STATE OF CALIFORNIA COMMISSION ON THE 21 st CENTURY ECONOMY STATE OF CALIFORNIA REVENUE & TAXATION Commission BNRT Workshop Friday, August 28, 2009 9:00 a.m. – 1:20 p.m. University of California, Los Angeles De Neve Plaza, Plaza Room De Neve Commons 351 Charles E. Young Drive, West Los Angeles, California Reported by: Daniel P. Feldhaus Certified Shorthand Reporter #6949 Registered Diplomate Reporter, Certified Realtime Reporter Daniel P. Feldhaus, C.S.R., Inc. Certified Shorthand Reporters 8414 Yermo Way, Sacramento, California 95828 Telephone 916.682.9482 Fax 916.688.0723 [email protected] 1 st Commission on the 21 Century Economy – August 28, 2009 A P P E A R A N C E S COMMISSION ON THE 21 ST CENTURY ECONOMY GERRY PARSKY Commission Chair Aurora Capital Group RUBEN BARRALES President/CEO San Diego Regional Chamber of Commerce JOHN COGAN Professor Stanford University CHRISTOPHER EDLEY, JR. Dean/Professor of Law Boalt Hall School of Law JENNIFER ITO Research, Training, Policy Director SCOPE CURT PRINGLE Mayor City of Anaheim ---o0o--- BNRT Workshop Panel JUNE SUMMERS HAAS Partner Honigman Miller Schwartz & Cohn LLP CARL JOSEPH Director Multistate Taxation Bureau Legal Division Franchise Tax Board DOUG POWERS Franchise Tax Board --o0o-- Daniel P. Feldhaus, CSR, Inc. 916.682.9482 2 st Commission on the 21 Century Economy – August 28, 2009 A P P E A R A N C E S COTCE Staff Present MARK IBELE Commission Staff Director Board of Equalization ASHLEY SNEE GIOVANNETTONE ANTONIO LOCKETT PHIL SPILBERG Chief, Financial Research Department of Finance MARGIE RAMIREZ WALKER --oOo-- Presenters JIM BARNETT Vice President, Tax Edison International HATEF BEHNIA Tax Partner Gibson Dunn & Crutcher DAVID CHASE Governor’s Office JIM EUPHRAT Tax Manager General Dynamics/National Steel & Shipbuilding Co. RUSSELL GOLDSMITH Chairman/CEO City National Bank MARTY KELLER Director Office of Small Business Advocate Daniel P. Feldhaus, CSR, Inc. 916.682.9482 3 st Commission on the 21 Century Economy – August 28, 2009 A P P E A R A N C E S Presenters Continued GREG LIPPE Managing Partner Lippe, Hellie, Hoffer & Allison LLP ERIC MIETHKE Motion Picture Association of America MIKE ROCKENBACH Chief Financial Officer Emulex --oOo-- Public Testimony MICHAEL D. SHAW Legislator Director National Federation of Independent Business WILLIAM SPILLANE Americans for Fair Taxation CHRISS STREET Treasurer-Tax Collector County of Orange ---o0o--- Daniel P. Feldhaus, CSR, Inc. 916.682.9482 4 st Commission on the 21 Century Economy – August 28, 2009 Table of Contents Item Page Welcome and Introductions Chair Parsky .............................. 7 Banking/Finance: Russell Goldsmith Chairman/CEO City National Bank ......................... 12 Technology: Mike Rockenbach Chief Financial Officer Emulex ..................................... 59 Entertainment Eric Miethke Motion Picture Association of America ...... 78 Ports/Shipping Jim Euphrat Tax Manager General Dynamics/National Steel and Shipbuilding Company ....................... 98 Energy Jeff Barnett Vice President, Tax Edison International ....................... 114 Daniel P. Feldhaus, CSR, Inc. 916.682.9482 5 st Commission on the 21 Century Economy – August 28, 2009 Table of Contents Item Page Small Business/Professional Services Marty Keller Director Office of Small Business Advocate ......... 129 Greg Lippe Managing Partner Lippe, Hellie, Hoffer & Allison LLP ....... 134 Hatef Behnia Tax Partner Gibson Dunn & Crutcher .................... 136 Public Comment Chriss Street Treasurer-Tax Collector County of Orange .......................... 170 Michael D. Shaw Legislator Director National Federation of Independent Business ................................. 177 William Spillane Americans for Fair Taxation ............... 180 Adjournment .................................... 185 Reporter’s Certificate ......................... 186 --o0o-- Daniel P. Feldhaus, CSR, Inc. 916.682.9482 6 st Commission on the 21 Century Economy – August 28, 2009 1 BE IT REMEMBERED that on Friday, August 28, 2 2009, commencing at the hour of 9:08 a.m., at University 3 of California, Los Angeles - Covel Commons, 330 De Neve 4 Drive, Los Angeles, California, before me, DANIEL P. 5 FELDHAUS, CSR 6949, RDR, CRR, in the state of California, 6 the following proceedings were held: 7 --o0o-- 8 CHAIR PARSKY: This forum is certainly 9 recognizable for me given my involvement with University 10 of California. I want to thank everyone for participating 11 in this public workshop. 12 Just a few comments by way of introduction. 13 As part of the process of the Commission established by 14 Governor Schwarzenegger and Karen Bass and Darrell 15 Steinberg, we have been considering a package of possible 16 recommendations. At the last Commission meeting, we put 17 forward an approach that we would take with respect to 18 the recommendations we would make, divided up, really, 19 into three sections that the report and recommendations 20 will be structured around. 