Tag: Personal taxes

Your home sale could trigger capital gains taxes. Here’s how to calculate your bill

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As home values climb, more Americans owe capital gains taxes when selling property. But knowing how to calculate your home’s profit could reduce your bill, experts say.

Most Americans do not owe taxes for selling a primary residence because of a special tax break — known as the Section 121 exclusion — that shields up to $250,000 of profits for single filers and $500,000 for married couples filing together.

However, more U.S. home sales profits now exceed these thresholds, according to an April report from real estate data firm CoreLogic. Nearly 8% of sales exceeded the $500,000 limit in 2023, up from roughly 3% in 2019, the report found.

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There are strict IRS rules to qualify for the $250,000 or $500,000 exemptions. Any profit above those limits is subject to capital gains taxes, levied at 0%, 15% or 20%, based on your earnings.

Capital gains brackets use “taxable income,” which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

Reduce capital gains by increasing ‘basis’

“It is important to track your cost basis of the home,” which is your original purchase price plus closing costs from the purchase, according to Thomas Scanlon, a certified financial planner at Raymond James in Manchester, Connecticut.

You can reduce your home sale profit by adding often-forgotten costs and fees to your basis, which minimizes your capital gains tax liability.

For example, you can start by tacking on fees and closing costs from the purchase and sale of the home, according to the IRS. These may include:

Title fees

Charges for utility installation

Legal and recording fees

Surveys

Transfer taxes

Title insurance

Balances owed by the seller

These could be small amounts individually but have a significant effect on the basis when tallied.

The average closing cost nationwide is $4,243, according to a report from Assurance, but fees vary widely. In the priciest state, New York, the average is $8,039, while California is a close second at $8,028.

“You also get credit for the expenses for the sale of the property,” added Scanlon, who is also a certified public accountant. That includes your real estate commissions and closing costs.

However, there are some fees and closing costs you cannot add to your basis, such as home insurance premiums or rent or utilities paid before your closing date, according to the IRS.

Similarly, loan charges such as points, mortgage insurance premiums, the cost to pull your credit report or appraisals required by your lender will not count.

The ‘best way’ to reduce capital gains taxes

You can further increase your home’s basis by tacking on the cost of eligible upgrades, experts say.

“The best way to minimize the tax owed from selling a house is to maintain an accurate record of home improvements,” said CFP and enrolled agent Paul Fenner, founder and president of Tamma Capital in Commerce Township, Michigan.

An improvement must “add to the value of your home, prolong its useful life or adopt it to new uses,” according to the IRS.

For example, you can increase your basis with additions, outdoor or exterior upgrades, adding new systems, plumbing or built-in appliances.

However, you cannot tack on repairs or maintenance needed to “keep your home in good condition,” such as fixing leaks, holes or cracks or replacing broken hardware, according to the IRS.

Of course, you will need documentation for any improvements used to increase your home’s basis in case of a future IRS audit.

If you do not have receipts, “at the very least, take pictures,” and gather any permits pulled for home projects, Scanlon from Raymond James said.

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May 13, 2024
Public workers may receive reduced Social Security benefits. There’s growing support in Congress to change that

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Araya Doheny | Getty Images

When Dave Bernstein, 87, started working at the U.S. Postal Service in February 1970, he was making $2.35 an hour.

To supplement his income, he also took on other work. Years later, Bernstein decided in 1992 to take a voluntary retirement.

“We knew there was going to be a reduced pension because of the early out,” said Phyllis Bernstein, Dave’s wife, who is 84.

But what came next was something the couple did not expect.

While Dave was expecting a monthly Social Security check of around $800, it ended up being just about half that amount – around $415 – even though he had earned the required 40 credits to be fully insured by the program. The benefits were adjusted based on rules for workers who earn both pension and Social Security benefits.

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The couple, who reside in Tampa, Florida, have had a different retirement than they envisioned due to the lower income.

Phyllis kept working until she was 82. They have also turned to family for financial support.

Their lifestyle is frugal, with home-cooked meals and cars they kept for 20 years, or “until the wheels were falling off,” the couple jokes.

