 1967 PREPAYMENT PLAN\nRevenue Generated - By Class\nEXHIBIT G - 1967 PREPAYMENT PLAN\nNonresponse Cases - As a Percentage of Items Billed\nEXHIBIT H - 1967 PREPAYMENT PLAN\nRevenue from Those Paying Estimates Rather Than Billed Amount\nEXHIBIT I - 1967 PREPAYMENT PLAN\nRevenue from Those Paying More Than Billed Amount\nGeneral\nEXHIBIT J - October 31, 1967 Letter From Hon. John G. Veneman, Chairman,\nAssembly Revenue and Taxation Committee\nEXHIBIT A\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN\nRevenue Sources - 1968-69 Fiscal Year\n(Effective October 1, 1968 without forgiveness and including quarterly estimates)\nFiscal effect\n1. ONE TIME REVENUE\nA. Withholding - accelerated collection: Taxes withheld by employers during January . - May 1969,\nwould be remitted to the State during fiscal 1968-69. These taxes would not normally be\ncollected until April 1970\n$282,000,000\nB. Declarations of estimated tax - accelerated collection: Declarations of estimated tax on 1969\nincome would be due on April 15, 1969, and June 15, 1969. This is the counterpart to with-\nholding. These taxes would not normally be collected until October 1969 and April 1970\n$135,000,000\nC. Accounts receivable: Some taxpayers would not completely understand the new system and others\nwould resist it. As a result it is expected that \"no remittance\" returns would increase on\nApril 15, 1969. These taxes would not be collected until 1969-70\n-$10,000,000\nSubtotal One time revenue\n$407,000,000\n2. ONGOING EFFECTS OF PROGRAM\nA. Improved compliance: Primarily from people who file \"no remittance\" returns or who do not file\nreturns at all. The amounts are frequently too small to be collected under the present system.\nAlso included are returns with small computational errors that are below the billing limits\n$5,000,000\nB. Accelerated collection: Primarily attributable to earlier collection of revenues otherwise\nreceivable through the department's filing enforcement programs, as well as a drastic reduction\nin the number of \"no remittance\" and \"partial remittance\" returns on which payment is received\nduring the billing cycle, but before collection effort is instituted\n$5,000,000\nC. Other: Attributable to monies withheld from people who fail to file for a refund, deaths, emi-\ngrants whose taxes are uncollectible, and bankruptcies\n$5,000,000\nSubtotal Ongoing revenue\n$15,000,000\nTotal - 1968-69 fiscal effect\n$422,000.000\nFTB 1/5/68\nEXHIBIT B\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN\nRevenue Sources 1969-70 Fiscal Year\n(Effective October 1, 1968 without forgiveness and including quarterly estimates)\nFiscal effect\n1. ONE TIME REVENUE\nA. Accounts receivable: This is the converse of the $10,000,000 of delayed receipts in 1968-69\nindicated in 1C for 1968-69\n$10,000,000\nB. Declarations of estimated tax - improved compliance: Many taxpayers will underestimate their\ndeclarations filed on April 15, 1969. This will be corrected when they have a year's experience\nand make more precise estimates on April 15, 1970. If taxpayers correctly estimated their 1969\nliabilities on April 15, 1969, this $15,000,000 would be realized during 1968-69\n$15,000,000\nC. Delayed refunds: A11 refunds on 1969 income year taxes would not be paid during 1969-70\nbecause of a delay in receiving the refund claims and some backlog in the processing of claims\n(primarily because of the necessity for selected prerefund audits)\n$13,000,000\nSubtotal - One time revenue\n$38,000,000\n2. ONGOING EFFECTS OF PROGRAM\nA. Improved compliance: Primarily from people who file \"no remittance\" returns or who do not file\nreturns at all. The amounts are frequently too small to be collected under the present system.\nAlso included are returns with small computational errors that are below the billing limits\n$20,000,000\nB. Accelerated collection: Primarily attributable to earlier collection of revenues otherwise\nreceivable through the department's filing enforcement programs, as well as a drastic reduction\nin the number of \"no remittance\" and \"partial remittance\" returns on which payment is received\nduring the billing cycle, but before collection effort is instituted\n$10,000,000\nC. Withholding - accelerated collection: This is the result of an expanding economy. The benefit\nof economic growth is realized during the income year rather than the subsequent year\n$29,000,000\nD. Declarations of estimated tax - accelerated collections This is the result of an expanding\neconomy. The benefit of economic growth is realized during the income year rather than the\nsubsequent year\n$15,000,000\n(continued next page)\nEXHIBIT B (cor\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN\nRevenue Sources - 1969-70 Fiscal Year\n(Effective October 1, 1968 without forgiveness and including quarterly estimates)\nFiscal effect\nC. Other: Attributable to monies withheld from people who fail to file for a refund, deaths, emi-\ngrants whose taxes are uncollectible, and bankruptcies\n$10,000,000\nSubtotal - Ongoing effects of program\n$84,000,000\nTotal - 1969-70 fiscal effect\n$122,000,000\nFTB 1/5/68\nEXHIBIT C\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN\nRevenue Sources - 1970-71 Fiscal Year\n(Effective October 1, 1968 without forgiveness and including quarterly estimates)\nFiscal effect\n1. ONE TIME REVENUE\nNone\n2. ONGOING EFFECTS OF PROGRAM\nA. Improved compliance: Primarily from people who file \"no remittance\" returns or who do not file\nreturns at all. The amounts are frequently too small to be collected under the present system.