“May you live in interesting times” is an ironic statement often referred to as “an old Chinese curse,” but in the case of California businesses, 2018 will be about as “interesting” as we can stand.

Many of the “interesting” government affairs aspects for this year will come from the ongoing war between the California state government and the Trump administration with businesses caught in the middle.

The first battleground is over immigration with the state declaring itself a “sanctuary” for “undocumented” immigrants. The federal government is searching for “illegal” immigrants with three different agencies: U.S. Customs and Border Protection (CBP), U.S. Citizenship and Immigration Services (USCIS) and U.S. Immigration and Customs Enforcement (ICE).

At the state level a new law effective January 1st, A.B. 450, tells business owners to not cooperate with these federal enforcement agencies unless they go through the time- consuming effort to obtain federal court warrants. The feds have started inspecting the employment records of 100s of California businesses as a prelude to enforcement actions, which will mean deportations for workers and big fines for businesses who hire them.

And Then There are Taxes

Another area where the state and federal governments are clashing is over taxation. California State President Pro Tem- pore Kevin de León unveiled two bills, SB 227 and SB 581, to set up a little two-step where business owners and other high- income individuals could elect to make “charitable contributions and gifts” to a newly created California Excellence Fund. In ex- change, the state would issue tax credits of an equivalent amount.

The taxpayers could then claim this charitable deduction on their federal income tax return. A $1,000 “donation” to the fund diminishes state income tax liability by $1,000, so there would be no state tax benefit due to reclassifying this tax payment as a charitable contribution. However, the reclassification could lower federal taxes by $370 per $1,000 “donated.”

The federal government says no distinction exists between how tax dollars get spent and how dollars from this “charitable” fund get spent. The legislature would choose how to spend the dollars collected by the fund just as it determines how to spend capital classified as tax revenue. Taxpayers would receive “value” in the form of state activities, which the feds say negates the charitable purposes, so de León has amended his bill, so the “donation” amounts to 85 percent of the federal deductibility.

Now that’s what we call interesting. We’ll be working all year to help protect your business from getting caught in these conflicts.

By Dave Sorem, P.E.
ECA Government Affairs Chairman email: [email protected]