But their limited resources have made traveling to Australia and New Zealand – Phyllis’ dream – out of reach.

“When he retired, I was working,” Phyllis said. “We just couldn’t do the travel.”

Today, Dave is pushing for the Social Security rules that reduced his benefits to be changed.

His union, the American Postal Workers Union, has endorsed the Social Security Fairness Act, a bill proposed in Congress that would repeal Social Security rules known as the Windfall Elimination Provision, or WEP, and Government Pension Offset, or GPO, that reduce benefits for workers had positions where they did not pay Social Security taxes, also called non-covered earnings.

The legislation has support from other organizations that represent public workers, including teachers, firefighters and police.

The bill has overwhelming bipartisan support in the House of Representatives – 300 co-sponsors – at a time when that chamber has been politically divided. That support recently prompted House lawmakers to send a letter to leaders of the Ways and Means Committee to request a hearing.

The Social Security Fairness Act has also been introduced in the Senate, with support from 49 leaders from both sides of the aisle.

Yet some experts say just getting rid of the rules may not be the most effective way of making the system fairer.

How the WEP, GPO rules work

The WEP applies to how retirement or disability benefits are calculated if a worker earned a retirement or disability pension from an employer who did not withhold Social Security taxes and qualifies for Social Security from work in other jobs where they did pay taxes into the program.

Social Security benefits are calculated using a worker’s average indexed monthly earnings, and then using a formula to calculate a worker’s basic benefit amount. For workers affected by the WEP, part of the replacement rate for the average indexed monthly earnings is brought down to 40% from 90%.

The GPO, meanwhile, reduces benefits for spouses and widows or widowers of recipients of retirement or disability pensions from local, state or federal governments.

It affects hundreds of thousands, if not millions of public employees that paid into Social Security and essentially are being penalized because they also happen to be public servants.

Edward Kelly

general president of the International Association of Fire Fighters

Under the GPO, Social Security benefits are reduced by two-thirds of the government pension. If two-thirds of the government pension is more than the Social Security benefit, the Social Security benefit may be zero.

The impact of the rules is far reaching, according to Edward Kelly, general president of the International Association of Fire Fighters. Many firefighters work in second jobs in the private sector as cab drivers, bar tenders or truck drivers, where they earn credits toward Social Security.

“They steal their money, because they’re also public employees,” said Kelly, who describes his union members as “passionately angry” about the issue.

“It affects hundreds of thousands, if not millions of public employees that paid into Social Security and essentially are being penalized because they also happen to be public servants, whether they are teachers, cops and, obviously, firefighters,” Kelly said.

Why experts say another fix may be better

The WEP and GPO rules were intended to make it so workers who pay Social Security taxes for their entire careers are treated the same as those who do not.

But under those current rules, some beneficiaries receive lower benefits than they would have if they paid into Social Security for all of their careers, while others receive higher benefits, according to the Bipartisan Policy Center.

Yet repealing the WEP and GPO rules would result in Social Security benefits that are “overly generous” for non-covered workers, research has found.

Part of what may create that advantage is that Social Security benefits are progressive, and therefore replace a larger share of income for lower earners. So someone who only has part of their salary history in Social Security may get a higher replacement rate without considering their pension income.

Fully repealing the WEP and GPO rules may also come with higher costs at a time when the program facing a funding shortfall. The change would add an estimated $150 billion to the program’s costs in the next 10 years, according to the Center on Budget and Policy Priorities.

Another way of handling the disparity may be to create a proportional approach to income replacement. Instead of the WEP, workers’ benefits would be calculated based on all of their earnings and then adjusted to reflect the share of their careers that were in jobs covered by Social Security. A similar approach may be taken with the GPO.

Certain bills on Capitol Hill propose a proportional approach.

However, a proportional formula may not solve all the inequities in the current system, according to Emerson Sprick, senior economic analyst at the Bipartisan Policy Center, which has prompted to think tank to work on refining its proposal.

‘Extremely complex’ to understand

An important advantage to reforming the current formulas would be making it easier for workers to understand and plan for their retirements.