\nAlso included are returns with small computational errors that are below the billing limits\n$20,000,000\nB. Accelerated collection: Primarily attributable to earlier collection of revenues otherwise\nreceivable through the department's filing enforcement programs, as well as a drastic reduction\nin the number of \"no remittance\" and \"partial remittance\" returns on which payment is received\nduring the billing cycle, but before collection effort is instituted\n$10,000,000\nC. Withholding - accelerated collection: This is the result of an expanding economy. The benefit\nof economic growth is realized during the income year rather than the subsequent year\n$30,000,000\nD. Declarations of estimated tax - accelerated collection: This is the result of an expanding\neconomy. The benefit of economic growth is realized during the income year rather than the\nsubsequent year\n$17,000,000\nE. Delayed refunds - annual growth: This is the result of an expanding economy. The benefit of\neconomic growth is realized during the income year rather than the subsequent year\n$2,000,000\nF. Other: Attributable to monies withheld from people who fail to file for a refund, deaths, emi-\ngrants whose taxes are uncollectible, and bankruptcies\n$10,000,000\nTotal - 1970-71 fiscal effect\n$89,000,000\nEXHIBIT D\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN\nEstimated Cash Flow - By Source of Revenue\n(Effective October 1, 1968 without forgiveness and including quarterly estimates)\nFiscal month\nPresent\nWithholding law\nEstimated\nlaw\nWith- Declar- Returns &\nNet1\nchange 2/\nholding\nations\nmisc. coll.\nRefunds\nflow\n(1)\n(2)\n(3)\n(4)\n(5)\n(6)\n(7)\n(MILLIONS)\nJuly 1968\n$20\n-\n-\n$20\n-\n$20\n-\nAug. 1968\n10\n-\n-\n10\n-\n10\n-\nSept. 1968\n10\n-\n-\n10\n-\n10\n-\nOct. 1968\n160\n-\n-\n140\n-\n140\n-$20\nNov. 1968\n90\n$52\n-\n80\n-\n132\n42\nDec. 1968\n30\n54\n-\n40\n-\n94\n64\nJan. 1969\n20\n90\n-\n15\n-\n105\n85\nFeb. 1969\n20\n48\n-\n20\n-\n68\n48\nMar. 1969\n50\n49\n$5\n50\n-$2\n102\n52\nApr. 1969\n440\n85\n60\n294\n-3\n436\n-4\nMay 1969\n120\n49\n10\n100\n-4\n155\n35\nJune 1969\n20\n51\n60\n30\n-1\n140\n120\n1968-69 total\n(See Exhibit A)\n$990\n$478\n$135\n$809\n-$10\n$1,412\n$422\nJuly 1969\n$10\n$85\n$3\n$10\n-\n$98\n$88\nAug. 1969\n10\n50\n3\n10\n-\n63\n53\nSept. 1969\n10\n51\n68\n5\n-\n124\n114\nOct. 1969\n165\n85\n3\n5\n-\n93\n-72\nNov. 1969\n105\n58\n-\n5\n-\n63\n-42\nDec. 1969\n30\n59\n15\n10\n-\n84\n54\nJan. 1970\n30\n100\n80\n10\n-$1\n189\n159\nFeb. 1970\n30\n53\n3\n15\n-4\n67\n37\nMar. 1970\n60\n54\n4\n20\n-26\n52\n-8\nApr. 1970\n480\n94\n77\n100\n-42\n229\n-251\nMay 1970\n130\n54\n7\n20\n-68\n13\n-117\nJune 1970\n25\n56\n77\n15\n-16\n132\n107\n1969-70 total\n(See Exhibit B)\n$1,085\n$799\n$340\n$225\n-$157\n$1,207\n$122\n(continued next page)\nEXHIBIT D (con't\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN\nEstimated Cash Flow - By Source of Revenue\n(Effective October 1, 1968 without forgiveness and including quarterly estimates)\nFiscal month\nPresent\nWithholding law\nEstimated\nlaw\nWith-\nDeclar-\nReturns &\nNetl\nchange 2/\nholding\nations\nmisc. coll.\nRefunds\nflow\n(1)\n(2)\n(3)\n(4)\n(5)\n(6)\n(7)\n( MILLIONS )\nJuly 1970\n$10\n$94\n$3\n$10\n-$6\n$101\n$91\nAug. 1970\n10\n55\n4\n5\n-3\n61\n51\nSept. 1970\n10\n56\n77\n5\n-1\n137\n127\nOct. 1970\n180\n95\n3\n5\n-1\n102\n-78\nNov. 1970\n120\n64\n-\n5\n-1\n68\n-52\nDec. 1970\n30\n65\n3\n10\n-1\n77\n47\nJan. 1971\n30\n110\n91\n10\n-1\n210\n180\nFeb. 1971\n30\n58\n4\n15\n-5\n72\n42\nMar. 1971\n70\n59\n4\n20\n-29\n54\n-16\nApr. 1971\n540\n103\n85\n105\n-47\n246\n-294\nMay 1971\n140\n59\n9\n25\n-76\n17\n-123\nI\nJune 1971\n30\n62\n85\n15\n-18\n144\n114\n1970-71 total\n(See Exhibit c)\n$1,200\n$880\n$368\n$230\n-$189\n$1,289\n$89\n1/\nCol. 2 + 3 + 4 - 5 = col. 6.\n2/\nCol 6- col. 1 = col. 7.\nEXHIBIT E\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN\nForgiveness\nConsideration of enacting a withholding program is incomplete without\na discussion of whether or not a portion of the prior year's taxes\nshould be forgiven during the year of implementation. Consideration\nof whether to provide no forgiveness, full forgiveness, or partial\nforgiveness is a policy matter. One time revenue to be realized during\nthe year of implementation will be determined by this decision.\nThe computation of the amount subject to forgiveness is as follows:\n1968-69\n(millions)\nEstimated collections, present law\n$990\nEstimated receipts not subject to forgiveness\nCollections based on prior year assessments\n-40\nReturns of estates and trusts*\n-10\nTaxes on net capital gains at marginal tax rates*.\n-120\nEstimated amount subject to forgiveness\n$820\n25 percent forgiveness\n$205\n50 percent forgiveness\n$410\nExhibit A indicates a $422 million revenue increase. It 25 percent of 1968\nincome year taxes are forgiven, the revenue increase would be $217 million.\nIf 50 percent is forgiven, then the revenue increase would be $12 million.\nForgiveness of 1968 income year taxes would also reduce revenues in 1969-\n70 and 1970-71 because of reduced assessments that were based on the 1968\nincome year.\nTaxes from estates and trusts and taxes based on sales of capital assets\nare excluded from forgiveness because they are controllable sources of\nincome. If they were not excluded, a major loophole would be introduced\ninto the tax structure.\nEXHIBIT F\nPersonal Income Tax\n1967 PREPAYMENT PLAN\nRevenue Generated By Class\nPrepayment\nBills\nRevenue\nclass\nNumber\n%\nAmount\n%\nUnder $200\n197,809\n57.2\n$27,094,000\n20.8\n$200 - 399\n76,232\n22.1\n21,661,000\n16.6\n400 - 599\n25,331\n7.3\n12,695,000\n9.7\n600\n-\n799\n13,308\n3.9\n9,296,000\n7.1\n800\n-\n999\n8,529\n2.4\n7,745,000\n5.9\n1,000 - 1,999\n16,444\n4.8\n22,755,000\n17.5\n2,000 - 2,999\n4,087\n1.2\n9,708,000\n7.4\n3,000 - 3,999\n1,578\n.5\n5,203,000\n4.0\n4,000 - 4,999\n761\n.2\n3,043,000\n2.3\n5,000 - 9,999\n1,054\n.3\n5,895,000\n4.5\n10,000 and over\n444\n.1\n5,445,000\n4.2\nTotals\n345,577\n100.0\n$130,540,000\n100.0\nEXHIBIT G\nPersonal Income Tax\n1967 PREPAYMENT PLAN\nNonresponse Cases - As a Percentage of Items Billed\nPrepayment\nBilled\nNonresponse cases\nclass\nNumber\nAmount\nNumber\n%\nUnder $200\n217,311\n$28,785,000\n11,726\n5.4\n$200 - 399\n81,702\n22,454,000\n3,237\n4.0\n400 -\n599\n26,867\n13,065,000\n908\n3.4\n600 -\n799\n14,095\n9,742,000\n448\n3.2\n800 - 999\n8,995\n8,024,000\n273\n3.0\n1,000 - 1,199\n17,288\n23,594,000\n503\n2.9\n2,000 - 2,999\n4,294\n10,329,000\n128\n3.0\n3,000 - 3,999\n1,668\n5,731,000\n60\n3.6\n4,000 - 4,999\n801\n3,556,000\n19\n2.4\n5,000 - 9,999\n1,116\n7,347,000\n31\n2.8\n10,000 and over\n478\n9,991,000\n17\n3.6\nTotals\n374,615\n$142,618,000\n17,350\n4.6\nEXHIBIT H\nPersonal Income Tax\n1967 PREPAYMENT PLAN\nRevenue From Those Paying Estimates Rather Than Billed Amount\nPrepayment\nclass\nNumber\nBilled amount\nPaid amount\nUnder $200\n2,539\n$359,000\n$182,000\n$200 - 399\n2,414\n692,000\n326,000\n400 - 599\n1,317\n641,000\n268,000\n600\n-\n799\n784\n543,000\n208,000\n800 - 999\n550\n492,000\n187,000\n1,000 - 1,999\n1,380\n1,908,000\n674,000\n2,000 - 2,999\n472\n1,131,000\n388,000\n3,000 - 3,999\n231\n803,000\n251,000\n4,000 - 4,999\n158\n701,000\n193,000\n5,000 - 9,999\n281\n1,877,000\n495,000\n10,000 and over\n184\n4,602,000\n957,000\nTotals\n10,310 (1)\n$13,749,000 (2)\n$4,129,000\n(1) 2.75% of number billed.