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Tax chumps

October 21, 2005

GOV. ARNOLD SCHWARZENEGGER'S vetoes of several bills that would have strengthened the enforcement of business tax laws were cheered by the usual suspects. Business and anti-tax groups have reason to rejoice, but their happiness comes at a cost to the rest of the state.

The Legislature's tax-collection measures were passed this session on the heels of a resoundingly successful program that collected billions of dollars in unpaid corporate taxes by offering an amnesty, in combination with bigger penalties for those who don't pay up. Schwarzenegger had credited that program for allowing him to restore $1.3 billion in sorely needed transportation funding to the state budget this year, along with some education funding.

Among the vetoed measures was a 50% penalty on businesses that fail to turn over state sales taxes collected from customers. He apparently bought the reasoning of the Chamber of Commerce, which said in a statement, "There could be many benign reasons why a retailer inadvertently fails to remit sales taxes." There could also be benign reasons, such as an overdue college tuition bill or an unforeseen medical expense, that others among us would need extra time to pay a state income tax bill. Surely the governor will understand that, rather than lose another perfectly good taxpayer to Nevada.

The governor also vetoed a law that would allow the state to garnish the wages of employees who failed to fork over their state taxes. Employer groups cried foul on that one too, and the governor agreed that the requirement would have hurt "employers who have done nothing improper." At least judges dealing with deadbeat parents in child-support cases get their authority to garnish wages from federal law, or they might also lose that power.

The most interesting veto concerned a bill that would have required Californians to pay state taxes owed under any judgment entered against them by the Internal Revenue Service. A recent court decision said the state couldn't collect taxes in some long-running cases, citing a four-year statute of limitations on tax violations. The state Franchise Tax Board was shocked by that decision, but heads really swiveled at the governor's veto of a bill to reinstate such collections. For a big company, the legal bills of a delaying action could easily be less than the tax liability.

Schwarzenegger's sympathy for businesses that "forget" their tax payments or game the tax code at the expense of the state budget is ludicrous. But the worst aspect of his vetoes is that they make honest taxpayers feel like chumps.

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