“It is definitely extremely complex, and very hard for folks preparing for retirement or in retirement, to understand what it means for their benefits,” Sprick said.

Social Security statements that provide retirement benefit estimates do not take these rules into account.

Consequently, many workers find out their benefits are adjusted when they are about to retire.

shapecharge | E+ | Getty Images

“The young guys don’t pay attention to it because it’s too far out; they’re not worried about it,” Kelly said of the firefighters.

“It’s not until you’re ready to go out the door that you actually start paying attention to what you’re going to have to live off when you actually retire,” he added.

The reductions to their Social Security benefits can be a shock.

For beneficiaries like the Bernsteins who start out with lower benefits, it can be difficult to catch up, even after a record 8.7% Social Security cost-of-living adjustmentw went into effect this year.

“Gas this summer and in the spring at $4 a gallon ate that money up like it wasn’t even there,” Dave Bernstein said.

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November 12, 2023
IRS says many state rebates aren’t taxable at the federal level. Some may face filing struggle, tax pros warn

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The IRS on Friday issued federal tax guidance for millions of Americans who received state rebates or payments in 2022.

The announcement came about a week after the agency had urged those taxpayers to hold off on filing while it determined if the funds are taxable on federal returns.

“The IRS has determined that in the interest of sound tax administration and other factors, taxpayers in many states will not need to report these payments on their 2022 tax returns,” the agency said in a statement.

The agency said taxpayers in California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island won’t need to report these payments on their federal tax returns. Some Alaska taxpayers may also avoid federal levies on certain payments.

Taxpayers in Georgia, Massachusetts, South Carolina and Virginia may also skip federal tax reporting for some payments. But eligibility may hinge on factors from your previous tax filings.

More from Smart Tax Planning:

Here’s a look at more tax-planning news.

Californians may still face filing challenges

“This is the right ruling by the IRS,” said Adam Markowitz, an enrolled agent and vice president at Luminary Tax Advisors in Windermere, Florida. “It’s unfair to punish taxpayers this late in the game if they were going to change anything.”

However, he said there may be challenges for California taxpayers because the state already issued them 1099-MISC forms for payments of more than $600, which reported the state’s “Middle Class Tax Refund” as a taxable payment to the IRS.

More than 16.5 million California taxpayers have received the payment, according to the state’s Franchise Tax Board. Overall, more than 31.6 million residents benefited including taxpayers and their dependents.

“The state of California really did everyone a disservice by issuing 1099-MISC [forms],” said Dan Herron, a San Luis Obispo, California-based certified financial planner at Elemental Wealth Advisors. He is also a certified public accountant.

If the state doesn’t amend and reissue those forms to the IRS, it may cause a mismatch when California taxpayers file their federal returns, he said.

Typically, a mismatch between tax forms and returns triggers automated notices, which may delay refunds or require taxpayers to contact the IRS to resolve.

“I don’t know how the IRS system is going to handle that,” Herron added.

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February 10, 2023
Florida lawmakers set to meet on ailing insurance market

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TALLAHASSEE, Fla. — The Florida Legislature will meet next week for a special session on property insurance and property tax relief in the wake of damage caused by Hurricane Ian, officials announced Tuesday.

The leaders of the Florida House and Senate issued the proclamation convening the Legislature from Dec. 12 to 16.

Lawmakers will be tasked with reforming elements of the state’s troubled property insurance market, providing tax or other financial relief related to damage from Hurricanes Ian and Nicole, and creating a toll credit program for frequent Florida commuters.

The session comes as Florida’s property insurance market has dealt with billions of dollars in losses, rising prices for consumers and insurer insolvencies, even before the powerful Hurricane Ian slammed into the state in September and caused widespread damage.

Next week’s special session will be the second time the Florida Legislature met this year to address issues in the property insurance market.

Lawmakers in May passed legislation creating a $2 billion reinsurance program, offering grants to homeowners who retrofit properties to be less vulnerable to hurricane damage and limiting various attorney fees in some insurance-related lawsuits.