\n(2) 9.64% of amount billed.\nEXHIBIT I\nPersonal Income Tax\n1967 PREPAYMENT PLAN\nRevenue From Those Paying More Than Billed Amount\nPrepayment\nclass\nNumber\nBilled amount\nPaid amount\nUnder $200\n5,612\n$751,000\n$1,720,000\n$200 - 399\n2,668\n740,000\n1,798,000\n400 - 599\n988\n480,000\n1,224,000\n600 - 799\n508\n354,000\n787,000\n800 - 999\n398\n356,000\n798,000\n1,000 - 1,999\n878\n1,194,000\n2,724,000\n2,000 - 2,999\n229\n553,000\n1,171,000\n3,000 - 3,999\n89\n308,000\n640,000\n4,000 - 4,999\n42\n190,000\n365,000\n5,000 - 9,999\n56\n363,000\n709,000\n10,000 and over\n14\n202,000\n303,000\nTotals\n11,482 (1)\n$5,491,000 (2)\n$12,239,000\n(1) 3.1% of number billed.\n(2) 3.9% of amount billed.\nFTB 1/5/68\nEXHIBIT J\nMEMBERS\nSHIRLEY BICKEL\nMARCH K. FONG\nRECD NOV D 1 1967 SAC\nCOMMITTEE SECRETARY\nVICE CHAIRMAN\nDAVID R. DOERR\nWILLIAM T. BAGLEY\nCalifornia Tegislature\nCOMMITTEE CONSULTANT\nCHARLES E. CHAPEL\nKENNETH CORY\nRAYMOND R. SULLIVAN\nASSISTANT CONSULTANT\nWADIE P. DEDDEH\nBILL GREENE\nFRANK LANTERMAN\nAssembly Committee\nROBERT MONAGAN\nROBERT MORETTI\nnn\nALAN G. PATTEE\nJOHN P. QUIMBY\nRevenue and Taxation\nVINCENT THOMAS\nSTATE CAPITOL. ROOM 5128\nGEORGE ZENOVICH\n445-8570\nJOHN G. VENEMAN\nCHAIRMAN\nOctober 31, 1967\nMartin Huff, Executive Officer\nFranchise Tax Board\n1025 'P' Street\nSacramento, California 95814\nDear Martin:\nThis is to request your participation in a discussion of several points relating\nto the personal income tax with the Assembly Committee on Revenue and Taxation\nat a hearing on November 30, 1967 in San Francisco.\nSpecifically, we are seeking the following information:\nI. Semiannual Prepayment\nIn your opinion, is the prepayment deductible from federal\nincome tax? Does the federal government allow the quarterly\nestimate made in other states as a deduction in the year of\nthe estimate?\nWhat was the total amount of revenue generated to date with\nthe total amount received where the payment was less than\nthan $100? Between $100 and $200? Between $200 and $300?\nBetween $300 and $500? Between $500 and $1, 000? Between\n$1,000 and $10,000 and over $10,000? Was there any\ndifference in compliance based on the amount owed?\nWhat has been the administrative cost of this program? What\nprocedures were used in receipting these income tax payments?\nWhat was the magnitude, both in number and dollar amounts,\nof those who made estimates rather than paying one-half of\nlast year's tax bill? Did any one estimate and pay more than\none-half of last year's taxes? From these returns was there\nany evidence that people had difficulty understanding the\nestimate provisions? How do you plan to verify these estimates\nin April if they are predicated neither on last year's tax\nstructure or next year's tax structure? What will be the cost\nMartin Huff, Executive Officer\nFranchise Tax Board\nOctober 31, 1967\nPage 2\nof this verification program?\nIs it theoretically possible for someone to prepay more than\ntheir entire 1967 tax liability? In such cases, what program\nhas been established for refunding the over payment? Is it\ntheoretically possible then for the State to derive some revenue\nfrom unclaimed refunds? What is the projected October\nrevenue from prepayment in 1968?\nH. Withholding\nWill withholding produce additional revenue? If any, how much\non an annual basis? (Please distinguish between one-time revenue\nand on-going revenue.)\nCan you give us an estimate of cash flow which will result from\nthe adoption of withholding? Can withholding and the prepayment\nsystem be integrated? What is the magnitude of the Department's\npresent withholding program? What other states have adopted\nwithholding? What would be the administrative cost of withholding?\nWhen would the money be remitted to the State by the employers?\nWhat would be the average length of time employers would have\ninterest-free use of this money? Is there any way this value can\nbe determined? Would this tend to compensate the employer for\nthe cost of collection?\nIII. Income Averaging\nWould you briefly explain the income averaging provision in\nCalifornia's tax law? How do these provisions relate to the\nchanges in the structure made by SB 556? What are the revenue\nimplications and the relation of SB 556 to income averaging?\nWhat is the number of taxpayers who have utilized income\naveraging on their 1966 returns? Revenue loss to state?\nIV. Progress Report on the Willis Bill\nWould you briefly review the Willis Bill for members of the\nCommittee? What is the status of the measure?\nV. Conformity\nWhat personal income tax legislation and bank and corporation\ntax legislation has been passed by the 90th Congress? What\nMartin Huff, Executive Officer\nFranchise Tax Board\nOctober 31, 1967\nPage 3\nare the advantages and disadvantages of State income\ntax conformity to these new laws under the revenue\nimplications?\nPlease feel free to add to or to elaborate on any of the five topics in the\noutline.\nI very much appreciate your assistance.\nSincerely,\nJOHN G. ENEMAN\nJGV:Ds\nWithholding\nFRANCHISE TAX BOARD\nBill Analysis\nFiscal\nAB 20 - 68 R. S. (Veneman)\nPersonal Income Tax Withholding\nAssembly Bill 20 would require employers to start withholding State income\ntaxes on October 1, 1968. Monthly remittances would be required if more\nthan $50 is withheld monthly. All other employers would file quarterly.