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Steve Sims, Taxpayers' Rights Advocate.

Indexing Tables

September 2009 - I have received a number of questions through our Systemic Issue Management System on indexing since California released its indexing tables in August. This month, in my Ask the Advocate column, I’d like to address one question I think most practitioners are interested in:

As a California practitioner, I am frustrated every year that you do not publish the current-year tax rates until that year is almost over. This makes it difficult for me to advise my client on how to withhold state taxes accurately. It would be very helpful if you would announce the upcoming year's tax rates and brackets at the start of the year. The IRS does this for federal taxes, so I'm not sure why it's not possible for California.

To create California’s indexing table for the current year, we are required by law (R&TC 17041) to use the California consumer price index (CPI) change between June of the preceding year and June of the current year as transmitted by the Department of Industrial Relations to us by August 1. The inflation adjustment is then applied to the “preceding taxable year income tax brackets” to arrive at the current year brackets. This prevents us from releasing the indexed brackets before August 1. For instance, the June 2008 – June 2009 CPI change is applied to the 2008 tax brackets (the “preceding taxable year”) to give us the 2009 taxable year brackets.

The IRS times it differently (based on the federal tax code). They use the August to August CPI change for the “preceding” year to determine the tax brackets for the current taxable year. So the IRS would apply the August 2007 – August 2008 CPI change (the “preceding” year) to the 2008 tax brackets to arrive at the 2009 taxable year brackets. By the end of 2008, they can publish the 2009 brackets.

Each August, as soon as we have the new index rates ready, we publish and post a News Release to our website to let taxpayers and practitioners know the new rates as soon as possible. Please see this year’s release, 2009 State Income Tax Rates Adjusted, for specifics on the 2009 rates.

Steve Sims, EA
Taxpayers' Rights Advocate

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