The legislative package was seen by many in the statehouse as a meaningful first step in repairing the market, though some said it did not do enough to immediately lower rates for homeowners.

The insurance industry blames overzealous litigation for problems in the market. Florida law allows attorneys to collect high fees in property insurance cases. State insurance regulators say the state accounts for almost 80% percent of the nation’s homeowners’ insurance lawsuits but just 9% of all homeowners insurance claims.

Attorneys’ groups have argued insurers are also to blame for refusing to pay out claims, saying homeowners file suit as a last resort.

The turmoil has caused the industry to see two straight years of net underwriting losses exceeding $1 billion each year. A string of property insurers have become insolvent, while others are leaving the state entirely.

Homeowners unable to get coverage or priced out of plans have flocked to the state’s public insurer of last resort, Citizens Property Insurance, which this summer topped 1 million policies for the first time in almost a decade.

Citizens Property Insurance was created by the state in 2002 for Floridians unable to find coverage from private insurers.

Republican Gov. Ron DeSantis in October signed an executive order extending the deadline for property taxes for homes and businesses destroyed or left uninhabitable after Ian and said lawmakers would meet this year to address additional issues related to the storm.

The governor’s office in a statement Tuesday said DeSantis “expects the legislature to rein in the costs of excessive litigation and ensure the property insurance market in Florida is both attractive to insurers and more competitive for consumers.”

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December 6, 2022
Supreme Court OKs handover of Trump tax returns to Congress

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WASHINGTON (AP) — The Supreme Court on Tuesday cleared the way for the imminent handover of former President Donald Trump’s tax returns to a congressional committee after a three-year legal fight.

The court, with no noted dissents, rejected Trump’s plea for an order that would have prevented the Treasury Department from giving six years of tax returns for Trump and some of his businesses to the Democratic-controlled House Ways and Means Committee.

Alone among recent presidents, Trump refused to release his tax returns either during his successful 2016 campaign or his four years in the White House, citing what he said was an ongoing audit by the IRS. Last week, Trump announced he would run again in 2024.

It was the former president’s second loss at the Supreme Court in as many months, and third this year. In October, the court refused to step into the legal fight surrounding the FBI search of Trump’s Florida estate that turned up classified documents.

In January, the court refused to stop the National Archives from turning over documents to the House committee investigating the Jan. 6 insurrection at the Capitol. Justice Clarence Thomas was the only vote in Trump’s favor.

In the dispute over his tax returns, the Treasury Department had refused to provide the records during Trump’s presidency. But the Biden administration said federal law is clear that the committee has the right to examine any taxpayer’s return, including the president’s.

Lower courts agreed that the committee has broad authority to obtain tax returns and rejected Trump’s claims that it was overstepping and only wanted the documents so they could be made public.

Chief Justice John Roberts imposed a temporary freeze on Nov. 1 to allow the court to weigh the legal issues raised by Trump’s lawyers and the counter arguments of the administration and the House of Representatives.

Just over three weeks later, the court lifted Roberts’ order without comment.

Rep. Richard Neal, D-Mass., the committee chairman until the next Congress begins in January, said in a statement that his committee “will now conduct the oversight that we’ve sought for the last three and a half years.”

In a message on his social media network, Trump said the Supreme Court’s action created “terrible precedent for future Presidents.” He accused the court of becoming “nothing more than a political body, with our country paying the price.”

He also said: “Why would anybody be surprised that the Supreme Court has ruled against me, they always do!”

The House contended an order preventing the IRS from providing the tax returns would leave lawmakers “little or no time to complete their legislative work during this Congress, which is quickly approaching its end.”

Had Trump persuaded the nation’s highest court to intervene, he could have run out the clock on the committee, with Republicans ready to take control of the House in January. They almost certainly would have dropped the records request if the issue had not been resolved by then.

The House Ways and Means panel first requested Trump’s tax returns in 2019 as part of an investigation into the Internal Revenue Service’s audit program and tax law compliance by the former president. A federal law says the Internal Revenue Service “shall furnish” the returns of any taxpayer to a handful of top lawmakers.

