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California Commission on Tax Policy in the New Economy. the Commission’S Charter Is Defined by Revenue and Taxation Code Sections 38061-38067

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California Commission on Tax Policy in the New Economy. the Commission’S Charter Is Defined by Revenue and Taxation Code Sections 38061-38067 California Commission on Tax Policy in the New Economy Final Report DECEMBER 2003 California Commission on Tax Policy in the New Economy Final Report DECEMBER 2003 California Commission on Tax Policy in the New Economy 900 “N” Street, Suite 300, Sacramento, CA 95814 916-653-6742 Fax: 916-653-1764 _______________________________________________________ TO: The Honorable Arnold Schwarzenegger, Governor Members of the California Senate and Assembly FROM: William J. Rosendahl Chairman, California Commission on Tax Policy in the New Economy RE: Final Report DATE: December 2003 On behalf of the Commissioners and Ex-Officio Members of the California Commission on Tax Policy in the New Economy, I am pleased to present our Final Report. This report documents the work of the Commission over the past two years and contains the Commissioners’ final recommendations. It further develops the themes and issues contained in our Interim Report, November 25, 2002, and our Options for Revising the California Tax System, June 15, 2003. The Proceedings of the Commission are included in the attached CD. After 17 hearings and over 140 speakers, the Commission has accumulated a wealth of information concerning tax policy in California. Videotapes of each hearing were also produced. Many of these hearings were simultaneously webcast so that California citizens could follow and participate in the Commission’s work. Should you so desire, the Commission has volunteered to continue its work with selected outreach to key Legislature Committee Chairs and their staffs, as well as with your financial advisory team, to facilitate bipartisan agreements and legislation to help restore a solid foundation for California’s economic future. We are here to serve you and all Californians in this important task. Please contact me if we can be of further assistance. Respectfully submitted, William J. Rosendahl, Chairman CC: California Commission on Tax Policy in the New Economy California Commission on Tax Policy in the New Economy Commissioners William J. Rosendahl, Chairman Marilyn C. Brewer Lenny Goldberg Sean O. Burton Scott Peters Larry Carr Glen Rossman William Dombrowski William Weintraub Ex-Officio Members, 2002 Michael Bernick Director, Employment Development Department Honorable Jack Scott Chair, Senate Committee on Revenue & Taxation Honorable Ed Chavez Chair, Assembly Committee on Revenue & Taxation Gerald H. Goldberg Executive Officer, California Franchise Tax Board Donald Fowler Public Member, California Economic Strategy Panel Honorable John Chiang Chair, State Board of Equalization Tim Gage Director, California Department of Finance Loretta Lynch President, California Public Utilities Commission Honorable Kathleen Connell California State Controller Ex-Officio Members, 2003 Michael Bernick Director, Employment Development Department Honorable Gilbert Cedillo Chair, Senate Committee on Revenue & Taxation Honorable Ed Chavez Chair, Assembly Committee on Revenue & Taxation Gerald H. Goldberg Executive Officer, California Franchise Tax Board Sunne Wright McPeak Public Member, California Economic Strategy Panel Honorable Carole Migden Chairwoman, State Board of Equalization Steve Peace Director, California Department of Finance Michael Peevey President, California Public Utilities Commission Honorable Steve Westly California State Controller Acknowledgements The nine Commissioners of the Commission on Tax Policy in the New Economy have performed a valuable public service for the State of California. Over a period of two years, they have attended 17 meetings and dedicated substantial amounts of their own time and resources to help accomplish the Commission’s work. They paid their own expenses. We owe them a very sincere expression of thanks. The Commission on Tax Policy in the New Economy was not supported by a legislative appropriation and did not have a funded staff. Staff support for the Commission was obtained from state agencies (principally the California Technology, Trade, and Commerce Agency and the California Research Bureau in the State Library) as well as from the Ex-Officio members of the Commission. Many Ex-Officio members attended the hearings throughout the state and provided valuable contributions to the process. Most of the Commission’s meetings were organized by Marshall Graves of the California Technology, Trade, and Commerce Agency, with assistance from others. The Commission’s reports (the Interim Report, Options for Revising the California Tax System, and Final Report) were the result of the collaborative work of many people. The reports were written by Dr. Martha