\nQuarterly reports of tax withheld would be required of all employers.\nDeclarations of estimated tax would be due April 15, 1969. Quarterly\ninstallments would be due on June 15, 1969; September 15, 1969; and\nJune 15, 1970. The details of declarations of estimated tax would\ngenerally conform with the Internal Revenue Code.\nThe present prepayment plan would continue through October 31, 1968, and\nthen be repealed.\nThe iginal fiscal analysis of Assembly Bill 20 was based upon personal\nincome tax estimates and assumptions developed for Assembly Bill 484 (1967\nregular session). Since that time, more current estimates of personal\nincome tax revenues have been released by the Department of Finance. Also,\nthe most recent experience of other States who have withholding has been\nused to modify the basic assumptions used to estimate the cash flow.\nThe revised estimates for Assembly Bill 20 are summar ed as follows with\ndetails set forth in the indicated Exhibits:\nExhibit A - Fiscal 1968-69\n$445,000,000\nExhibit B - Fiscal 1969-70\n$177,000,000\nExhibit C - Fiscal 1970-71\n$107,000,000\nExhibit D - Estimated Cash Flow - By Source of Revenue\nRevised 3/11/68\nPersonal Income Tax\nYear 1\nA WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS)*\nRevenue Sources - 1968-69 Fiscal Year **\nFiscal Effect\n1. ONE TIME REVENUE\nA. Accelerated Collections: Remittances received during fiscal 1968-69 that would not nor-\nmally be collected until October 1969 (pre-pay billings) or April 1970 (returns).\n(1) Taxes withheld by employers during January-May, 1969 that would be\nremitted to the state during fiscal 1968-69\n$310,000,000\n(2) Declarations of estimated tax for 1969 that would be due April 15,\n1969 and the first installment that would be due June 15, 1969\n125,000,000\n$435,000,000\nB. Accounts Receivable: Some taxpayers would not completely understand the new withhold-\ning system and others would resist it. This would result in the filing of returns par-\ntially paid thru withholding, but with no remittance for the balance due. Collection\nwould be deferred until fiscal 1969-70\n-10,000,000\nSubtotal - One time revenue\n425,000,000\n2. ONGOING EFFECTS OF PROGRAM\nA. Improved Compliance: Primarily from mobile taxpayers who do not file returns, or if\nthey do file, they file \"no remittance\" returns. The amounts escaping are frequently\ntoo small to be collected under the present system. Also included are returns with\nsmall computational errors that are below the billing limits\n5,000,000\nB. Accelerated Collection: Primarily attributable to earlier collection of revenues other-\nwise receivable thru the department's filing enforcement programs, as well as, a re-\nduction in the number of \"no remittance\" and \"partial remittance\" returns on which pay-\nment is received during the billing cycle, but before collection effort is instituted\n10,000,000\nC. Other: This is the difference between the amounts withheld by employers and the amounts\nreported on returns by taxpayers. These people don't file returns and are unidentifiable.\nThey probably don't file Federal returns either. In most cases, there is a tax liability\nand the taxpayer feels that withholding satisfies his obligation. This also includes emi-\ngrants who leave the State and fail to file returns, people who fail to file for a refund,\ndeaths, and bankruptcies\n5,000,000\nSubtotal - Ongoing Revenue\n20,000,000\nTOTAL - 1968-69 FISCAL YEAR\n$445,000,000\nFTB 3/11/68\n*Effective October 1, 1968 without forgiveness and including quarterly estimates. ** Cash basis\nPersonal Income Tax\nYear 2\nA WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS)*\nRevenue Sources - 1969-70 Fiscal Year **\nFiscal Effect\n1. ONE TIME REVENUE\nA. Accounts Receivable: This is the converse of the $10,000,000 of delayed receipts in\n1968-69 indicated in 1.B. for 1968-69 (Exhibit A)\n$ 10,000,000\nB. Declaration of estimated tax - improved compliance: Many taxpayers will under-\nestimate their declaration on April 15, 1969. This will be made up by increased\ncollection on returns due April 15, 1970. If taxpayers had correctly estimated\ntheir 1969 liability on April 15, 1969, this would have been collected during\n1968-69\n20,000,000\nC. Delayed refunds: All refunds on 1969 income year taxes would not be paid during\n1969-70 because of a delay in receiving the refund claims and some backlog in the\nprocessing of claims (primarily because of the necessity for selected prerefund\naudits)\n20,000,000\nD. Other: This is the acceleration of delayed receipts resulting from the anticipated\nincrease in \"no remittance\" and \"partial remittance\" returns arising from the\npassage of SB 556 (1967 RS)\n34,000,000\nSubtotal - One time revenue\n$ 84,000,000\n2. ONGOING EFFECTS OF PROGRAM\nA. Improved Compliance: Primarily from mobile taxpayers who do not file returns, or if\nthey do file, they file \"no remittance\" returns. The amounts escaping are frequently\ntoo small to be collected under the present system. Also included are returns with\nsmall computational errors that are below the billing limits\n$ 22,000,000\nB. Accelerated Collection: Primarily attributable to earlier collection of revenues other-\nwise receivable thru the department's filing enforcement programs, as well as, a re-\nduction in the number of \"no remittance\" and \"partial remittance\" returns on which pay--\nment is received during the billing cycle, but before collection effort is instituted\n10,000,000\nC. Growth: This is the result of an expanding economy. The benefit of economic growth is\nrealized during the income year rather than the subsequent year. This amount is from\nthe following sources:\n(1) Withholding\n$35,000,000\n(2) Declarations of estimated tax\n15,000,000\n50,000,000\nFTB 3/11/68\n(Continued next Page)\nEXHIBIT B\nPersonal Income Tax\nPAGE 2\nYear 2\nA WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS) *\nRevenue Sources - 1969-70 Fiscal Year **\nFiscal Effect\nD. Other: This is the difference between the amounts withheld by employers and the amounts\nreported on returns by taxpayers. These people don't file returns and are unidentifiable.