California taxpayers should note the changes made to these tax laws over the last several months. Here’s an overview of what you may have missed:

Unclaimed Property Law and CA AB 466

California law requires holders of unclaimed property to attempt to notify owners of the property regularly, to keep records of the property and to turn over the property to the State Controller’s Office after the appropriate dormancy period. Unclaimed property could be:

• • Uncashed payroll or commissions checks
  • Uncashed payable or vendor checks
  • Gift certificates and gift cards
  • Customer merchandise credits, layaways, deposits, refunds, or rebates
  • Overpayments or unidentified remittances
  • Suspense accounts
  • Unused or outstanding benefits (non-ERISA)
  • Miscellaneous income/bad debt expense accounts

Under California Assembly Bill 466, the dormancy period has been set to one year for payroll accounts and three years for Securities, Accounts Receivable and Payable, and Disbursements. The law also requires businesses to review their books and records annually to determine if they have any unclaimed property to report. Keep in mind, businesses must also complete the following reporting requirements:

• • Notices must be sent to account owners when the value is $50 or more prior to reporting the property to the SCO
  • Property valued at $24.99 or less may be combined into an aggregate report, however it is not recommended. Holders who do not send identifying information with these reports may be asked to assist with researching claims.
    • Securities types SC01-SC20 and safekeeping properties typed SD01-SD03 are exceptions to the aggregate rule.
  • Businesses with no unclaimed property are encouraged to submit form UFS-1 to report the lack of unclaimed property on their books.
  • If less than 10 properties are identified, holders may submit a paper-filing on form UDS-1.

In addition, the State of California identifies the following filling and reporting deadlines:

Property Tax Compliance

Personal property owners in California will receive annual assessments and tax bills for the personal property based on their county or local jurisdiction laws. In order to stay in compliance with tax laws, keep these points in mind:

• • Personal property returns must be filed by April 1 for all taxpayers owning personal property in California.
  • Appeals can be filed during the appropriate window; however, they cannot be changed once the tax bill is received. The appeals dates usually fall on September 15^th or November 30^th, depending on the jurisdiction.
  • The tax liability is not allowed to increase more than 2% a year from the base value. This value may reset if the property changes hands.
  • Assessors use a property record card to determine tax liability. It is up to the homeowner to determine if the information on the card is correct. Check the assessors report for the square footage of the property, acreage of the lot, and zoning and use categories.
  • Personal property returns are generally audited every four years.

Pass-through Entity (PTE) Taxes

The Tax Cuts and Jobs Act limited the state tax deduction for personal income in pass-through entities to $10,000. In California, pass-through entities pay tax, and the PTE owns remain taxable on the distributive shares of income. However, the owners receive a tax credit for a share of the PTE tax. The nonrefundable tax credit can be carried forward for up to 5 years.

In order to qualify as a pass-through entity, the election must be made annually and consented to by each owner to the pass-through entity. Payments of more than $1,000 or 50% of the prior year PTE tax are due by June 15 of the current tax year, with the remaining due on March 15 of the following year. This is effective for tax years beginning January 1, 2021 or later and before January 1, 2026.

California City Business Taxes of Note

The following are business taxes that business owners should be aware of for San Francisco and Los Angeles.

• • San Francisco Gross Receipts Tax Payments: Businesses with more than $2.09 million in combined gross receipts are subject to a gross receipts tax payment. Estimated payments are due April 30, July 31, and October 31. Annual filings and final payments are due February 28 of the year immediately following the tax year.
  • San Francisco Administrative Office Tax: If your business had more than 50% of the total combined payroll expense for the previous year providing for administrative or managerial services to the taxpayer, has 1000 or more employees, and has more than $1 billion in combined gross receipts reportable on federal income tax returns, a 2.9% tax will be applied.
  • San Francisco Commercial Rents Tax: Landlords will be subject to the commercial rents taxes of 1% on the lease or sublease of warehouse space, and 3.5% on the lease or sublease of commercial space. This tax is filed with the annual business tax return.
  • Los Angeles Business Tax: For businesses operating within Los Angeles, business tax renewals are due February 28.

Middle Class Tax Refund Tax Treatment

In late 2022 and early 2023, California issued qualified taxpayers a total of $9.2 billion in refunds of tax overpayments, called the Middle Class Tax Refund. The State of California noted these payments are not liable for state taxes previously. In February, the IRS determined that it will not challenge the tax treatment of these payments on 2022 tax filings, citing their general welfare and disaster relief exception.

Extension of Tax Filing and Payment Due Dates

Due to historically high rain, snow, and flooding in much of California, the IRS is offering disaster relief assistance in the form of due date extensions on required tax filings and payments. The new deadline for tax payments due from January through October is October 16, 2023. This includes:

• • 2022 Fourth Quarter Estimated Taxes (Originally Due 1/17/2023)
  • 2022 Tax Filings (Originally Due March 15, April 18, or May 15)
  • 2023 Estimated Tax Payments for first, second, and third quarters
  • 2023 Payroll and Excise Tax Payments (Originally due January 31, April 30, and July 31)
  • 2022 Retirement Contributions
  • Pass-through entity (PTE) elective tax payments due on March 15, 2023, and June 15, 2023

For more information on the counties qualified for tax relief and what payments have been extended, please visit the IRS press release or call our team.