If your business operates in California or you have clients in the Golden State, then you already know how challenging the state’s tax laws are. With five state revenue agencies and stark differences in relation to federal law, preparing taxes or offering counsel to clients is no easy matter. Throw in a brand-new industry—recreational cannabis—and changes to MyFTB, and tax pros and business owners relying on obsolete advice can find themselves in a hole.
Among the biggest quandaries facing taxpayers is the potential for being stuck in a federal-California tax law quandary, says Vicki L. Mulak, a certified financial planner and tax preparer who lives in Tustin, Calif. and frequently speaks on California tax guide updates. Reconciling federal and state tax law differences can be particularly stressful, as can handling proceeds from legal cannabis sales, says Mulak in her webinar for Eli Financial, “California Tax Tutorial: Legislation, Federal Issues, Cannabis, and Non-Resident Taxation.”
MyFTB Changes: Access Requirements and POA Declarations
The state’s Franchise Tax Board (FTB) announced updates in January, March, and June of this year. The January updates included:
- A different login home page for tax pros;
- A display of reasons why a power of attorney (POA) declaration may have been rejected; and
- The ability to view different POA approvals or rejections.
The March updates included:
- Immediate display of POA declarations submitted by individuals;
- Improved display of individual amended returns; and
- Added security measures.
The June updates included:
- The requirement that tax pros obtain authorization for certain kinds of account access; and
- The ability to update multiple POA declarations at the same time.
State May Lower Legal Marijuana Tax
Voters in California approved legal recreational marijuana sales in 2016 with the passage of Proposition 64. Public sales began Jan. 1, 2018, but by March the state had announced that sales were below projections—possibly because taxes were so high, the Orange County Register reported.
“High taxes and a lack of licensed operators are driving customers back to a well-entrenched black market,” the newspaper reported. “And that logjam is keeping many cannabis retailers and others in the cannabis business in the shadows.”
Taxes on recreational sales in the state include a 15-percent sales tax and additional taxes on cannabis flowers and leaves. Taken together, the taxes are never less than 20 percent and occasionally as high as 40 percent—in other words, substantially higher in most circumstances than taxes in other weed-legal states, noted the San Jose Mercury News.
In March 2018, legislators proposed a cut in the marijuana sales tax by 4 percent and a suspension of cultivation taxes through mid-2021. That bipartisan effort stalled in late May, though some in the industry are still hoping for a tax cut, reported CBS Sacramento.
Tax Relief Available for Flood, Wildfire Victims
Residents and property owners who were affected by floods and wildfires in California in 2017 have several relief options at their disposal. Federal extensions for victims in certain counties were issued, though those expired earlier this year, reports the Internal Revenue Service. There are also provisions for casualty losses.
“Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year,” the agency noted. “Individuals may deduct personal property losses that are not covered by insurance or other reimbursements.”
For more information, see Form 4684 and its accompanying instructions.
The state echoed many of the federal deadline extensions and notes the existence of casualty loss provisions for both fires and floods as well as earthquakes.
With the state Legislature reconvening on Aug. 6, notes Mulak, plenty more changes are likely to take place—don’t get caught relying on old information as we move into the second half of the tax year.