\nThey probably don't file Federal returns either. In most cases, there is a tax liability\nand the taxpayer feels that withholding satisfies his obligation. This also includes\nemigrants who leave the State and fail to file returns, people who fail to file for a\nrefund, deaths, and bankruptcies\n11,000,000\nSubtotal - Ongoing effects of program\n93,000,000\nTOTAL - 1969-70 FISCAL YEAR\n$177,000,000\nFTB 3/11/68\n*Effective October 1, 1968 without forgiveness and including quarterly estimates. ** Cash basis.\nEXHIBIT C\nPersonal Income Tax\nYear 3\nA WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS)*\nRevenue Sources 1970-71 Fiscal Year **\nFiscal Effect\n1. ONE TIME REVENUE\nNone\n2. ONGOING EFFECTS OF PROGRAM\nA. Improved Compliance: Primarily from mobile taxpayers who do not file returns, or if\nthey do file, they file \"no remittance\" returns. The amounts escaping are frequently\ntoo small to be collected under the present system. Also included are returns with\nsmall computational errors that are below the billing limits\n$ 25,000,000\nB. Accelerated Collection: Primarily attributable to earlier collection of revenues other-\nwise receivable thru the department's filing enforcement programs, as well as, a re-\nduction in the number of \"no remittance\" and \"partial remittance\" returns on which pay-\nment is received during the billing cycle, but before collection effort is instituted 10,000,000\nC. Growth: This is the result of an expanding economy. The benefit of economic growth\nis realized during the income year rather than the subsequent year. This amount is\nfrom the following sources:\n(1) Withholding\n$41,000,000\n(2) Declarations of estimated tax\n17,000,000\n(3) Delayed refunds\n2,000,000\n60,000,000\nD. Other: This is the difference between the amounts withheld by employers and the\namounts reported on returns by taxpayers. These people don't file returns and are\nunidentifiable. They probably don't file Federal returns either. In most cases,\nthere is a tax liability and the taxpayer feels that withholding satisfies his\nobligation. This also includes emigrants who leave the State and fail to file\nreturns, people who fail to file for a refund, deaths, and bankruptcies\n12,000,000\nTOTAL - 1970-71 FISCAL YEAR\n$107,000,000\nFTB 3/11/68 * Effective October 1, 1968 without forgiveness and including quarterly estimates. ** Cash basis\nPersonal Income Tax\nA WITHHOLDING AND ESTIMATES PLAN - AB 20 (1968 RS) *\nEstimated Cash Flow to State Controller - By Source of Revenue\n(in millions of dollars)\nFiscal month\nWithholding law\nPresent\nWith-\nDeclar-\nReturns\n&\nNet 1/\nEstimated\nlaw\nholding\nations\nmisc. coll.\nRefunds\nflow\nchange 2.\n(1)\n(2)\n(3)\n(4)\n(5)\n(6)\n(7)\nJul 1968\n$\n14\n$ -0-\n$-0-\n$ 14\n$-0-\n$\n14\n$-0-\nAug 1968\n13\n-0-\n-0-\n13\n-0-\n13\n-0-\nSep 1968\n11\n-0-\n-0-\n11\n-0-\n11\n-0-\nOct 1968\n99\n-0-\n-0-\n99\n-0-\n99\n-0-\nNov 1968\n161\n53\n-0-\n161\n-0-\n214\n53\nDec 1968\n8\n54\n-0-\n8\n-0-\n62\n54\nJan 1969\n33\n96\n-0-\n26\n-0-\n122\n89\nFeb 1969\n15\n52\n-0-\n14\n-0-\n66\n51\nMar 1969\n48\n52\n6\n43\n-2\n99\n51\nApr 1969\n388\n95\n39\n316\n-3\n447\n59\nMay 1969\n197\n56\n18\n100\n-4\n170\n-27\nJun 1969\n22\n56\n62\n20\n-1\n137\n115\n1968-69 total\n$1,009\n$514\n$125\n$825\n-$10\n$1,454\n$445\n3/\nJul 1969\n$\n15\n$104\n$ 3\n$ 17\n$-0-\n$ 124\n$109\nAug 1969\n14\n60\n1\n9\n-0-\n70\n56\nSep 1969\n12\n61\n62\n9\n-0-\n132\n120\nOct 1969\n115\n99\n3\n6\n-0-\n108\n7\nNov 1969\n179\n60\n3\n6\n-0-\n69\n-110\nDec 1969\n10\n60\n22\n11\n-0-\n93\n83\nJan 1970\n37\n108\n74\n11\n-1\n192\n155\nFeb 1970\n17\n58\n4\n24\n-6\n80\n63\nMar 1970\n52\n58\n7\n29\n-34\n60\n8\nApr 1970\n512\n105\n44\n74\n-42\n181\n-331\nMay 1970\n150\n62\n19\n54\n-39\n96\n1 54\nJun 1970\n26\n63\n70\n11\n-33\n111\n85\n1969-70 total\n$1,139\n$898\n$312\n$261\n-155\n$1,316\n$177\nJul 1970\n$\n17\n$ 115\n$ 3\n$ 6\n-$ 11\n$ 113\n$ 96\nAug 1970\n16\n67\n2\n4\n-\n5\n68\n52\nSep 1970\n13\n67\n70\n3\n-\n1\n139\n126\nOct 1970\n129\n111\n3\n2\n-\n1\n115\n- 14\nNov 1970\n201\n67\n3\n2\n-\n1\n71\n-130\nDec 1970\n12\n67\n23\n4\n-\n1\n93\n81\nJan 1971\n41\n120\n83\n11\n-\n1\n213\n172\nFeb 1971\n19\n65\n5\n26\n-\n7\n89\n70\nMar 1971\n59\n65\n8\n30\n- 38\n65\n6\nApr 1971\n566\n117\n49\n68\n- 47\n187\n-379\nMay 1971\n170\n70\n22\n56\n- 43\n105\n- 65\nJun 1971\n30\n70\n78\n11\n- 37\n122\n92\n1970-71 total\n$1,273\n$349\n$223\n$1,380\n$107\n5/\n$1001\n-$193\n1/ Col. 2 + 3 + 4 - 5 = col 6.\n4/ See Exhibit B\nCol. 6- - col. 1 = col. 7.\n5/ See Exhibit C\nSee Exhibit A\n* Effective October 1, 1968 without forgiveness and including quarterly estimates.\nFTB 3/11/68\nte of California\nFranchise Tax Board\nMemorandum\nTo\n:\nMr. Caspar Weinberger\nDate\n: March 11, 1968\nDirector of Finance\nState Capitol\nFile No.: MH:jgs\nRoom 1145\nSacramento, California 95814\nFrom :\nMartin Huff\nSubject:\nIncome Tax Withholding - Revised Fiscal Effect (Cash Basis)\nAB 20 (Veneman)\nIn our testimony on the subject of Income Tax Withholding before the\nAssembly Revenue and Taxation Committee on January 5, 1968 (copy at-\ntached), we indicated that the data on fiscal effect would be revised\nafter the Department of Finance released their new revenue estimates\nfor the 1968-69 Budget. Our revisions are attached. They have been\nreviewed by your staff and that of the Legislative Analyst. They are\nin agreement with our updated figures. Both agencies feel that our\ncash flow projections are conservative.\nIt is our understanding that Assemblyman Veneman will release this\nnew data immeidately.\nwith\nExecutive Officer\nCC: Charles E. Dixon\nAttachments: 1/05/68 Testimony\n3/11/68 Revised Fiscal Analysis (AB 20)\nState of California\nMemorandum\nTo\nGovernor Reagan\nDate\n:\nJune 11, 1969\nSubject: Private Sector Sentiment\nRegarding Withholding\nFrom : Jim Crumpacker and Jerry Martin\nProgram Development\nWe have made a quick survey of business, labor and media sentiment\non withholding, both compulsory and voluntary, and present the\nfollowing wrap-up for your information.