Multistate Tax Update -- August 27, 2015

Washington: Seattle enacts controversial gun tax, which is already being challenged

Seattle

In an Aug. 10, 2015, statement on approval of firearms and munitions tax, which addressed the unanimous passage of Seattle’s “gun violence tax,” Mayor Ed Murray applauded the city council’s vote. The gun violence tax will raise revenues for funding gun violence research, prevention, and education. The mayor said, “Seattle’s youth deserve action and today’s council vote is a meaningful step forward.”

The city council passed two pieces of legislation. The first was CB 118436, which imposes a mandatory reporting requirement when a firearm is lost or stolen. The person who owned or was in possession of the firearm must report the theft or loss to the Seattle Police Department within 24 hours of the discovery. The report must include, to the extent known, the following:

1. The firearm’s caliber, make, model, manufacturer, and serial number.
2. Any other distinguishing number or identification mark on the firearm.
3. The circumstances of the loss or theft, including the date, place, and manner.

Failure to report could generate a $500 fine.

In addition, CB 118437 authorizes the imposition of a tax rate which equals the total of:

• $25 per firearm sold at retail
• $.02 per round of ammunition that contains a single projectile that measures .22 caliber or less sold at retail
• $.05 per round of ammunition for all other ammunition sold at retail

CB 118437’s fiscal note estimates that the tax will generate $300,000 to $500,000 per year. It justified the tax on the basis of research that the Harborview Injury Prevention and Research Center conducted for the Seattle City Council.

CB 118437 cites additional statistics, including the following:

• Total economic costs of firearm deaths and injuries in King County averaged $181 million per year from 2009 to 2013.
• In 2014 alone, the direct medical costs of treating 253 gunshot wound victims at the regional trauma center for the Pacific Northwest was more than $17 million, or approximately $68,000 per gunshot victim.
• Taxpayer funds covered more than $12 million of the trauma center’s 2014 direct medical costs.

For these and other reasons, the city council concluded that “the creation of a sustained local revenue source through a tax on the sale of firearms and ammunition would provide broad-based public benefits for residents of Seattle related to gun violence by funding programs that promote public safety, prevent gun violence, and address in part the cost of gun violence in [Seattle].”

Opposition to the gun tax

Gun advocates disapprove of the legislation and are willing to fight their position in court. For example, a guns.com article published prior to passage of the Seattle legislation warned that the National Shooting Sports Foundation would “vigorously oppose this misguided attempt to blame the lawful and regulated commerce in firearm and ammunition products for the violent acts of criminals…The proposed tax is nothing but a poll tax on the exercise of a fundamental civil liberty protected by the Second Amendment.”

True to its word, the National Shooting Sports Foundation, along with the National Rifle Association, the Second Amendment Foundation Inc., and two firearms retailers, sued the city of Seattle. The complaint asks the court to declare that the legislation “violates Washington statutory and constitutional law and is therefore null and void.” In addition, the plaintiffs want the court to enjoin Seattle from collecting the new taxes, and from otherwise enforcing the legislation.

A Second Amendment Foundation news release quoted a National Shooting Sports Foundation spokesperson, who insisted that “[n]o municipality can be permitted to set itself apart as a city-state, in defiance of existing law, especially for the purpose of financially penalizing law-abiding gun owners for problems they did not create and crimes they didn’t commit…”

Related news in Illinois and Missouri

In the wake of the numerous, well-publicized acts of gun violence that have occurred throughout the nation, many individual jurisdictions are attempting to impose “sin taxes” and other laws to help stop such violence from happening. In Illinois, the Cook County Firearm Tax Ordinance, effective April 1, 2013, imposes a $25 per firearm tax. At the time, Cook County Board President Toni Preckwinkle reasoned that the revenue would contribute more resources to the “vital public health system,” in which gunshot victims account for more than 30 percent of the patients populating the trauma center. Preckwinkle expected the firearm tax to generate $600,000 each fiscal year.

In Missouri, there are two bills currently pending, though there are no hearings scheduled for either of them. The first, HB 75, imposes an additional tax of one cent on every retail sale of any handgun or ammunition in Missouri, to be used solely for body cameras for police officers. HB 76 imposes a 1 percent privilege tax on sellers for the sale of certain items, and funnels the proceeds into a “Peace Officer Video Camera Sales Tax Fund.”

Wisconsin: Gov. Walker allocates $80 million for Milwaukee sports complex

In an Aug. 12, 2015, press release, Wisconsin’s Gov. Scott Walker announced that he had signed SB 209 into law, thereby authorizing the construction of, and making appropriations for, a new sporting complex in Milwaukee. During the bill signing at the State Fair Park in Milwaukee, the governor proclaimed that “[t]his is a great day for the city of Milwaukee and taxpayers across the state…For every dollar the state is investing in this project, state taxpayers will get a $3 return through income tax revenue.”

The proposed sports and entertainment arena is estimated to cost $500 million, and is part of $1 billion of additional economic development projects in downtown Milwaukee. SB 209 allocates $80 million of state dollars over the next 20 years toward the construction of the arena. The $80 million investment protects the current $6.5 million Wisconsin receives annually from income taxes related to the Milwaukee Bucks basketball team, as well as future increases in those revenues for state taxpayers.