Jones of the California Research Bureau. Marshall Graves was a contributing editor and Trina Dangberg of the California Research Bureau provided technical support. Many people provided input, reviewed drafts, and gave advice at various points in the process. In addition to the individuals named on the following page, the Commission would like to thank analysts at the State Board of Equalization, the Franchise Tax Board, the Employment Development Department, the Legislative Analyst’s Office, and the Office of the Controller for taking such an active role in providing technical expertise and supporting our work. The Proceedings of the Commission, a record of many of the presentations made before the Commission, was assembled by Trina Dangberg and Marshall Graves, with the assistance of Dr. Martha Jones. Videotapes of each hearing are catalogued in the California State Library collection. The production of these tapes was arranged by Adelphia Communications and the California Senate TV office in the Capitol. Jesse Szeto, Assistant Secretary of the Division of Science, Technology and Innovation, in the California Technology, Trade, and Commerce Agency, was instrumental in arranging funding from that agency to support the Commission’s work for the last six months of 2003. This funding was used to pay for logistical support for the Commission’s meetings from the California State University, Sacramento, CSUS/CCE Conference & Training Services and for the costs of publishing the Final Report. Tina Jung, Public Information Officer for the California Technology, Trade, and Commerce Agency, performed the duties of webmaster. The Commission’s Final Report can be accessed from the California State Library. http://www.library.ca.gov. Acknowledgements The Commission gratefully acknowledges the assistance of: California Technology, Trade, and Commerce Agency Sabrina Birnbaum, Joan Dean, Marshall Graves, Tina Jung, Angie Ogaz, Jesse Szeto California Research Bureau, California State Library Trina Dangberg, Roger Dunstan, Martha Jones, Ph.D., Dean Misczynski, Charlene Simmons, Ph.D. Tax Policy Group of Joint Venture: Silicon Valley Network and the College of Business, San Jose State University Professor Annette Nellen, CPA, Esq. Center for State and Local Taxation at University of California, Davis and the Economics Department at California State University, Sacramento Professor Terri Sexton, Ph.D. Governor’s Office of Planning and Research Scott Farris, Eric Wiesenthal Office of the Governor Amy Hair American Society of Mechanical Engineers Marshall Graves, P.E. Public Policy Institute of California Fred Silva, Senior Policy Advisor Howard Jarvis Taxpayers’ Association Jonathan Coupal, Joel Fox California Center for Regional Leadership Nick Bollman California State University, Sacramento, CSUS/CCE Conference & Training Services Andrea Killeen The staff of the Senate Committee on Revenue and Taxation (Chair, Senator Gilbert Cedillo; Chief Consultant, Martin Helmke) The staff of the Assembly Committee on Revenue and Taxation (Chair, Assembly Member Ed Chavez; Chief Consultant, Kimberly Bott) And the staff of the Senate Select Committee on Economic Development (Chair, Senator John Vasconcellos; Senior Consultant, Doug Brown) Table of Contents OVERVIEW...................................................................................................................... 1 SUMMARY OF THE RECOMMENDATIONS ........................................................... 3 RECOMMENDED TAX POLICY REFORMS .......................................................................... 4 Sales Tax ..................................................................................................................... 4 Property Tax ............................................................................................................... 4 Local Taxes ................................................................................................................. 4 Other Tax Policy Options ........................................................................................... 4 RECOMMENDED REFORMS OF THE STATE BUDGET PROCESS........................................... 5 FRAMEWORK FOR ANALYSIS .................................................................................. 7 DISCUSSION OF RECOMMENDATIONS.................................................................. 9 SALES TAX ...................................................................................................................... 9 Improve Collection of the Use Tax on Remote Sales.................................................. 9 Broaden the Sales Tax Base to Include Selected Services and Reduce the Sales Tax Rate ........................................................................................................................... 12 Guiding Principle.....................................................................................................
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