\nBUSINESS\nNational Federation of Independent Business (small businessmen)\nwhich represents 35,000 California businesses of under 500 employees\nhas been solidly opposed to any form of withholding. The NFIB takes\nweekly polls of its membership on issues submitted by the Governor'\nOffice. On the specific subject of withholding, from January through\nMay, small businessmen in this state voted 1,529 to 538 (about 3-1)\nwith 147 no opinion votes against Federal-type compulsory withholding.\nCalifornia State Chamber of Commerce. The last referendum of the\nentire membership on compulsory withholding came out 38 per cent\nin favor; 58 per cent opposed; four per cent undecided. The state-\nwide tax committee, however, is looking over the subject again. We\nhave discussed the state chamber situation with William French Smith,\nand will continue to discuss developments with him as they occur.\nLocal Chambers (representative sampling). Los Angeles, no position\nbut John Vaughn indicates this group could go for voluntary withholding\n(with the state reimbursing employers for bookkeeping costs as pro-\nposed by the Governor); Fresno, officially opposed to compulsory\nwithholding; Long Beach, on May 22, 1967, and March 24, 1969, the\nLong Beach Chamber of Commerce issued policy statements firmly opposed\nto withholding of state income taxes; Sacramento, no recent poll taken,\nbut the last time the membership was queried--about four years ago\nthey voted to oppose withholding; San Francisco, no official position\ntaken; San Diego, no official position; San Jose, no official position.\nIt is interesting to note that the Marin County Chamber of Commerce\nand Visitors Bureau in a letter of April 22, 1969 to Assemblyman\nBagley, announced its opposition to withholding.\n1. Merchants & Manufacturers Association. Executive Committee\nsplit evenly for and against withholding.\n2. Western Oil and Cas I ssociation. No position; studying the\nmatter.\ncontinued\nLABOR\nInternational Longshoremen's and Warehousemen's Union. On April 10,\n1969, the ILWU unanimously changed its long-time support of with-\nholding to one of vigorous opposition. Their reasoning boiled down\nto the contention that they would rather have their money to invest\nor gather interest than give it to the government without ever having\nthe chance to get their hands on it.\nAFL-CIO. Favors compulsory withholding. Teamsters. Favors compulsory\nwithholding, but rather midly. (Their main concern seems to be the\nfloaters who drift in and out of the state on construction jobs and\nthe like.)\nNEWS MEDIA\nAmong daily newspapers that have consistently opposed compulsory\nwithholding are the following: Los Angeles Herald-Examiner, Sacramento\nUnion, Oakland Tribune, Santa Monica Evening Outlook, San Diego Union,\nSan Diego Tribune and San Jose Mercury. It is important to note that\nthese papers represent the backbone of the Republican press in California.\nPUBLIC OPINION\nThe Muchmore Poll, has taken no polls solely on the withholding\nissue. The Field Poll, has taken three polls on the subject. All\nfavored a \"pay-as-you-go\" system (polling 1,011 persons - 549\nDemocrats, 368 Republicans and 94 others.) Because of the sampling\nand the description of \"pay-as-you-go\" tax payments, the poll's\nresults as applied to withholding are questionable.\nIn discussing the issue of withholding with private sector groups\nand individuals, it was obvious that many otherwise knowledgeable\nbusinessmen and chamber of commerce officials are not fully aware\nthat the issue has become one of voluntary VS. compulsory withholding.\nAlso, many people are unaware that the Governor's program for voluntary\nwithholding includes provisions for both a discount to the taxpayer\nfor paying in advance and compensation for employers for accounting\nexpenses involved in setting up withholding.\nThose respondents who tended to favor withholding, and who knew about\nthe voluntary aspects of the Governor's program, said they would go\nfor any one of the voluntary packages. We should continue to fight\ncompulsory withholding, while at the same time, building a solid\nfoundation of support for the voluntary plans. Some businessmen\nindicated that they would be glad to provide a forum for the Governor\nto personally discuss the situation. There was an indication that\nonly the Governor, personally, can sell this package. Seminars\nfeaturing the Governor were suggested in Rus Walton's April 14 con-\nfidential memo outlining a program for gaining statewide support\nfor the tax program. The cooperation of all units is needed if this\nprogram is to be effectively carried out.\nThere is considerable amount of \"backing and filling\" going on state-\nwide on the subject of withholding. This is apparent from the number\nof groups suddenly switching to \"no position\" or are \"studying\" the\nproposal. There were indica cions that the voluntary aspects of with-\nholding would become acceptable to some influential groups if they\nwere more fully explained throughout the state.\nAttachments\nCC: Meese, Walton, Deaver, Beck, Sturgeon, Steffes.\nState of California\nTABULATIONS FROM MAY 23 THRU MAY 29, 1969 = 109 Respon\nGOVE 1507 office *****\nTO CALIFORNIA\nRONALD ACADAN\nN.F.I.B. MEMBERS\nSent to Gov.\n49\n11\nDoerr\n60\nOn April 1, Richard E. Thomas, Western Field Director\nway 6, 1960\nTotal\nN.F.I.B., accompanied by Niel Heard, Assistant to the\nE. Thomas\n109\nPresident, N.F.I.B., conferred with Governor Reagan on\nabolition of the inventory tax in line with the desires of the\nSan 94402\nindependent businessmen. Governor Reagon expressed\nhis\napprecia-\nstrong favor of such elimination and has asked for further\nDear For. Thomas:\nGovernor asked interestiale me to express with what him you had early\nadvice from you \"on some of the major issues that are\nzion last to eay month. for one always He of was looks small very the businessmen forward to enroughout in questions results\nbefore us.