The press release further reveals that $250 million of the remaining funding will come from current and former team ownership, and the rest from local governments through infrastructure investment, direct funding, and financing through the Wisconsin Center District (WCD).

The Legislative Fiscal Bureau notes that the city of Milwaukee will finance the construction of a $35 million parking structure and $12 million in bonds for a tax incremental financing district development near the arena.

In addition, WCD would provide $203 million in bond proceeds for the project, using the following revenues to fund the debt service:

1. $55 million in bonding would be supported by a $4 million annual General Purpose Revenue (GPR) appropriation from the state to make grants to the district, which would sunset in 2035 and would be limited to $80 million.
2. $55 million in bonding would be supported by a separate $4 million annual GPR appropriation from the state to make grants to the district which would also sunset in 2035, and would be offset by GPR revenues associated with the first $4 million annually in Milwaukee County debts that the state Department of Revenue would be required to collect on behalf of the County.
3. $93 million in bonding would be financed by indefinitely extending the existing WCD taxes, which would otherwise end after the district's current debt is retired, which is scheduled to occur in 2032.

The Journal Sentinel reported that opponents of SB 209 argue that the deal “would benefit the team's already wealthy owners and would come as the state is cutting spending on infrastructure and the University of Wisconsin System.” But Gov. Walker reasoned that “Wisconsin needed to keep the team and its stream of income taxes in the state…It's cheaper to keep them.”

SBNation, a Vox media publication, characterized the deal as “[a] major coup for the NBA and the very rich people who own NBA teams, that is. A major coup for the builders and developers, for urban landowners and investors, for the politicians riding coattails. Another successful blackmail complete. A job well done.” Pointing to numerous other cities that have publically funded sports complexes (like Sacramento, Brooklyn, Orlando, Charlotte, Memphis, Houston, San Antonio, Oklahoma City, Dallas, and Miami), SBNation laments the fact that “[c]ity by city, vote by vote, the general public has ended up subsidizing a huge portion of the NBA's business.”

California: Agencies assist taxpayers with guidelines and audit information

Increased audits

Earlier this month, the Franchise Tax Board (FTB) announced that it would be increasing the number of audits for taxpayers deducting employee business expenses (EBE), starting in August with the 2011 and 2012 tax years. The FTB explained that it had discovered a large number of taxpayers who claim unreimbursed EBE on Schedule A that appear to be questionable.

The FTB reminds taxpayers that it defines valid employee business expenses as those that are:

• Paid or incurred during your tax year
• Required to carry on a trade or business
• Ordinary and necessary
• Not reimbursed by one’s employer
• Not eligible to obtain reimbursement from one’s employer

The audit involves, in part, the FTB’s request that taxpayers who claim these expenses provide their employer's reimbursement policy and other documentation to substantiate their claims.

Taxpayers can file amended tax return(s) if their business expenses do not qualify for a deduction.

Head of household guidelines

In a recent publication, the FTB reminded California taxpayers of the requirements for claiming a head of household status, which enables a lower tax liability and a higher standard deduction than the single filing status. In order to qualify for head of household filing status the taxpayer must meet all of the following requirements:

• The taxpayer was unmarried and not a registered domestic partner (RDP), or they met the requirements to be considered unmarried or considered not in a registered domestic partnership as of the last day of the tax year.
• The taxpayer paid more than one-half the costs of maintaining his or her home for the year.
• The taxpayer’s home was the main home for the taxpayer and a qualifying person who lived with the taxpayer for more than one-half the year. For limited exceptions to this rule, see the discussions regarding for parent/stepparent (father or mother) and temporary absence in FTB Publication 1540, California Head of Household Filing Status.
• The qualifying person was related to the taxpayer and met the requirements to be a qualifying child or qualifying relative.
• Generally, the taxpayer was entitled to a Dependent Exemption Credit for their qualifying person. However, under limited circumstances, the taxpayer does not need to be entitled to a Dependent Exemption Credit for his or her qualifying child. See FTB Publication 1540 and our law summary, Head of Household Filing Status, Taxpayer Unmarried, and Not in a Registered Domestic Partnership, Applicable to Tax Years 2007 and Thereafter, Section B.1.e.
• The taxpayer was not a nonresident alien at any time during the year.

The publication also contains several additional links to assist taxpayers to avoid an error while claiming the head of household status and being subject to the resulting tax assessment with interest.

New web portal

Last month, the Governor’s Office of Business and Economic Development (GO-Biz) announced its launch of the California Business Portal, “a one-stop-shop website for business owners looking for information and assistance.” The portal provides information to business owners on new business start-ups, permits and licenses, incentives, and local resources, among other things.

Key features of the portal include the following:

• Quick start guides: Short guides that contain the essential information for starting and growing specific types of businesses in California.
• California business navigator: Custom information for individual business, such as permits, licenses, and incentives.
• Service desk: Answers to commonly asked questions, customizable when a business owner submits a specific question.

The portal also provides more particularized assistance, like the Innovation and Entrepreneurship unit, which administers California’s Innovation Hub (iHub) program. The unit “functions to develop an environment that encourages entrepreneurship, promotes long-term economic growth, and facilitates job creation through innovation. It also serves to convene key stakeholders needed to support GO-Biz activities throughout the state as well as stimulate entrepreneurship and the development of California’s innovation workforce.”

For additional information regarding these subjects, or any other multistate tax issues, please contact one of the attorneys listed below.