The Justice Department under the Trump administration had defended a decision by then-Treasury Secretary Steven Mnuchin to withhold the tax returns from Congress. Mnuchin argued that he could withhold the documents because he concluded they were being sought by Democrats for partisan reasons. A lawsuit ensued.

After President Joe Biden took office, the committee renewed the request, seeking Trump’s tax returns and additional information from 2015-2020. The White House took the position that the request was a valid one and that the Treasury Department had no choice but to comply. Trump then attempted to halt the handover in court.

Then-Manhattan District Attorney Cyrus Vance Jr. obtained copies of Trump’s personal and business tax records as part of a criminal investigation. That case, too, went to the Supreme Court, which rejected Trump’s argument that he had broad immunity as president.

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November 22, 2022
Supreme Court OKs handover of Trump tax returns to Congress

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WASHINGTON — The Supreme Court on Tuesday cleared the way for the imminent handover of former President Donald Trump’s tax returns to a congressional committee after a three-year legal fight.

The court, with no noted dissents, rejected Trump’s plea for an order that would have prevented the Treasury Department from giving six years of tax returns for Trump and some of his businesses to the Democratic-controlled House Ways and Means Committee.

Alone among recent presidents, Trump refused to release his tax returns either during his successful 2016 campaign or his four years in the White House, citing what he said was an ongoing audit by the IRS. Last week, Trump announced he would run again in 2024.

It was the former president’s second loss at the Supreme Court in as many months, and third this year. In October, the court refused to step into the legal fight surrounding the FBI search of Trump’s Florida estate that turned up classified documents.

In January, the court refused to stop the National Archives from turning over documents to the House committee investigating the Jan. 6 insurrection at the Capitol. Justice Clarence Thomas was the only vote in Trump’s favor.

In the dispute over his tax returns, the Treasury Department had refused to provide the records during Trump’s presidency. But the Biden administration said federal law is clear that the committee has the right to examine any taxpayer’s return, including the president’s.

Lower courts agreed that the committee has broad authority to obtain tax returns and rejected Trump’s claims that it was overstepping and only wanted the documents so they could be made public.

Chief Justice John Roberts imposed a temporary freeze on Nov. 1 to allow the court to weigh the legal issues raised by Trump’s lawyers and the counter arguments of the administration and the House of Representatives.

Just over three weeks later, the court lifted Roberts’ order without comment.

The Trump campaign did not immediately respond to a request for comment.

The House contended an order preventing the IRS from providing the tax returns would leave lawmakers “little or no time to complete their legislative work during this Congress, which is quickly approaching its end.”

Had Trump persuaded the nation’s highest court to intervene, he could have run out the clock on the committee, with Republicans ready to take control of the House in January. They almost certainly would have dropped the records request if the issue had not been resolved by then.

The House Ways and Means panel and its chairman, Democrat Richard Neal of Massachusetts, first requested Trump’s tax returns in 2019 as part of an investigation into the Internal Revenue Service’s audit program and tax law compliance by the former president. A federal law says the Internal Revenue Service “shall furnish” the returns of any taxpayer to a handful of top lawmakers.

The Justice Department under the Trump administration had defended a decision by then-Treasury Secretary Steven Mnuchin to withhold the tax returns from Congress. Mnuchin argued that he could withhold the documents because he concluded they were being sought by Democrats for partisan reasons. A lawsuit ensued.

After President Joe Biden took office, the committee renewed the request, seeking Trump’s tax returns and additional information from 2015-2020. The White House took the position that the request was a valid one and that the Treasury Department had no choice but to comply. Trump then attempted to halt the handover in court.

Then-Manhattan District Attorney Cyrus Vance Jr. obtained copies of Trump’s personal and business tax records as part of a criminal investigation. That case, too, went to the Supreme Court, which rejected Trump’s argument that he had broad immunity as president.

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November 22, 2022
Newsom to call special legislative session over gas prices

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SACRAMENTO, Calif. — California Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil company profits to punish them for what he called “rank price gouging.”