21 The first section will contain tax-law changes, 22 revenue-related, that the Legislature can act on as their 23 process unfolds, but that they can act on. 24 The second section would be tax-law changes, 25 revenue-related. That may require an amendment or change Daniel P. Feldhaus, CSR, Inc. 916.682.9482 7 st Commission on the 21 Century Economy – August 28, 2009 1 to the State Constitution, or that might involve a voter 2 initiative. 3 And the third section will be recommendations 4 that commissioners will make that are for others to 5 consider, areas of reform that may be revenue-related 6 and may not be revenue-related, but that they’re areas 7 of reform that could – that, from the Commission’s 8 standpoint, others should consider. 9 That structure was agreed to by the Commission. 10 It’s been posted on our Web site, and it will serve as 11 the framework for the recommendations that we will make 12 under our deadline of September 20 th . 13 We plan to have another full commission meeting 14 on September 10 th , here at UCLA, and then, if necessary, 15 also on September 14 th of the Commission. 16 And then we also put forward a package that 17 all the commissioners wanted to still be part of the 18 consideration. And there were a number of items on that 19 package: Changes in the personal income tax, changes in 20 the corporate income tax, changes in the state sales and 21 use tax, and the possible establishment of a business 22 net-receipts tax. 23 In addition to that, there was the proposal for 24 a possible pollution tax on fuels, a split-roll property 25 tax, a severance or royalty on expanded oil drilling, a Daniel P. Feldhaus, CSR, Inc. 916.682.9482 8 st Commission on the 21 Century Economy – August 28, 2009 1 rainy-day or reserve fund, and the possibility of 2 recommending a forum or establishing a forum for settling 3 tax disputes in California. 4 That package of recommendations, or that 5 package, will serve as the basis for the ultimate 6 recommendations. It could be that some items on that list 7 wouldn’t be supported by enough commissioners and, 8 therefore, would become part of Section 3, which, as I 9 indicated, would be recommendations for others to consider 10 as part of reform. And they could be parts of Sections 1 11 or 2. 12 Anything outside of that package could still be 13 part of Section 3 but would not be part of Sections 1 or 14 2. That’s the structure. 15 Now, we’ve been looking extensively at a major 16 change in the tax system around a new form of tax, and 17 that’s the business net-receipts tax. And the Commission 18 felt that because of the magnitude of this potential tax, 19 the fact that it would be new to California, that more 20 work really needed to be done by the Commission to 21 understand the impact of such a tax on various taxpayers, 22 parts of our community. And, therefore, it was 23 recommended that we hold public workshops just around 24 that tax. And I was able to get the voluntary 25 contributions of John Cogan and Chris Edley, two Daniel P. Feldhaus, CSR, Inc. 916.682.9482 9 st Commission on the 21 Century Economy – August 28, 2009 1 commissioners to help conduct these workshops. 2 We have sought the expertise of the Franchise 3 Tax Board, of the Legislative Counsel’s office, of the 4 Legislative Analyst’s Office; and we also have, working 5 with us, representatives from Ernst & Young that have done 6 a lot of work in state taxation. And June Haas, who is 7 here with us, who is a private practicing lawyer, but was 8 very involved as commissioner in the state of Michigan, 9 and very familiar with the approach taken by Michigan to 10 a similar, although not exactly the same, form of tax. 11 We also have two commissioners here -- all 12 commissioners are welcome -- Curt Pringle and Ruben 13 Barrales -- to listen to this give-and-take impact of 14 this tax. 15 These workshops are only oriented around this 16 business net-receipts tax. However, I think it is very 17 important that the community, as a whole, step back and 18 understand the relationship between the changes that 19 might be made in the other taxes and their impact on 20 business, individuals, others in California. Because it 21 is a package, and will be seen as a package. But the 22 purpose here is for us to understand the reactions of 23 people, to have an open give-and-take about it. 24 We would all urge that the people that would 25 be presenting to us here, as the people that presented to Daniel P. Feldhaus, CSR, Inc. 916.682.9482 10 st Commission on the 21 Century Economy – August 28, 2009 1 us two days ago in San Francisco, orient their comments 2 around this tax.