The passage of Proposition 30 resulted in an increase to the tax rates on optional gains on sales of real estate for individuals, non-California partnerships, S corporations, and financial S corporations, effective January 1, 2012. As a result of the tax increases, the new rates are as follows: 12.3 percent for individuals and non-California partnerships; 13.8 percent for S corporations; and 15.8 percent for financial S corporations. However, California’s revised forms did not reflect the increased rates until late 2012. If the lower rate was used during 2012, California has announced that it will find reasonable cause and not impose penalties on any underpayment due to the Proposition 30 rate increase. California FTB Public Service Bulletin No. 13-09 (Feb. 2, 2013).
Co-author - Patrick Smith, Director Baker Tilly Virchow Krause, LLP
Mr. Ely is a partner and Messrs. Thistle and Rhyne are associates with the multistate law firm of Bradley Arant Boult Cummings LLP in its Birmingham, Alabama office. Mr. Ely is Chair of the firm’s State & Local Tax Practice Group. Messrs. Ely, Thistle, and Rhyne co-author a chapter on the state taxation of PTEs in the treatise “Keatinge, Conaway and Ely on Choice of Business Entity” (West). Mr. Smith is the Tax Director at Baker Tilly Virchow Krause, LLP and is head of State & Local Tax Services for the firm’s Chicago office. Mr. Smith is a co-author of “State Taxation of Pass-Through Entities and Their Owners,” a treatise published by Warren Gorham and Lamont/West since 2005. Messrs. Ely and Smith have co-presented on this topic at NYU’s Institute on Federal Taxation, as have Messrs. Thistle and Smith for a webinar hosted by Strafford Publications in early June.