Gas prices soared across the nation this summer because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain.

But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average, according to AAA.

California has the second-highest gas tax in the country and other environmental rules that increase the cost of fuel in the nation’s most populous state. Still, Newsom said there is “nothing to justify” a price difference of more than $2.50 per gallon between California’s gas and prices in other states.

“It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid.”

The oil industry has pointed to California’s environmental laws and regulations to explain why the state routinely has higher gas prices than the rest of the country. Kevin Slagle, vice president of the Western States Petroleum Association, said Newsom and state lawmakers should “take a hard look at decades of California energy policy” instead of proposing a new tax.

“If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability — if that is what the Governor is truly interested in.”

Several states chose to suspend their gas taxes this summer, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.

It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.

The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”

That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.

Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.

The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”

“A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”

California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”

“Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.

Last month, regulators at the California Energy Commission wrote a letter to five oil refiners — Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero — demanding an explanation for why gas prices jumped 84 cents over a 10-day period even as oil prices fell. The commission wrote that the oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians.”

On Friday, Scott Folwarkow, Valero’s vice president for state government affairs, responded that “California is the most expensive operating environment in the country and a very hostile regulatory environment for refining.” He said that has caused refineries to close and tightened supply because California requires refineries to produce a specific fuel blend.

He declined to provide details about the company’s operations based on the same anti-trust concerns. But he said the company makes appropriate arrangements to source supply when some refineries are down for maintenance.

Newsom dismissed those arguments, saying that still doesn’t account for a $2.50 difference between California’s gas prices and those in the rest of the country.

“These guys are playing us for fools. They have for decades,” Newsom said.

The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.

The last time a California governor called a special legislative session was in 2015, when then-Gov. Jerry Brown asked lawmakers to pass bills about health care and transportation.

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October 9, 2022
Newsom to call special legislative session over gas prices

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SACRAMENTO, Calif. — California Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil company profits to punish them for what he called “rank price gouging.”

Gas prices soared across the nation this summer because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain.

But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average, according to AAA.

California has the second-highest gas tax in the country and other environmental rules that increase the cost of fuel in the nation’s most populous state. Still, Newsom said there is “nothing to justify” a price difference of more than $2.50 per gallon between California’s gas and prices in other states.

“It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid.”

The oil industry has pointed to California’s environmental laws and regulations to explain why the state routinely has higher gas prices than the rest of the country. Kevin Slagle, vice president of the Western States Petroleum Association, said Newsom and state lawmakers should “take a hard look at decades of California energy policy” instead of proposing a new tax.

“If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability — if that is what the Governor is truly interested in.”

Several states chose to suspend their gas taxes this summer, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.

It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.

The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”

That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.

Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.

The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”

“A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”

California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”

“Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.

Last month, regulators at the California Energy Commission wrote a letter to five oil refiners — Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero — demanding an explanation for why gas prices jumped 84 cents over a 10-day period even as oil prices fell. The commission wrote that the oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians.”

On Friday, Scott Folwarkow, Valero’s vice president for state government affairs, responded that “California is the most expensive operating environment in the country and a very hostile regulatory environment for refining.” He said that has caused refineries to close and tightened supply because California requires refineries to produce a specific fuel blend.

He declined to provide details about the company’s operations based on the same anti-trust concerns. But he said the company makes appropriate arrangements to source supply when some refineries are down for maintenance.

Newsom dismissed those arguments, saying that still doesn’t account for a $2.50 difference between California’s gas prices and those in the rest of the country.

“These guys are playing us for fools. They have for decades,” Newsom said.

The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.

The last time a California governor called a special legislative session was in 2015, when then-Gov. Jerry Brown asked lawmakers to pass bills about health care and transportation.

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October 9, 2022
Newsom to call special legislative session over gas prices

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SACRAMENTO, Calif. — California Gov. Gavin Newsom said Friday he will call a special session of the state Legislature in December to pass a new tax on oil company profits to punish them for what he called “rank price gouging.”

Gas prices soared across the nation this summer because of high inflation, Russia’s invasion of Ukraine and ongoing disruptions in the global supply chain.