\" Thus, your cooperation in answering these\nquestions prepared by the Office of the Governor will\nCalifornia.vey I 22 sorry but it I has have would taken been has than I to you get may these down be issues may to able move in be so to\nenable us to take further action and work on your\nbehalf\nuse, before the would have\nof the or major all of If them. you that\nNo\nYes\nNo Opinion\n8. Do you favor tax reform which will shift\nare the any Governor questions. thanks please again let for no your assistance. NO all\nthe burden from property tax?\n97\n9\n3\n1998\nappreciate it.\n9. If your answer to question 8 is yes,\n128\n89\nwhich tax, if necessary, would you favor\nRebert\nincreasing?\n(a) Increase sales tax\n49\n10\nPress\n(b) Increase personal income tax\n7 25\n(c) Increase corporate income tax\n25\n15\n(d) Increase cigarette and liquor tax\n56\n11\nNo\nGENERAL\nYes\nNo\nOpinion\n(e) Broaden sales tax to increase other\n1. California's unemployment remains\n39\n15\ncategories, including food and others\n21\nabove the national average. Do you feel it\n75\n13\nEDUCATION\nis primarily the state's responsibility to\n10. Would you favor tuition, or fee increases\nsolve the problems of the unemployed?\nat the University of California and State\n69 25 12\nIF NO, how'can this problem be solved?\nColleges, if the money were used ex-\nclusively for grants to needy students and\n(a) Federal Government\n4\n14\nteacher enrichment?\n(b) Private industry\n12\n11\n11. Do you support the principle of tuition\n1033\n(c) Combination of government and private\nto help defray the cost of higher educa-\nindustry\n68\n4\ntion in general?\n12. It has been proposed in several School\n2. Spending for welfare and higher educa-\nDistricts to bus public school children in\n6976\ntion are major expenses. In order to\norder to integrate the schools. Do you\navoid increased taxes, it may be neces-\nfavor this?\nsary to decrease one in favor of the\n13. Do you favor legislation for greater con-\nother. Which do you prefer?\ntrols on demonstrations and control of\n10162\n(a) Decrease welfare and increase higher\ndots on the college campuses?\neducation expenses\n86\n4\nLAW ENFORCEMENT\n(b) Decrease higher education and increase\n5\n14. Is the answer to reducing crime more\nwelfare\n29\npolice officers?\n26 59 24\n(c) Raise taxes so no cuts will be neces-\n6\n34\n15. Which of the following do you think is\nsary\nthe answer to not prevention in the\n3. Do you feel there is a need to overhaul\nghetto areas?\nthe Medi-Cal program?\n85 3 21\n(a) More minority police officers\n39\n19\n4. Do you support Governor Reagan's poli-\n82 8 19\n(b) Police participation in community\ncies in the mental health programs aimed\nprojects\n49 12\nat greater local treatment and reduced\n(c) Educational emphasis on respect for\nstate hospital costs?\nlaw and order\n86 /\n(d) On-the-job training and re-training\n51\n6\nTAXES\n538\n(c) Better education and tutorial assis-\n5. It has been proposed that the state de-\n46\n26\n77\n6\ntance\n7\nduct income tax from paychecks in the\nsame manner 25 employed for Federal In-\nNATIONAL FEDERATION OF INDEPENDENT BUSINESS\ncome Tax. Do you favor this?\n6. Do you favor partial or \"under-withhol-\nding\" of state income tax?\n13 77 19\nAddress: 150 West 20th Avenue, San Mateo, Calif.\n7. Do you support the present system,\nbi\n29\n19\n10\nSan Transisco Chronide\n***\nThurs.,\nApr.\n10,\n1969\nWithholding System Now Opposed\nILWU Tax Reform Fight\nU\nBy Dick Meister\nhousemen's Union vowed\nburden from workers and\nto is that the Government is\nLabor Correspondent\nyesterday to lead a battle\nmiddleclass people,\" to large\nwilling to trust the wealthy\nfor \"radical changes\" in\ncorporations and other \"spe-\nand well-to-do to manage\nLos Angeles\nthe country's tax laws.\ncial interest groups\" who, it\ntheir own finances and pay\nThe International Long-\nThe union's aim will be to\ncharged, now avoid paying\ntheir own taxes when due.\nshoremen's and Ware-\nshift an \"ever-growing tax\ntheir fair share.\nDelegates also complained\nThe ILWU's chief target\nthat the withholding system\nwill be the withholding tax\nkeeps people from refusing\nsystem - \"one of the great-\nto pay their taxes as a way\nest swindles the Government\n- the mòst effective way\nperpetrates on working peo-\nto get action on their de-\nple.\"\nmands for tax reform.\nSUPPORT\n\"The union's for taxes\nThe union had supported\npaying our fair share, like\nthe system ever since it was\nwe pay union dues.\" de-\nstarted by the Federal gov-\nclared ILWU president Har-\nernment during World War II\nry Bridges. \"But this is a\nas a \"temporary measure,'\ndamned disgrace\na\nand had endorsed current\ndamned disgrace.'\nproposals to use it for the\nIn addition to action\ncollection of State taxes.\nagainst withholding toxes,\nBut that position was ab-\nthe ILWU's agenda for tax\nrupfly, angrily and unani-\nreform includes these aims:\nmously changed here yester-\no On the Federal level,\nday at the union's biennial\nabolishing the 10 per cent\nconvention.\nsurtax, doubling the $600 in-\n\"Some $80 billion, almost\ncome tax exemption, raising\nhalf of the Federal budget, is\nthe standard deduction. clos-\ntaken directly from our pay-\ning legal \"loopholes\" that re-\nchecks without our ever hav-\nduce the taxes of corpora-\ning a chance to get our hands\ntions and businessmen and\non the money,\" delegates\ntightening regulations on\ncomplained in one of several\ncharitable deductions and on\nresolutions urging broad tax\ntax free foundations.\nreforms.\n0 Repealing sales taxes or\nSYSTEM\nallowing people to deduct\nThe withholding system\nthem from their State in-\nmay soften the blow, they\ncome taxes, and shifting the\nsaid, \"but at the same time\nburden of local property tax-\nit serves to hide or obscure\nes from renters and home\nhow much of our money ac-\nowners\ntually goes for taxes.\"\nIn other action delegates\nDelegates said that busi-\npledged to lead an alliance of\nnessmen and others who do\nunions, young people, minori-\nnot get their income from\nty groups, poor, clergymen,\nemployer paychecks pay\nscientists and intellectuals in\ntheir taxes in one lump sum,\na massive new popular\nonce a year.\nanti-war protest\nThus, all they earn in the\nThey also opposed Presi-\nyear between their single tax\ndent Nixon's proposal for the\npayments can be invested\nABM nuelear defense sys-\nand. perhaps. bring them\ntem.\nmore money.\n(Actually larger taxpayers.\nboth individuals and corpora-\ntions, pay Federal income\ntaxes on 8 quarterly basis.)\nBut workers \"aren't al-\nlowed to decide what to do\nJim\nMARIN COUNTY\nno\nCHAMBER OF COMMERCE & VISITORS BUREAU\n824 - 5TH AVENUE\nSAN RAFAEL, CALIFORNIA 94901\nApril 22, 1969\nAssemblyean William T. Bagley\nState of California\nRoom 4130, State Capitol\nSacramento, California 95814\nDear Bill,\nBy direction of its Board of Directors, the Marin County Chamber of\nCommerce and Visitors Bureau wishos to register with you opposition to the\nproposal that withholding be added to the State income tax structure.\nWe thoroughly agree that tamation generally needs an objective over-\nhaml on the bases of equitability, the mitigation of complexities and the\nfiltering out of cutristed or inflated governmental service \"neods.\" We\nheartily disapprove of devices, such 03 withholding, intended to ease the\npain of payment and accolerate collection. Boyond that, withholding has\na built-in inflationary effect since it reduces take-home pay and induces\npressures for componsating (seater remuneration.\nIt 10 fractuating that year after year in the abundance of tax measures\nproppeed by all lovels of government and texing jurisdictions, most of them\nare directed townrd a greater take, but revely are there fruitful efforts\ndirected toward olther scosible re-chrechwing or udaningful reduction.\nSincerely yours,\n(signed)\n(ichard . Have\nRPH13V\nPresident\nOFFICE OF LIEUTENANT GOVERNOR\nIMMEDIATE RELEASE\nSacramento, California 95814\nContact:\nJim Woodworth\n916 445-7760\nOctober 20, 1971\nSTATEMENT BY ACTING GOVERNOR ED REINECKE AT\nNEWS CONFERENCE ON WEDNESDAY, October 20, 1971\nThe citizens of California are going to be the victims\nof burdensome tax payments in the spring if the Democratic-\ncontrolled State Legislature doesn't act quickly in passing a\nTax Withholding Bill.\nBecause of mechanical and administrative problems,\ntaxpayers may possibly be hit with three months' State withholding\nplus federal income taxes all due in the same month, April of 1972.\nThis burden need not be placed upon the taxpayers. It\ncan be avoided by quick enactment of the State Withholding Tax\nlegislation that has been in the hands of the State Legislature\nfor months.\nUnless the legislation is enacted quickly, there is a\npotential that the administrative lead time needed will prevent\nthe actual withholding of State income taxes from going into\neffect until the beginning of the second quarter of 1972. If\nthis happens, taxpayers will be paying 12 months' taxes in nine\nmonthly installments instead of spreading the payments over\n12 months.\nAs the end of this Legislative session draws near, I'm\nurgently concerned that swift enactment of personal income tax\nwithholding after months of delay could create hardships by not\n-2-\nallowing sufficient lead time for orderly employer and\nadministrative preparation.\nThe adoption of withholding places major responsi-\nbilities on employers to revise their payroll accounting\nsystems. The amount of lead time required to make these\nrevisions varies considerably depending on the size of the\nemployer and the type of accounting system used.\nFor example, one large California employer, who also\nrepresents 4,000 employer accounts, reported he would need at\nleast four months' preparation time from receipt of tax\ninstructions. Two other large California employers polled\nrequested six months. The latter estimates may represent an\nexcess of caution but we must not underestimate the massive\nchangeover task.\nUnless reasonable lead time is provided, the ability\nof employers to implement in time would be jeopardized. And,\na considerable reaction particularly from large employers must\nbe expected.\nTo offset the possibility of short notice from the\nLegislature, the Department of Human Resources Development and\nthe Franchise Tax Board have spent considerable effort on pre-\nenactment planning, programming, printing of forms and some\ntax instructions. The central feature of this plan is to have\nall employer material ready to mail immediately after a with-\nholding bill is signed. Nevertheless, each day's delay without\n-3-\nenactment or certainty of the effective date increases the\nadministrative problems and causes waste.\nTo illustrate, the initial mail to 375,000 employers\nhas been ready for months but addresses and other pertinent\ninformation have become stale. This material must soon be\nreprinted, imprinted with current names and addresses, and\nprepared for mailing again. This rerun is costly and will\ndefeat our plan to promptly inform employers.\nMajor changes in the tax structure at the last minute\nand/or extending the effective date well into 1972 will require\npreparation of new formulas and tables for the Employer's Tax\nGuide which is ready to print.\nHere again the delay in enactment contributes to\nadministrative problems and costs, and could encourage negative\ntaxpayer response if, for example, twelve months of taxes are\ncollected in nine monthly bites. This planned use of an\naccelerated tax rate schedule to recover taxes for elapsed\nmonths in 1972 will also create one-time employer programming\nchanges due to the unique, shortened tax year.\nThe magnitude of the dilemma caused by continued delay\nin enactment is growing. When pressures due to lack of funds\nforce fiscal legislation, we are hopeful that the tight time\nlimits imposed will not cause unreasonable demands upon the\nemployer population. This will insure timely and willing\ncompliance by employers and enhance our ability to administer\nthe program effectively.\n# # #"
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