But while gas prices have recovered somewhat nationwide, they have continued to spike in California, hitting an average of $6.39 per gallon on Friday — $2.58 higher than the national average, according to AAA.

California has the second-highest gas tax in the country and other environmental rules that increase the cost of fuel in the nation’s most populous state. Still, Newsom said there is “nothing to justify” a price difference of more than $2.50 per gallon between California’s gas and prices in other states.

“It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid.”

The oil industry has pointed to California’s environmental laws and regulations to explain why the state routinely has higher gas prices than the rest of the country. Kevin Slagle, vice president of the Western States Petroleum Association, said Newsom and state lawmakers should “take a hard look at decades of California energy policy” instead of proposing a new tax.

“If this was anything other than a political stunt, the Governor wouldn’t wait two months and would call the special session now, before the election,” Slagle said. “This industry is ready right now to work on real solutions to energy costs and reliability — if that is what the Governor is truly interested in.”

Several states chose to suspend their gas taxes this summer, including Maryland, New York and Georgia. Newsom and his fellow Democrats that control the state Legislature refused to do that, opting instead to send $9.5 billion in rebates to taxpayers — which began showing up in bank accounts this week.

It’s unclear how the tax Newsom is proposing would work. Newsom said he is still working out the details with legislative leaders, but on Friday said he wants the money to be “returned to taxpayers,” possibly by using money from the tax to pay for more rebates.

The state Legislature briefly considered a proposal earlier this year that would have imposed a “windfall profits tax” on oil companies’ gross receipts when the price of a gallon of gasoline was “abnormally high compared to the price of a barrel of oil.”

That proposal would have required state regulators to determine the tax rate, making sure it recovered any oil companies’ profit margins that exceeded 30 cents per gallon. The money from the tax would then have been returned to taxpayers via rebates.

Newsom did not comment on that proposal when it was introduced in March, and lawmakers quickly shelved it. It could, however, act as a blueprint for the new proposal being negotiated between Newsom and legislative leaders.

The Legislature’s top two leaders — Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon — said in a joint statement that lawmakers “will continue to examine all other options to help consumers.”

“A solution that takes excessive profits out of the hands of oil corporations and puts money back into the hands of consumers deserves strong consideration by the Legislature,” they said. “We look forward to examining the Governor’s detailed proposal when we receive it.”

California Republicans — who do not control enough seats to influence policy decisions in the Legislature — have called the tax “foolhardy.”

“Who here thinks that another tax is going to bring down your gas prices? Is going to bring down any costs in this state? It’s not going to happen,” Assembly Republican Leader James Gallagher told reporters on Wednesday.

Last month, regulators at the California Energy Commission wrote a letter to five oil refiners — Chevron, Marathon Petroleum, PBF Energy, Phillips 66 and Valero — demanding an explanation for why gas prices jumped 84 cents over a 10-day period even as oil prices fell. The commission wrote that the oil industry had “not provided an adequate and transparent explanation for this price spike, which is causing real economic hardship to millions of Californians.”

On Friday, Scott Folwarkow, Valero’s vice president for state government affairs, responded that “California is the most expensive operating environment in the country and a very hostile regulatory environment for refining.” He said that has caused refineries to close and tightened supply because California requires refineries to produce a specific fuel blend.

He declined to provide details about the company’s operations based on the same anti-trust concerns. But he said the company makes appropriate arrangements to source supply when some refineries are down for maintenance.

Newsom dismissed those arguments, saying that still doesn’t account for a $2.50 difference between California’s gas prices and those in the rest of the country.

“These guys are playing us for fools. They have for decades,” Newsom said.

The California Legislature usually meets between January and August, where they consider bills on a variety of topics. The governor has the power to call a special legislative session at any time by issuing a proclamation. When convened in a special session, lawmakers can only consider the issues mentioned in that proclamation.

The last time a California governor called a special legislative session was in 2015, when then-Gov. Jerry Brown asked lawmakers to pass bills about health care and transportation.

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October 7, 2022